Q3 2024 Criteo SA Earnings Call
Speaker Change: Thank you.
Speaker Change: i
Speaker Change: Good morning and welcome to Creepio's 3rd quarter 2024 earnings call. All participants will be in listen only mode.
Speaker Change: Should you need assistance to express your star followed by zero. After the prepared few more, there will be an opportunity to ask questions.
Speaker Change: To ask a question, please press the star followed by the number one. To withdraw your question, please press the star followed by the number two. Please note this event is being recorded. I would now like to turn a conference over to Melanie Dambre, Vice President of the Investor Relations Peace Go ahead.
Speaker Change: Good morning everyone and welcome to Critdo's Surve Quarter 2021 earnings score.
Melanie Dambre: Joining us on the course today, she's a executive officer of Megan Clarken and she's by an officer Sarah Glickman. I'm going to share some prepared remarks.
Melanie Dambre: Sunstar Suns, or Chiefs High Officer, we join us in the Q&A session.
Melanie Dambre: As usual, you will find our investor presentation on our IR website now as well as our preferred remarks that I transcript after the call.
Melanie Dambre: Before we get started, I would like to remind you that our remarks within conformity statements, which reflect video judgments, assumptions and analysis on the other today. Or actual resource, Medicare, and Ontario, and Ontario, and Ontario expectations based on a number of factors affecting critical business.
Melanie Dambre: Accept that as required by law. We do not undertake any obligations who update any forward-looking statement discussed today.
Melanie Dambre: For more information, please refer to the risk factors discussed in our earnings release as well as our most recent growth in Kate and 1025 with ESC.
Melanie Dambre: We will also discuss non-GAP measures of our performance.
Melanie Dambre: Definitions and reconciliations to the most directly comparable gap metrics are included in our earnings release published today.
Speaker Change: Finally, unless otherwise stated, all growth comparisons made during this call are against the same period in the prior year. With that, let me now hand it over to Megan.
Megan Clarken: Thanks, Melanie, and good morning, everyone. Thank you all for joining us today.
Megan Clarken: Two months ago, I announced my plan to retire from my role as CEO of Criteo.
Megan Clarken: This was a tough decision for me, especially given the positive momentum of our journey and the enjoyment that I find in being part of this winning Criteo team, serving our clients, shareholders and the industry.
Megan Clarken: The new CEO will inherit the transformed, strong and vibrant company with the biggest and brightest future ahead. The board is conducting a thorough search which is progressing well. And meanwhile, I'm fired up and ready to bring you this quarter's update and results.
Megan Clarken: Our ongoing momentum is a testament to our team's hard work, organizational alignment to the plan, and the trust that our clients place in us.
Megan Clarken: I couldn't be prouder of our senior leadership team who continues to be the driving force behind the successful execution of our strategy.
Megan Clarken: Together, we've turned Criteo into a commerce media powerhouse with retail media at the core and cemented our position as a global leader in ad tech.
Megan Clarken: Looking back on our company's transformation over the past five years
Megan Clarken: We've strategically repositioned ourselves for sustainable growth and margin expansion. We're set to achieve new heights as we're on track to deliver our third consecutive year of double-digit growth.
Megan Clarken: over the years and throughout our transformation.
Megan Clarken: We've demonstrated strong resilience and maintained a high say-do ratio. We no longer plant our business around the demise of third-party cookies.
Megan Clarken: We've brought our commerce media platform vision to life, and we're now positioned at the forefront of the changes in our industry, capitalizing on the next wave of digital advertising. We are the leading independent ad tech company for commerce media.
Megan Clarken: and the platform of choice for the buying and selling of commerce media, the fastest growing sector of advertising.
Megan Clarken: We came into the sector foreseeing the seismic shift in the digital landscape and the rise of commerce media, overtaking linear TV and now taking share from search and social media.
Megan Clarken: The most recent quarterly sky data showed growth surging to 28% in retail media in Q3, while paid search growth slowed to 3% and social growth slowed to 5%.
Megan Clarken: The future of commerce media is incredibly exciting.
