Q4 2022 Criteo SA Earnings Call
Speaker 3: Good morning and welcome to Critio's fourth quarter and fiscal year, 2022, earnings call. All participants will be enlisting only mode.
Speaker 4: Should you need assistance please ask the start key followed by Z-Rail. After the prepared remarks there will be an opportunity to ask questions.
Speaker 5: To ask a question, please press star then 1.
Speaker 6: To withdraw your question, please press star then 2.
Speaker 7: Please note this event is being recorded.
Speaker 8: I would now like to turn the conference over to Melanie Danbury, head of industrial relations. Please go ahead.
Speaker 9: Good morning everyone and welcome to Cridale's 4th quarter runs fiscal year 2022 earnings board.
Speaker 10: Joining us on the call today, Chief Executive Officer Megan Clarken and Chief Financial Officer Sarek Lichtman are going to share some prepared remarks.
Speaker 11: Some persons or chief product officer will join us for the Q&A session.
Speaker 12: As usual, you will find our investor presentation on our investor relations website, as well as our prepared remarks and transcript after the course.
Speaker 13: Before we get started, I would like to remind you that our remarks will include forward-looking statements which reflect clear judgment, assumptions, and energies on the other today. Our actual results may differ materially from current expectations based on a number of factors affecting clear business.
Speaker 14: except as required by law. We do not undertake any obligation to update any forward-looking statements discussed today.
Speaker 15: For more information, please refer to the risk factors discussed in our earnings release, as well as our most recent forms 10-K and 10-Q filed with the SEC. We will also discuss non-GAAP measures of our performance. Definitions and reconciliation to the most directly comparable GAAP metrics are included in our earnings release published today.
Speaker 16: Finally, unless otherwise stated, all worse comparison may be made during this court or against the same period in prior years. With that, let me now head it over to Megan.
Speaker 17: Thanks Melanie and good morning everyone.
Speaker 18: It's been a few months now since we saw many of you at our invest today. The event gave us the opportunity to unpack our business, share more about the growth opportunity in front of us, and demonstrate how we've erased our business from a third-party cookie-diffication challenges facing the industry.
Speaker 19: I want to thank everyone who attended and for those who weren't able to attend and point you towards the webcast materials available on the investor section of our website.
Speaker 20: And now on guest today we explain the comments media opportunity that we're focused on.
Speaker 21: Commerce Media is the fastest growing media channel today and an opportunity that Criteo is poised to capture.
Speaker 22: Today we're recognized as a clear leader in comments media and we believe we're in a unique position to leave this next wave of digital advertising.
Speaker 23: Credo is the commerce media platform for the open internet and the obvious choice to complement Amazon for brands looking to advertise to consumers at the digital point of sale across multiple retail media networks.
Speaker 24: As we explained during our best-of-day event, retailers have been early adopters of comments media and they refer to this as retail media.
Speaker 25: They're setting the scene with their logged in first party data, their quality shopper audiences, along with our ability to provide real time closed loop measurement, brands and moving ad budgets rapidly in their direction.
Speaker 26: And retail media is expected to catch you $1.5 digital ad dollars by next year.
Speaker 27: The first mover advantage would build around retail media. The retail network that it creates in the scale of valuable comments audiences we can deliver to brands and agencies form the foundation of our strategy. Meaning to reach comments audiences across the open internet is only possible.
Speaker 28: with access to shopping data at scale, which comes with deep integrations and trusted relationships with retailers.
Speaker 29: Retail media is a powerful growth engine for us, and our focus now is to accelerate.
Speaker 30: Over the past year we've grown our client footprint to 175 retailers.
Speaker 31: and close to 1800 brands.
Speaker 32: No other player matches that footprint. We've only just begun.
within the new retailer verticals, including delivery services and new geography foods, particularly an APAC.
We're winning new clients at a record pace because we offer one integrated self-service platform for all ad formats and demand sources allowing retailers to manage their entire family to be a business at Skittle.
Over the past three months alone with one renewed for Expanded Our Partnership.
with half of the top 10 US retailers.
We continue to build long-term relationships with our retailer clients as evidence by our multi-year partnership of targets around L3-Ton Media Network. We're proud to plan an increasingly important role in their overall growth strategy.
We also expanded the scope of our partnership with Walmart to include multiple ad formats onsite and offsite in Mexico.
Importantly, several large retailers, including Lowe's, recently dropped other providers to work with Critio exclusively as they continue to scale their retail media networks and look to our capabilities to help them to accelerate.
In Q4 we also want new contracts with the meeting US and European retailers and the grocery, egg retail and how some beauty sectors.
In addition, we won our fourth retailer in Japan.
where we're actively capitalising on cross-selling opportunities.
This momentum has carried into 2023 and we look forward to announcing some of our most recent exciting ones more formally over the coming weeks.
Our success is evidence of our superior offering.
Our clients continue to inform our product roadmap as we're evolving our capabilities and lock step for their needs.
Our number one priority is to win with retailers.
to bring the best retail media solutions to them, and to expand our leading position in retail media enablement, and the acquisition of comments audiences, the highest quality audiences on the internet.
With retailers representing the large majority of our business,
We have significant potential for growth within our existing client base alone.
We have the potential to triple our retail media footprint.
by extending our retail media monetization solutions to our largest retail appliance that currently only use us for performance marketing capabilities today.
As those retailers extend into retail media, our platform is there for them.
With our unique access to commerce data at scale, deep integration with retailers, differentiated technology, our world class team and R&D powerhouse.
We've created a competitive differentiator in our business and in light of our growing momentum
We've now taken actions to accelerate our plans by shifting more highly experienced engineering resources.
doubling the size of our existing team, to concentrate on the rapid deployment and scale of our commerce max demand-side platform, or DSP, and to continue to bring more features and capabilities to market faster for our retail media clients.
This includes leveraging our advanced commerce focus AI, South Secret Source, to drive powerful performance capabilities across retail media.
Our goal is to help retailers take further advantage of their media opportunity and to solidify our leadership position for years to come.
We have one of the largest concentrations of R&D talent in the Edtick industry, aside from the Walgarden platforms, and we're continuously focused on ensuring proper resource and investment allocation to our priority growth areas.
Thanks to our efforts to pivot our business towards these high growth areas, we ended the year with non-targeting solutions, sorry, non-retargeting solutions representing now close to half of our business in Q4 compared to 32% a year ago.
This is an important milestone in our transformation and in line with what we said that we do.
We're ready to take credit to the next level and unlock further our massive $110 billion market opportunity.
Now let me highlight some of the 2022 achievements which puts us in a favourable position to gain share in 2023 and well into the future.
What we've called our Sabu ratio remains extremely high.
It shows how resilient we are and how much we can accomplish despite the challenging macroeconomic and geopolitical backdrop.
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We're delivering on the promise of the comments media fight on.
We unveiled the full suite of Commerce Media Platform Solutions and we soft-launched our Commerce Max DSP.
Where our retail media and programmatic capabilities converge.
HOMMISHMEX is a game changer for brands and agencies.
It gives them one entry point to access premium retail media inventory onsite and open internet supply offsite with closed loop measurement while leveraging unique first party audiences built on real shopping behaviours.
Retailers are excited to adopt comments meant to increase their revenue and you're in traffic.
With Commerce Max they can best monetize on-site inventory and their valuable first-party data for on-site and off-site targeting and bring more shoppers to their sites. This creates a powerful flywheel between brands and retailers.
else successful market test
show that integrated on-site and off-site campaigns and comments max.
As a true full final strategy, more than doubled conversion rates compared to on-site campaigns alone.
and drove an increase of close to 60% in revenue per shopper targeted during the campaign.
Our ambition is to become the commerce media DSP of choice for agencies and brands.
And the feedback we've received today gives us confidence and our ability to gain share.
Overall, our full-futile platform value proposition is increasingly resonating with the market.
Today 35% of our line of clients use more than one credit-owned solution compared to 32% in year ago.
We expect to continue to benefit from our integrated go-to-market strategy and increasing traction and upselling and cross-selling our solutions to existing clients.
This is especially true for Commerce Growth, our product line offering targeting and retagling capabilities to acquire and retain consumers.
With comments, growth.
Our business is evolving to capture incremental budgets and service an increasing number of clients in the easiest and most effective manner.
Our unique ability to reach valuable commerce audiences at scale makes us an obvious choice and market is looking to draw its sales.
Our AI engine leverages a combination of consumer interest and textual data and billions of purchasing events to engage in market shoppers and maximise advertising performance.
Among others, Skyscanner now uses our suite of always-on acquisition and retention solutions to optimize how they engage with customers across the entire buyer journey.
Full final activation with Skyscanner has more than tripled the media's been with us year over year, with new targeting or acquisition solutions now representing 30% of their investment.
This is the comet's meteor effect.
Our strategic partnership with Shopify also exemplifies how we intend to scale our solutions.
We're part of the Shopify Plus Technology Partner Program and Certify that program, which simplifies and automates Shopify's emergency ability to leverage our acquisition and retention solutions.
We saw a 36% increase in the number of new Shopify merchants using Credio in 2022 compared to the number of merchants we added in 2021. We expect to continue to onboard more merchants and scale our partnership as we further enhance our sales service capabilities over the coming quarters.