Megan Clarken: It's fueled by several key trends, the global growth of e-commerce,
Megan Clarken: and consumers engaging with more content and devices than ever before as they shop from discovery through to purchase and beyond.
Megan Clarken: Retailers are looking to capitalize on this by selling advertising on their digital stores, while advertisers are focused on optimizing their spend to increase sales.
Megan Clarken: Today, Prettier operates two growing global segments.
Megan Clarken: Retail Media, and Performance Media.
Megan Clarken: Retail media facilitates the targeting of high-intent shoppers by brands primarily on retailer sites and extending reach across the open web.
Megan Clarken: Performance Media focuses on targeting high-intent shoppers for direct-to-consumer brands primarily on the open web and social platforms.
Megan Clarken: In other words, our solutions have a hyper-focus on addressing or advertising to consumers who are on their buyer journey.
Megan Clarken: Our commerce media platform represents the convergence of these opportunities that Criteo is uniquely positioned to address.
Megan Clarken: With 19 years of commerce-driven AI and rich data from our supply and demand side relationships, we predict outcomes and deliver targeted ads throughout the buyer journey from discovery to purchase.
Megan Clarken: Our vision and platform innovation center around a unified commerce experience.
Megan Clarken: targeting commerce audiences with multi-channel reach.
Megan Clarken: AI-driven optimization and seamless first-party data integration to enhance personalization and improve ad performance.
Megan Clarken: As our platform matures, we introduce capabilities that enhance efficiency and create growth opportunities.
Megan Clarken: One such example is our latest work in automation tools and streamlined workflows to make client setup easier, enhance performance and improve efficiency.
Megan Clarken: We refer to this as Commerce Go. Our next generation tool set allows advertisers to create and launch an optimally configured campaign in as few as five clicks.
Megan Clarken: Clients have reported that setting up campaigns on other services can take 10 times longer than using Criteo's Commerce Go.
Megan Clarken: Our advanced AI streamlines campaign creation and management, and automates decisions and audiences, targeting and ad formats to maximize results.
Megan Clarken: Our recently completed beta testing has shown lower cost-to-serve, lower client churn, and most importantly, an increase in activated media spend with stronger performance. For example,
Megan Clarken: Fashion brand Zarina achieved a 23% increase in ROAS at comparable spending while also benefiting from streamlined campaign setups and activation through Commerce Go.
Megan Clarken: We're excited to keep moving on this path.
Speaker Change: Now, turning to Q3 results, I'm pleased to report that we delivered a strong quarter with robust top-line growth despite tougher year-over-year comparisons, showing our ability to achieve operating leverage as we grow.
Speaker Change: Starting with retail media, we delivered strong growth in the third quarter and continued to gain market share.
Speaker Change: We've successfully doubled both our brand count and activated media spend over the past two years.
Speaker Change: Our brands have increased to 3,100.
Speaker Change: We're seeing continued adoption of Commerce Max by our agencies. Now, as a reminder, this is our Commerce Media demand side platform.
Speaker Change: We achieved another record quarter with over $130 million in agency spend going through Commerce Max in the U.S.
Speaker Change: Holco Agency spends growth accelerated in Q3 compared to Q2 exceeding 60% with three Holcos experiencing triple-digit growth in the U.S.
Speaker Change: This continued increase in demand from brands and agencies remains a critical element of the Criteo flywheel.
Speaker Change: And we're confident in maintaining this growth momentum.
Speaker Change: We recently secured significant new retailer partnerships worldwide.
Speaker Change: In the U.S., we're thrilled to team up with large retailers like JCPenney, expanding our footprint in fashion department stores.
Speaker Change: We're also thrilled to welcome Office Depot and ODP Business Solutions, broadening our presence in the office supply category.
Speaker Change: In Europe, we're proud to work with Metro AG, Flash and Post,
Speaker Change: and Rolick.
Speaker Change: and we added two new retailers in the APAC region.
Speaker Change: These retailers choose Criteo for our global reach, rapid scalability, comprehensive offering, AI-powered performance, and unparalleled sales and product expertise.
Speaker Change: We're also expanding our lead in the commerce media more broadly. We're excited to partner with United Airlines.
Speaker Change: We chose Criteo to help power and scale its off-site monetization.
Speaker Change: Our Promise Grid SSP allows connected media by United Airlines to curate its first party audiences and make them available for broad access through any DSP.
Speaker Change: Costco is another client partnering with Criteo for off-site monetization.
Speaker Change: CrossCode has recently deepened its partnership with us, enabling Criteo to leverage its data to reach existing potential consumers across the open web.
Speaker Change: And while this tactic has been slow in gaining traction in the U.S., it's still very early days and we do see more off-site interest ahead and in other markets.
Speaker Change: We've almost doubled our retail media off-site campaigns in APAC, and we're seeing top brand expansion and significant growth in retailers in India.
Speaker Change: More broadly, our existing retailers continue to trust Criteo with more ad formats and first-party data than ever before.
Speaker Change: more than doubled our number of retailers leveraging our on-site display offering in North America compared to a year ago.
Speaker Change: Using Criteo's display format, these retailers are attracting strong demand as brands typically see a 30% average list and share of sales within two weeks of starting on-site display.
Speaker Change: Incrementality results show a revenue lift per user of 135% from our onsite display campaigns.
Speaker Change: were obsessively focused on performance.
Speaker Change: and we increasingly leverage in-store data to enrich our retail media strategies.
Speaker Change: We've seen a five-fold increase in retailers sharing their in-store sales data with us.
Speaker Change: We match offline customer conversion data.
Speaker Change: with the customer behavior and ad exposure that we see online.
Speaker Change: This contributes to more relevant targeting, better campaign performance, and a seamless shopping experience.
Speaker Change: And we see this move as an important catalyst to the growth of commerce media, bringing alignment between online and in-store advertising performance with closed-loop measurement.
Speaker Change: We also equip brands to fully leverage our measurements and insights to boost sales growth.
Speaker Change: for instance.
Speaker Change: In partnership with Flywheel, Denone's Oikos brand achieved a 21% increase in product page visits, an 18% boost in daily sales, and a 13% overall sales lift on Albertsons.
Speaker Change: Turning to Microsoft.
Speaker Change: We continue to map out our exciting strategic collaboration with Microsoft Advertising, which we'll talk about during our Retail Media Investor Update on November 18th.
Speaker Change: We already expect to transition several retailers to our stack in 2025 across regions, and RFPs for other Microsoft advertising retail media clients are well underway.
Speaker Change: The design of our demand integration and AI collaboration are all progressing.
Speaker Change: More to come.
Speaker Change: Lastly, we're proud of our work and that our leadership in retail media continues to be recognized, including the most recently by a market intelligence firm, IDC, which has named us as a leader in worldwide retail media network service providers.
Speaker Change: turning to performance media.
Speaker Change: Our momentum remains driven by commerce audiences up 30% as we leverage our large-scale commerce data and AI-powered audience modeling technology to find in-market shoppers.
Speaker Change: Today 80% of our media spend is from clients using both commerce audiences and retargeting to reach consumers across the entire buyer journey.
Speaker Change: Our AI innovation is driving our growth and setting the stage for future success. We've unlocked additional budgets across our entire portfolio thanks to our continuous AI-driven performance enhancements.
Speaker Change: We're also leveraging Gen-AI creative technology to enhance product images with AI-generated backgrounds, and tests are showing promising increases in click-through rates.
Speaker Change: Our advertisers are also seeing benefits when they plan, buy and optimize across multiple channels including open web and social. For example, Electrolux achieved a close to three-fold increase in revenue when including Facebook and Instagram for their retargeting campaign.
Speaker Change: They saw a 100% plus increase in click-through rates and were able to lower their cost of sales by 17% within only a month after the activation.
Speaker Change: for us.
Speaker Change: This is just the beginning and part of our strategy to bring commerce recommendations into any environment where consumers are.
Speaker Change: So that ends, we plan to integrate with more social environments and to continuously make sure that our supply sources are providing access to relevant in-market consumers.
Speaker Change: This comes at a time when we continue to move full steam ahead to shape the future of digital advertising. We believe our AI optimizes across several addressability solutions.