Shopify is a great partner of ours and we continue to explore growth opportunities with them.
Second, our high safety ratio applies to our growing agency relationships.
Agency's drove about two-thirds of our growth media spend in 2022, excluding IPON web.
34% of our media spend is now activated through agencies compared to 29% a year ago.
In addition to our global strategic partnership with Group Ham,
We're excited to have signed the three-year partnership with another major holding agency in the US.
to accelerate the demands of our retail media and commerce audiences.
In addition, we're very pleased to have renewed and extended our global deal with Essential and its world class e-commerce businesses with a multi-year commitment.
As part of our partnership, Essentials advertising partners can now access advanced commerce insights and analytics in real time, greatly enhancing their ability to drive performance.
These agreements with major agencies reinforced our positioning as a comments media platform or comments media partner choice.
And we believe that further reduction of our multiple solutions has speed in its scale.
In addition, we're pleased with the traction of our independent agency programs.
which is being rolled out. The program certifies and incentivizes independent agencies to offer our acquisition retention solution to their advertising clients.
Third, we successfully completed the acquisition of Iponweb and we're rapidly integrating that business.
On the demand side, we're fully integrated with iPhone web's big core DSP into promise max.
On the supply side, we've quickly integrated our respective teams, centralized our product roadmap and unified our promotion strategies.
We've already merged our publisher footprint bringing more high quality inventory for our demand partners and more value for our publishers.
combined with the iPod Web.
We added 150 new publishers in 2022 and we now have direct relationships with approximately 75% of the top 100 POMScore publishers.
in our largest markets, which we believe is instrumental in extending our first party data integrations.
We're well in our way to realize our Commerce Media platform ambitions and we've de-risked our business away from third-party signal deputation.
We're proud that our efforts are being recognised as we were recently named one of the hottest ad tech companies by Insider.
We're also one of the few companies partnering closely with Google as part of the privacy sandbox.
We're not only collaborating with Google to encourage the Sandbox API, but we'll also be working together to develop the specific use cases that we can run to our clients.
This puts us in pole position to deliver superior performance in the market when Google deprecates third-party cookies.
As we enter 2023, we believe we're best positioned to lead the market.
At the core of our strategy, retail media remains a non-cyclical growth spot.
are merely benefiting from trademarking budgets shifting online to address consumers as a digital point sale.
In addition, we expect commerce audiences to continue to outpost the market as they remain the most valuable audiences to brands.
We have an exciting path ahead of us and we'll leave a focus on execution and capitalise on our significant long-term growth opportunities.
We have a highly experienced senior leadership student who are firing on all cylinders to achieve our ambitions. Our team has weathers and successfully navigated various economic cycles.
I'm confident in our ability to deliver on our plans.
Now let me provide a brief update on the latest trends we're seeing in the macroeconomic environment and our actions to adapt to this environment.
And then as anticipated, we saw a more condensed holiday season in the fourth quarter compared to last year.
As we enter 2023 our conversations with CMOs indicate delays in ad budgeting processes due to uncertainties regarding how inflation and interest rates will impact consumers this year. But marketers are not blindly cutting budgets.
Add budgets are no more scrutiny forcing clients to optimize this thing.
According to a recent survey we conducted across the US and Europe , nearly two-thirds of senior media agency professionals believe newer digital channels like retail media will deliver a greater return on investment than social or social social.
our commerce media platform and our focus on performance position us to meet that need.
Despite overall budget tightening, we continue to benefit from robust new business trends and high-client retention close to 90%.
Importantly, we're focused on profitable growth and aligning our cost structure with our top line in a slower growth economy.
We believe this will allow us to emerge even stronger once economy and economic uncertainty subsides.
As part of our ongoing transformation, we're highly focused on allocating our resources to our growth areas.
and we have and will continue to take actions to right side of our cross space.
While there is lower visibility on near-term trends, the long-term opportunity for Creo will Oman's impact.
The macroeconomic environment changed significantly over the past 12 months, but our strategy has not. We've laid the foundation for the future and we're on our path to achieve our business ambitions.
which we laid out to now in best of day.
We've built incredible momentum that we expect will only continue in 2023 and beyond to drive long-term shareholder value. With that, I'll turn the call over to Sarah who will provide more details on our financial results and outlook.
Thank you, Megan, and good morning, everyone.
We continue to execute in a choppy environment, but we have a consistent track record of profitable growth and high free cash flow conversions, coupled with a strong balance sheet and no debt. We continue to execute in a choppy environment, but we have a consistent track record of profitable growth and high free cash flow conversions, coupled with a strong balance sheet and no
Starting with our financial highlights of 2022.