Speaker Change: and the many signals we have access to along the biojourney. As part of our transformation, our focus has shifted from people-based signals to unlocking the full potential of commerce and product-related data.
Speaker Change: Commerce and shopping experiences are truly everywhere across every environment and format and we believe we're able to recognize shopping intent without relying on identity.
Speaker Change: Our deep learning models are taking advantage of product intent signals to recognize patterns
Speaker Change: Shopping Journeys and Touchpoints.
Speaker Change: This approach sets us apart and is more relevant than ever before to drive superior performance in any environment.
Speaker Change: to conclude.
Speaker Change: We're confident in continuing our positive momentum and we remain laser focused on the execution of our strategy to create the world's leading commerce media platform and drive shareholder value.
Speaker Change: With that, I'll hand the call over to Sarah.
Sarah Glickman: will provide more details on our financial results and their outlook. Thank you Megan and good morning everyone. We delivered strong Q3 results with operating leverage enabled by top line growth and disciplined cost management again this autumn.
Sarah Glickman: Revenue was $459 million and Contribution X-TAC increased to $266 million, including year-over-year headwinds from foreign currencies of $1 million.
Sarah Glickman: This was driven by strong performance in retail media, up 23%, and continued growth in performance media, up 5%.
Sarah Glickman: During the back-to-school season we observed a year-over-year increase in advertising spend across all categories.
Sarah Glickman: Notably there was significant growth in an unconventional back-to-school category. Animals and pet supplies increased by over 200 percent year over year, followed by strong gains in apparel and health and beauty.
Sarah Glickman: Overall, we continue to shift and rebalance our top line mix with our new solution representing 53% of our business in Q3.
Speaker Change: Starting with retail media, revenue was $61 million. Contribution X-Tax grew 23% at constant currency to $60 million, on top of 29% in Q3 last year.
Speaker Change: Our Q3 growth was primarily driven by our client base in the US, Germany, and the UK.
Speaker Change: Growth from existing clients remains strong, with same retailer contribution XTAC retention at a hundred and twenty percent, and we've benefited from the ramp-up of newly signed retailers.
Speaker Change: As previously communicated, our Q3 results also include the expected transition of our largest retailer client to their direct sales model.
Speaker Change: On the supply side, we have global scale, strong client retention, and we continue to expand our footprint. We are on track to start transitioning some Microsoft advertising on-site retailers to our monetization technology stack in early 2025.
Speaker Change: On the demand side, we now partner with 3,100 global brands after onboarding about 200 new brands this quarter.
Speaker Change: In the third quarter, our activated media spend grew 29% year-over-year worldwide, outpacing the market.
Speaker Change: We saw strong growth from our agency partners and robust brand booking, mainly in CPG, as retail media continues to gain share from other channels.
Speaker Change: In performance media, revenue was $398 million and Contribution XTAC was $207 million, up 5% at constant currency.
Speaker Change: We continue to see strong growth in commerce audience targeting, up 30% year-on-year, on top of 31% growth in the same quarter last year.
Speaker Change: We're targeting growth for the third consecutive quarter up two percent.
Speaker Change: We are pleased to see that the combination of multiple tactics
Speaker Change: typically drive better performance and larger budget.
Speaker Change: Our latest AI-driven performance optimization also drove a Contribution X-TAC uplift in the double-digit median range again this quarter.
Speaker Change: Strong growth in commerce audiences and increased demand for retargeting were partially offset by lower ad tech services and supply, down 16%.
Speaker Change: primarily due to lower spend from one large ad set client in our media trading marketplace.
Speaker Change: We exited the quarter with stabilized trends.
Speaker Change: Travel remains our fastest growing vertical up 31% followed by classified and retail.
Speaker Change: We saw lower spend in fashion and department stores in the US, late in the quarter. Notably from two US enterprise clients rebraining their business strategies and reducing their marketing budget.
Speaker Change: We have a broad and diversified client base and client retention remains high at close to 90 percent.
Speaker Change: In recent months, we have intentionally expanded our roster of performance media reseller partners in select small regions to combine local market knowledge with operational efficiencies. This resulted in a lower client count.
Speaker Change: We delivered Adjusted EBITDA of $82 million in Q3 2024, up 20% year-over-year, resulting in Adjusted EBITDA margin of 31%, up 300 basis points year-over-year.
Speaker Change: Our top-line growth resulted in strong operational leverage. We also benefited from some hiring shifts from Q3 to Q4 and lower bad debt expense.
Speaker Change: Non-GAAP operating expenses increased 7% year-over-year, reflecting planned, targeted growth investments, partially offset by continued rigor on resource allocation.
Speaker Change: As we've said before, we are driving our transformation by investing in growth areas and optimizing our operating model for scalability and efficiency.
Speaker Change: We are also enhancing our operational effectiveness with streamlined processes and the deployment of AI-powered productivity tools.
Speaker Change: Share-based compensation expense was $35 million, including $16 million related to shares granted to IPOM Web's founder as part of the acquisition.
Speaker Change: Our income from operations was $10 million, and our net income amounted to $6 million in Q3 2024.
Speaker Change: Our weighted average diluted share count was 58.4 million, which resulted in diluted items per share of $0.11 per share.
Speaker Change: Our adjusted diluted EPS was 96 cents in Q3 2024, up 35% year-over-year.
Speaker Change: We continue to benefit from a strong financial position and robust balance sheet with solid cash generation and no long-term debt.
Speaker Change: We had $711 million in total liquidity at the end of September, which gives us significant financial flexibility to execute our growth strategy and disciplines and balance capital allocation.
Speaker Change: Operating cash flow was $58 million and free cash flow was $39 million in Q3, reflecting seasonality and planned CapEx investments.
Speaker Change: We are confident in our strategy and financial strength.
Speaker Change: Our key priority is to continue to invest in our commerce media platform to enable sustainable organic growth alongside value-enhancing acquisitions and to continue to return capital to shareholders via our Share Buy Back program.
Speaker Change: We have a long-standing record of returning significant capital to our shareholders, and we have already repurchased $157 million of stock in the first nine months of 2024, including $55 million deployed in Q3.
Speaker Change: We now intend to repurchase about $180 million in 2024, underscoring our conviction in the long term of opportunities ahead and our commitment to delivering shareholder value.
Speaker Change: At the end of September, we had $111 million remaining in our board share buyback authorization.
Speaker Change: Turning to our financial outlook, which reflects our expectations as of today, October 30th, 2024.
Speaker Change: Despite the macroeconomic uncertainties, we enter the holiday season with confidence to deliver double-digit growth and margin expansion for this year.
Speaker Change: For 2024, we've tightened our guidance range, and we now expect contribution x-tax to grow 10% to 11% year-over-year at constant currency, with growth in both segments.
Speaker Change: This is a meaningful acceleration compared to our organic growth of 4% in 2023.
Speaker Change: In retail media, given our year-to-date performance and ongoing strong momentum, we are now confident in our ability to grow Contribution X Tech towards the high end of our 20-22% range at constant currency in 2024. And as a reminder, we have tough comparisons in Q4, which is our largest quarter.
Speaker Change: In performance media, we now expect to grow mid to high single digits in 2024.
Speaker Change: Our projected adjusted EBITDA margin for 2024 has been increased to a range of 32% to 33%.
Speaker Change: This reflects our confidence in operating leverage from top-line growth, strong expense discipline, and the transformation of our operating model as we continue to invest in areas of growth.
Speaker Change: For 2024, we expect a normalized tax rate of 25% to 30%.
Speaker Change: Our overall CapEx is now expected to be between $80 million and $100 million as we continue to invest and optimize our leading AI infrastructure.
Speaker Change: Lastly, we expect a free cash flow conversion rate of approximately 45% of adjusted EBITDA before any non-recurring items.
Speaker Change: The Q4 2024, our last and largest quarter of the year, we expect contribution ex-tac of $327 million to $333 million, growing by 3% to 5% at constant subs currency as we continue to drive superior performance for advertisers across our product portfolio.
Speaker Change: As you know, we have tougher comparisons in Q4 and we have a shorter holiday season this year.
Speaker Change: It is also important to note that Criteo as a commerce media platform has no political advertising spend.
Speaker Change: Our team is ready for our clients to deliver during Cyber Week and the holiday season.