Revenue was $2 billion and contribution tax grew by 10% at Coxton Provincy to $928 million.
As anticipated, this includes $60 million of incremental signal loss impact.
This performance was despite significant headwind from FX and the wind down of operations in Russia.
In retail media, revenue was $202 million and contribution ex-Tech was $161 million. Up 33% year over year as we continue to rapidly expand with our retailers.
In marketing solutions, revenue was $1.8 billion and contribution tax with $750 million with commerce audiences up 26% at constant currency of setting low-re retargeting.
We delivered an adjusted EBITDA margin of 29% including planned growth investments and the dilution from our IPON web acquisition.
We also delivered record free cash flow of $200 million and an adjusted EPS of $2.76 including five months of contribution from iPod Web.
Turning to our fourth quarter performance.
Revenue was $564 million and contribution tax tax was $283 million.
This includes a year-over-year headwind from weaker foreign currencies of $21 million.
At constant currency, Q4 contribution extract grew by 10.4% on top of strong performance with 11% growth in Q4 2020-1.
This includes organic contribution X-tag down to minus 2% and the contribution from Ipone Web. This includes organic contribution X-tag down to minus 2% and the contribution from Ipone
Our organic performance was driven by marketing solutions down 7% year over year with lower retargeting down 13% and commerce audiences up 22%.
This was partially offset by robust growth in retail media up 23%.
As expected, we continue to see a top-line shift away from legacy retargeting.
Retail media, commerce audiences and IPON web combined represented 47% of contribution extract in our fourth quarter up from 41% in Q3 and up from 32% in Q4 last year.
Turning to our business segment, in retail media revenue was $60 million and contribution tax grew 23% at constant currency to $57 million on top of strong growth last year.
Our growth was primarily driven by our client base in the US, the UK and Germany, partially offset by frogs.
Growth from existing clients remains strong with same retailer contribution extract retention at 122% and we continue to scale by adding new retailers.
We on-boarded 150 more brands in 24 and saw increasing traction with our agency partners.
Our 1800 global brands are prioritizing retail media as a key channel for their investment, a trend we expect to continue.
While there is caution on release of budgets overall, we see strong spend in health and beauty with lower spend for grocery.
In marketing solutions, revenue was $471 million and contribution ex-tech was $193 million with strong growth in commerce audiences offset by lower retargeting. Retargeting was down 13% year over year or down 7% when excluded.
in December , while EMEA was softer during the Black Friday weekend with improving trends in December .
Across all regions retail spend especially fashion and department stores with soft while travel remains strong.
We delivered strong growth in commerce audiences as Clyde's transition to always on audience strategies to acquire and retain customers with new business. And cross selling across over 20,000 retailers and performance marketers.
IPON Web was flatness quarter of a standalone basis, reflecting strong growth for our supply side platform or SSP offset by soft and media trading trends and traffic, particularly in December .
We delivered an adjusted EBITDA of $104 million in Q4 2022.
non-GAAP operating expenses increased 2%, including targeted growth investment in sales, R&D, and product talent, partially offset by cost reduction actions as we reduced discretionary spending and paused most hires.
We benefit from lower bad debt expense as a result of strong cash collections.
Moving down the P&L, depreciation and advertising increased 26% in Q4 2022 and share-based compensation expense increased to $22 million, including $11 million related to treasury shares granted to iPod Web founder as part of the acquisition.
Our income from operations was $49 million and our net income was $16 million in Q4 2022.
Our weighted average diluted share count was 61.9 million.
This resulted in diluted earning for share of 25 cents and adjusted diluted EPS of 84 cents in Q4 2022.
We cancelled a total of 2.6 million shares in 2022.
In an uncertain macro environment, we've benefited from a strong financial position with solid cash generation and no long-term debt.
We had about $835 million in total liquidity as at the end of December , which gives us significant financial flexibility to execute on our growth and capital allocation strategy.
The primary goal of our capital aduscation is to invest in high ROI organic investment and value enhancing acquisition.
and to return capital to shareholders via our Share Buy Back program.
In 2022, really purchased 5.1 million shares at an average cost of $26.40 per share.
In December of all of directors authorised an extension of our share repurchase program from $280 million to $480 million.
This demonstrates our confidence in our business strategy, financial strength and our ongoing commitment to enhance shareholder value.
Turning to our financial outlook which reflects our expectations as of today, February 8, 2023.
We remain cautious given the level of visibility on near-term trends and the volatile advertising environment.
For 2023, we expect contribution X-TAC to grow high single-digit to low double-digit year-over-year at constant currency.
This assumes low single-digit organic growth and the four-year impact from our acquisition of ICON Web.
We expect stronger organic growth later in the year as we move our Commerce Max DSP to general availability and scale newly signed retailer partnerships.
We expect Contribution X tech growth of approximately 30% for retail media as we anticipate further share gains and higher than the anticipated industry growth rate.
For commerce audiences, we expect contribution tax on approximately 20% as advertisers continue to shift more budget.
For IPONWED, Q1 and Q2 are seasonally low quarters in terms of contribution exact, adjusted and cash contribution while Q4 is the strongest quarter.
We will be closely monitoring market conditions and expect to provide updates as we progress through 2023.
As part of our ongoing transformation, we are disciplined in strategically allocating our resources to higher growth areas while enabling productivity and cost efficiencies.
We are executing on and contemplating cost actions that we expect to deliver total annualized savings of approximately 10% of our total cost base, or more than $60 million, while ensuring ROI investments for executing on our strategy.
Given the slower macro environment and lower retargeting, actions have already been taken with hiring freebies and reduction of external spend. Along with the rapid integration of iPhone Web, we continue to right-side our organisations and optimise our operating model.
This focus is to enable speed of new products to market and effective deliveries for our raw client base. Overall we anticipate an adjusted EBITDA margin of approximately 28% for 2023 in line with what we shared as our investor date.
and including about 200 basis points of dilution from I have played on with.
This includes the increase cost due to the full year impact of the IPON Web business.
We expect to realise cost efficiencies over the course of the year largely offsetting wage inflation and the underlies impacts of our 2022 growth investment.
We expect the normalized tax rate of 28% to 30% and we expect capex of about $90 million related to the planned renewals of our data centres as we transition to a more cost and energy efficient data centre architecture.
and we expect free cash code to flow the conversion rate of about 45% of the drop-to-dead adult. For modeling purposes we assume a flat number of shares outstanding in 2023.
The Q1 2023, we continue to be cautious given the impact of a slow-up macro environment on consumers, applies, and more conservative ad budgets.
Fend from large retailers and brands was lower in December and this continued through their fiscal year end in January .
While only days were encouraged by new budget unlocks in February .
Overall, we expect Q1 contribution extract of $210 million to $216 million grown by 5% to 77% in constant currency.
This assumes a major single digit organic decline and iPhone web inorganic growth in a seasonly low quarter.
As a reminder, this lapsed a tough comp in Q1 2022 and includes the impact of the suspension of our Russia operations in late March 2022, impacting our growth by about 2% points.
Importantly, we expect retail media to continue to show growth despite the challenging macro environment.
We estimate four exchanges to drive a negative year-over-year impact of about $15 million to $20 million on contribution expat in Q1. We expect adjusted EBITDA between $30 million and $32 million reflecting low Q1 seasonality.
In closing, as a leader in comments and retail media, we believe we are well positioned to deliver on our plans for growth, resilience performance, healthy profitability and strong cash generation to drive shareholder value in 2023 and beyond.
One comment before we begin Q&A.
You may have seen recent speculation in the media related to a potential transaction involving Critio.
As a matter of policy, we do not discuss rumors or speculation and we will make no further comments on this. We do not discuss rumors or speculation and we will make no further comments on this.
And with that, I will open up the call for questions.
Operator.
We will now begin the question and answer session. To ask it question, please press star then one.
If you are using a speakerphone, please pick up your handset before pressing the keys.
To withdraw your question, please press star then 2.
At this time we will pause momentarily to assemble our roster.
An our first question will come from Yagel, Aronnie of City. Please go ahead.
Okay, good morning, everyone. Thanks for taking the questions, I guess. A couple of retail media questions. Maybe first, I'm looking at the guidance for the year, where 2022 ended up, and the guidance for the year is about 30% growth, and looking at your...
the targets you set at the investor day which are a little bit higher, 45 to 50%, and understanding the effects this year and the macro challenges, but can you help us bridge how we get there and some improvements in 30% of the targets that you set.
at the investor day. And then, you know, the second may be going into a little bit more detail.
We'd love to understand, maybe the Lowe's news this quarter was a good example of some in-housing that happened at Lowe's with that announcement. You know, it sounds like you want some business from a competitor that they were working with as well.
I just hope understand the puts and takes kind of what happened there, what those trends mean, you know, why, why video took share, you know, kind of in that situation and to help tie that into the growth that you're expecting from retail media.
So good morning. I can take the first question. So we are very confident in our ambition that we set forth in the investor day that included $1.4 billion in contribution to x-tech and trickling the retail media business.
For us that long-term act of opportunity for CREO remains intact and the $110 billion firm, which includes 42 billion for retail media alone, still remains intact. What we've done is we've laid the foundation for the future.