Speaker Change: We estimate forex changes to have a minimal year-over-year impact on contribution uptick in Q4.
Speaker Change: We expect adjusted EBITDA between $114 million and $120 million. This includes planned investments and a timing shift of certain hires from the third quarter to the fourth quarter.
Speaker Change: In closing, we have strong conviction in our strategy and a resilient business model. We are well positioned for continued success and we are committed to maximizing shareholder value.
Speaker Change: We look forward to our Retail Media Investor Update on November 18th and meeting with many of you on the road and at conferences this quarter. And with that, I'll turn it over to the operator to begin the Q&A session.
Speaker Change: Thank you and ladies and gentlemen to ask a question simply press the star followed by the number one on your telephone keypad. If you're using a speakerphone please pick up your handset before pressing any keys. To withdraw your question please press the star followed by the number two. At this time we will pause for just a moment to compile the Q&A roster.
Speaker Change: And your first question comes from the line of Mark Sikotovic with Benchmark Company. Please go ahead.
Speaker Change: Thanks much.
Mark Sikotovic: I have a couple of questions just around Microsoft Progression. I know you're going to talk about that.
Mark Sikotovic: a bit more on your retail media update. But just curious if there's any incremental op-ecs that...
Mark Sikotovic: You're incurring there as you
Mark Sikotovic: sort of get yourself set up to address that demand. And then a separate question on retail media. Nice retail media take rate, certainly above our expectations in 3Q. Just curious if you could.
Mark Sikotovic: Maybe talk about variables here next 12 months, particularly as you anniversary your largest clients Transition in-house demand. I believe you'll anniversary that in one cue. So sort of what we can expect for take rate
Mark Sikotovic: you know, following that transition. Thanks much.
Speaker Change: I'll take the Microsoft or kick us off to you Mark, I'm good to hear from you. We don't anticipate any significant operating expenses as we move clients across.
Speaker Change: Um.
Speaker Change: I'm sure the team who are doing it would cringe if I say lift and shift, but really if you stand back and take a look at the fact that they're a client who's looking for, or they're a set of clients who are looking for the types of services that we provide as a replacement to what they have been getting from Microsoft. It is about moving them onto the platform.
Speaker Change: And we have all of the platform in place for the delivery or acceptance of the demand coming through from the Microsoft advertising demand side of things as well. So, we have the platform built.
Speaker Change: We don't anticipate there being any kind of heavy operating expenses involved with this work.
Speaker Change: Yeah, I can say retail media. Yeah, retail media is doing really well for us. So, 29% increase in the activated media spend.
Speaker Change: and all clients contributing so we're seeing a lot of traction there. In terms of our largest client, we of course continue to work very closely with them and they are having a good year and that will as you say transition more into Q125.
Speaker Change: That was a slower transition at the beginning of the year, now starting to move ahead at the pace we would expect coming into Q3 and Q4. In terms of take rates for 2025, we're not giving guidance for 2025, but we have
Speaker Change: continue to retain and bring in new contracts as well.
Speaker Change: My anticipation is that as we continue to scale, we will continue to see some
Speaker Change: We are expecting to continue to scale.
Speaker Change: and they're going to talk about how we're going to continue to grow year on year on year in retail media and to have the take rate that reflects the performance that we're delivering. And we're very excited to talk more in the coming weeks, so we look forward to chatting to you all on November 18th at our Retail Media Day.
Speaker Change: Okay, thanks much Meg and Sarah. I appreciate it.
Speaker Change: Yeah.
Speaker Change: Your next question comes from the line of Mark Kelly with Steeple. Please go ahead.
Mark Kelly: Great, thank you very much. Good morning, everyone.
Mark Kelly: Can you maybe expand on the ad tech services comments a bit? I think you said one client in particular drove that down 16%. I guess, can you maybe help us with the moving pieces there?
Mark Kelly: I think you said stabilize. I guess, you know, what does that look like from here? And then the second question is, you know, another quarter of growth and retargeting and your comp in Q3 was, you know, significantly tougher than the first half of the year, I guess. Is that something that we can...