We have phenomenal winds and we continue to game show it. In an area where the secular trends is to transition and move.
advertising dollars, including trade advertising dollars, over to retail media. So the guidance that we've given in 2023 is based on what we're seeing right now, which is some lower traffic overall, more conservative budgets.
But we anticipate that that will be temporary in terms of the continuing advertising recession, if you will, in 2023. And that will continue to progress to more spend coming through the Commerce Max DSP as it comes to general availability.
the summer. So that's the way that we've modeled our 2023 expectations and we continue to win new logos, we continue to drive much more business including new formats through our retail media business and we anticipate that we'll continue to be absolutely on track.
be part of their future and the fact that they dropped other partners to work with us is testament to the work that we do with them, the performance that we generate for them, and the technology that we provide. They have increased internally their teams that manage the selling, the sales to their brands. You can imagine they have a sales force already.
they have increased that to account for the growth in sales, anticipate from retail media and that we should expect from you know any large retailers that as retail media gets bigger for them or Credo provides the technology and a portion of the sales they have an internal sales team and they have other
Yeah, thanks Megan. I think what's important to emphasize here is that as these larger retail partners that we have are building entire businesses, we're helping them two ways. Obviously, what Megan said is really important. We're able to help them drive demand, not just be a technology partner.
From a peer technology perspective, we start with sponsored products, which is of course at the core of our retail media solution. But we've done a ton of innovation that goes beyond that that helps close and other large partners see monetization growing for years. What we're doing with Offside is a really good example.
of that. And we're also doing a lot of product innovation with on-site formats and connecting the dots between these three areas in such a way that large retail partners can get performance from their networks. I think everybody on the call knows that our company is a performance company through and through from the start.
So when we think about these things from a product perspective, we're not just rolling new features for those, but we're making sure they work better together. So they can grow revenue.
Thank you so much. That was really helpful.
Next question comes from Mark Killay of Steve Valls.
Great. Good morning. Thank you very much. Can we just maybe go through, you know, just the current environment? I think, you know, Q4 came in a bit better than you were expecting. You know, and I appreciate the comments about December kind of tracking weaker and that's tearing through to January .
But can you maybe just describe how your conversations go with your agency partners and brands? Is it, you know, they're not giving you enough visibility kind of when you start the quarter, but as the quarter progresses, you know, the conversation just get a little bit more solid and budgets.
end up coming through, it's more of just like a wait and see, is that the kind of the dynamics you're seeing, just bigger picture, that's the first one. And then on the second, my second question is just on the retail media side, you know I would imagine that in this environment, you know budgets would shift more towards retail media but...
Sarah, to your point, traffic is down a bit with consumers perhaps pulling back a little bit. I guess those dynamics I assume get us to the 30% growth for the year. And is a key driver just more eyeballs on retailers' websites? Is that the main driver that would kind of reaccelerate that growth? Thank you.
Yeah, hi Mark. I mean I think just a couple of comments here. First of all, you know, when we look at retail media we're talking about 33% year-over-year and then that was 23% Q422, that was an incredibly tough cost as well from the year before. What we're seeing in the discussion...
is the retainers, most of their year end of January . So typically we saw this last year as well. The outlook tends to be more around this time frame in February . The conversations are all very good conversations and the conversations with brands have been incredible. Brands absolutely want to ship more dollars over to retail media, but there is an overall caution.
So I would say we feel very, very good about the discussions we have in. We feel it's fantastic about our agency partnerships as well, and Megan mentioned we just signed a new...
US-Hulkhoe deal as well. 34% of the media spend is coming from agencies.
So when we look at our large retailers, even if they have ground teams.
Yeah, like Lowe's for example has a large brand team All the smaller brands and the tail is coming to us and for the most part when we look across our network of 175 retailers Brands brands with the agencies want to unlock that spend across our entire network So we're seeing this win-win know in some cases. We do everything for the retailer
and we do it incredibly well, we get fantastic performance. In other customers, we're more of the tech that enables all of that, so we've benefited from what Todd talked about in terms of additional capabilities. And we're super excited as are our customers who are co-creating with us, the Commerce, Max, DSP. We just did a design sprint last week, and we got input from them at the beginning.
bit and comments me get space.
Thank you very much.
The next question comes from Matthew Kost, oh, Morgan Stanley . Please go ahead. Good morning, everyone. Thanks for taking the questions. I'm just wondering if you could provide an update on Commerce Max and some of the keygating factors you're working through there to bring it to general availability later this year. Thank you.
and sort of areas of strength and things you think still need to be improved in order to get to that point. And then in terms of just the full offering that you have at the company right now, obviously you brought in iPod web. You've used M&A as a tool to expand the capabilities of the company leaving aside any specific rumors. Look at the offering that you have right now.
the company. Are there specific capabilities that you think would be really additive that you're focused on bringing in, whether that's building them organically, buying them, or partnering to have them? Thanks so much.
So, you can take that. I can take that. Thank you, Matt. So, a couple of things here that you touched on. And it's first important to say that it's our goal to become the commerce media DSP of choice for agencies and brands alike.
So, everything that we build product-wise is really driven by that ambition. In terms of actually connecting the dots of that ambition to Commerce Max, which I think we said we expect BGA on around summertime, and that we've also been notching some great wins in touch.
media that has become a bigger and bigger problem as the market develops. And we have the ability to solve that problem for our partners. Number two, I think going back to the performance topic that we hit on earlier.
Because we're able to unify planning and buying across the network, we're also able to apply our legacy performance capabilities in new ways to help those agencies actually get performance for their brand partners and to help our retailers monetize more effectively as we said with Lowe's.
So there are two things that I just would say you should take away. And one is planning and buying more effectively across the network as a team in MAX. And the second is making sure that those plans and those buys not only can be metered in a closed loop, but that they perform well for both partners, both demand and supply side partners.
Great. Thank you so much. You bet.pp Thank you forIVEN
The next question comes from Richard Kramer of Arete Research. Please go ahead.
Thanks very much. Megan, one for you. If we saw 2022 as sort of a year of integration and product launches and you've obviously flagged the software first half and ad spend, which we also see, but do you see 23 as a need to be a year of sales execution? And to make sure you monetize all the retailer inventory and keep up retargeting and so forth. And if that's the case.
Can you maybe rank what are the channels you're looking for for growth, whether it's faster growth from the agencies, from retailer activations, from Shopify merchants? It'd be good to get a sense of where you see that the growth resuming and coming from. Maybe a quick one for Sarah. You mentioned the cost cuts, but given the cash balance you've got, what speaks against sort of...
sustaining the investment in R&D and product development given the pipeline you've got and making sure that that doesn't slip in terms of time scale. Thanks. Hi, Richard. Thanks for the question. In terms of, you know, 2022 being integration, I don't think 2023 is about acceleration. Is that we see the window of opportunity right now.
So as I said in the opening comments, the shifting of more talent, doubling the size of our retail media team is front and center for us to do that right now. So there's an acceleration there. There's also an acceleration in terms of our go-to-market.
around retailers. So really making sure that we're, as we said before, that we've just one or renewed or deep in relationships with five of the top US retailers is just the sort of activity that you see us doing. So really focusing on the retailers.
And then a strategic focus on the brands and the agencies really centered on lighting up Commerce Max. And Commerce Max is one of our acceleration efforts through the first half of this year because Commerce Max is where all of the retail media networks come together.
the transformation started when I joined the company it continues from a single point solution company to a multi-solution platform that provides commerce media technologies and capabilities and we need to continue that transformation through this year through next year and probably the year after.
This year is the year of acceleration. This is our time. Hey, I'm just before I get to the R&D question, and just on Shopify, we increased the number of Shopify merchants by 36% in 2022 compared to 2021. And we're kind of about over the beginning of that.
So we feel very good about the continuous focus on Shopify and Shopify-like clients. So that's another big area of capability and focus for us. For products in R&D, the first thing I'll talk about is the...
the incredible interlocks that we do between our commercial teams, product teams and R&D. It's one process and it's focused on where the ROI is and where the dollars are. So that has been, I would say, an unlock in 2022, especially with Rye and Donald Dermott, as well as the I-
those areas. We just announced a senior new hire in our product team. We've got incredible talent across the board in R&D which is obviously now being turbocharged along with the iPod web team as well. So it's a powerhouse. What we need to do is ensure that we continue to invest in that to unlock
more capability faster and to continue to drive performance. So it's not a massive increase in investment that we need. It's ensuring that a powerhouse of 975 engineers in our company are really driving to ensure that they deliver not only for existing clients, but for the new areas that we're focused on.
Okay thanks don't think talks talk with anyone because we can't bring this.
The next question comes from Matthew Thornton of Truist. Please go ahead.
Yeah, hi, good morning everyone. Maybe an easy one for Sarah, and then one for, I'm not sure if it's for Megan or Sarah. Megan, data privacy headwind, I think you called out, sorry if I heard this wrong, 10 million in 4Q, so I'm not sure I heard that. And for 23, what are you assuming there?
And then secondly, again, it's kind of coming back and thinking about 23 and the linearity of the year. And my question here is, obviously, coms will ease as we get through the year. But how are you thinking about macro? Are you assuming macro conditions hold throughout the year? Do you feel like that guy is sufficiently conservative given that backdrop? And...
and somewhat related to the prior question, what are the biggest upside potential drivers for you that we should be honed in on? Is it Commerce Max, is it the Meta partnership, is it Shopify, is it other, you are in our shoes, what should we be really looking at as potential upside drivers for 23? Thanks.
Yes, so first of all, on the signal law, we had $60 million in 2022, of which 10 million related to Q4. That was largely for the Firefox and the Samsung of Raleas as well as some explicit consent. We're expecting about 10 million dollars for 2023 and a number of other students and we weren't being in a track.
that we've taken. I mean, we're working day in day out with our mortgages and our retailers. And they're cautious about spend. So we're assuming that there'll be growth in the second half as we've got tough coms in Q1 and Q2.
We're expecting the continuation of growth and we're expecting with the new capabilities that will ramp up in Q3, Q4. We're also an incredibly seasonal business and especially with the iPhone web coming in as well that seasonality is a little bit more focused. So Q1 and Q2 will continue to see...
a slower growth environment with the macro and we anticipate Q3 and Q4 with new features but also with just the tailwind of the secular trends of retail media and the highest seasonal patterns that we have been in fashioning Q4.
that that will be where we see the growth drivers. So most of that is very similar to what we've seen in past years. And of course there's been a lot of discussions in industry around the reversion, particularly the more classic hand pre-covid shopping. That being said online traffic
from a retail media perspective continued wins and actually more usage from those networks is something that we think a tremendous amount about because what the knock on effect of that of course is that we get the unlocks, the revenue unlocks and the long term growth that retail media as an opportunity overall provides. Okay.
So for now, the idea of getting more adoption is really important. You mentioned meta. I want to be really clear about that. There are great opportunities with meta to add scaled reach and possibly performance. We don't know as we go through or learning and experimenting with meta as a partner.
but to provide scale reach hopefully with performance to our retail media partners.
So when you think about something like meta, I would say two things. One is it's the biggest, world's biggest log-in audience. And with that, you know, that prevent, that provide the time of scale for us to use. But especially as an extension of the work that we're doing with our retail partners, it also adds to what we're doing, wish-opified customers and our performance business, as we've talked about before.
So I think you're talking about two different parts of the business there. Shopify, you're talking about our core business from buyer. Meta, you're talking about a more than just a supplement, but something you can really add and accelerate our retail business of the future. So there are two things there. Hopefully that helps.
Great, that's helpful. I'll jump back in the queue. Thanks everyone.
The next question comes from .nmf.jp Morgan.
Yeah, hi, this is Katie on for Doug. Thanks for taking the questions. Just a quick one on AI. It's obviously beginning a lot of attention the past couple of months. So can you just talk a little bit more about the ways in which critos as staff is already leveraging AI capabilities?
And from an investment standpoint, is this a priority area for you guys? And how can you just better utilize some of these AI solutions going forward? And then secondly, just want to talk about CTD a little bit. In your recent partnership with Madnite, can you just discuss some of the capabilities there, and how can you leverage your existing ad solutions to augment your CTD offering?
Just like, what are you embedding from this channel in your Outlook for 2023? Thanks.
Thanks Heidi. And Todd's scratching. Well the reason I'm scratching is because you know that CHA2D, GPT, you know LANDe coming and so forth have really helped people understand better what Criteo has done with predictions using AI for years.
So, this is the first time that we can really provide in-market examples that people understand about what we've been really good at, which is making a prediction about how a consumer is likely to choose a brand and buy something. Okay, so it's just important to say that the new libraries and the new applications that are out there.
are things that we have a very good understanding with and we look to incorporate stable diffusion as a good example of something we've been doing internally with damages for a while. Obviously, you know, those applications are all only as good.
as the underlying collections of data that they read. And what's an important takeaway here is that our access to commerce data, which is not in the public domain, is something that we use for making those productions. So, yes, AI is coming into public sector and flopping on top of text.
Oh, yeah, the magnetic relationship. We're excited about the magnetic relationship first off Because it gives us a great deal of scale to use CTV and experiment with CTV as part of a performance solution for Retailers, so one of the issues for us is that you know CTV has been a little bit slower because it doesn't
one of us might be exposed to a brand for the first time. So I would say we're just opening that space. Magnight gives us scale to do that more quickly. And you'll see more from us as we learn how to make CTP perform for our retail partners.
That's helpful, thanks.
That's helpful, thanks. You bet.
This concludes our question and answer session. I would like to turn the conference back over to Melanie Dambree for any closing remarks.
Thank you, Megan, Sarah and Todd. This now concludes our call for today. Thanks everyone for joining. The IR team is available for any additional requests. We wish you all a great day.
The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.
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