Mark Kelly: You know, maybe expect going forward and I guess what are your conversations with clients that surround retargeting as a strategy at this point? Thank you
Speaker Change: Let me just start with the ad tech services question and then I'll pass it across to Sarah.
Speaker Change: Within ADTEC services there's a couple of products and a couple of those products we brought across from IPON where the women made that acquisition.
Speaker Change: And you'll remember, or may remember, when we made that acquisition, we were primarily after two of...
Speaker Change: Two or three of their biggest capabilities.
Speaker Change: but of course we we brought on board all of IPON web.
Speaker Change: So, it centers now around this one product, which is in the IPON web mix, which is not strategic to Criteo, and we have a plan in place to make sure that we can bring it in line, that we can normalize or take away the issues that we're seeing with it, in particular.
Speaker Change: it's susceptibility to one client. And so that's what we're doing, and that's the explanation of the particular MIS-THERA and AD-TECH services. I'll pass across to Sarah for more detail.
Sarah Glickman: Yeah, I mean just a couple of specifics. So we did a talk about this, I think in the Q2 call, because we started to see lower spend from our largest ad tech partner, and that has
Sarah Glickman: continue to impact us, as you can see, quite significantly in Duke III.
Speaker Change: I would agree that's isolated to that last partner and we did exit coming out with a stronger trend.
Speaker Change: In addition to that, we did have one SSP partner also, I think we've discussed in prior calls, that has an impact on ad tech services and supply.
Speaker Change: in that we're not getting revenue related to that SST anymore.
Speaker Change: In terms of retargeting, just a reminder that we were at 4% increase in Q2, so coming into Q3 at 2%. So we're very good about that, but I think Todd's probably the best person to talk about the retargeting as a strategy.
Speaker Change: Yeah. Hi, Mark. The story here is a good one. Retargeting is resilient. Obviously, our addressability strategy enables our customers to continue to use it as part of their overall marketing mix.
Speaker Change: And you heard Megan talk about the initial success we've had with Commerce Go and our beta, which
Speaker Change: exposes customers to an easier way to get at that tactic and more obviously commerce audiences being a headliner there.
Speaker Change: And we're seeing some really interesting early signs of success in the data on organic growth on not just the retargeting tactic, but also in audience acquisition, which is a part of customer acquisition, which is really important sign for us as we progress to business. So a mix of tactics.
Speaker Change: with Retargeting Being Resilient at the Core.
Speaker Change: Great. Thank you very much. I appreciate it.
Speaker Change: Our next question comes from the line of Michael Arunian with Citigroup. Please go ahead.
Speaker Change: Thank you.
Michael Arunian: Hey, good morning, everyone. Just first on the guidance.
Speaker Change: I think that's where...
Michael Arunian: A lot of the focus from investors this morning, if you look at the guidance for 4Q,
Michael Arunian: It does imply a little bit of a step down in the contribution XPAC.
Speaker Change: You did lower the high end of the full year guidance by a little bit. I know, Sarah, you called out certain things like a shorter holiday season, no political spending, and I'm not sure exactly how much impact the IPON Web
Speaker Change: revenue has with that single customer. Can you unpack the guidance, what you're seeing in the macro, what's driving that kind of sequential, sequentially lower growth rate for you?
Speaker Change: Yeah, I see. I mean, first of all, just, you know, a reminder that we have very tough comps in Q4 2023. So, last year, we were up, you know, significantly on retail media and commerce audience comps in particular. Plus, we are
Speaker Change: lapping the AI enhancements from Q4 last year. But just to unpack, I would say the tightening of the range.
Speaker Change: It does come back to the isolated impact of ad tech and services, that's definitely the key reason. And we saw that experience in Q3 more significantly and Q4 is by far the largest quarter.
Speaker Change: in that area. So that's the key reason.
Speaker Change: I think the point on the political spend is an important one because what we are seeing is, I would say, some crowning out on supply right now, and we're seeing retailers waiting until the political cycle is over.
Speaker Change: which I think is not surprising.
Speaker Change: But as we said, the team are ready to go for the holiday season.
Speaker Change: Macy's has that reached out already so we're really expecting to you know just just do a terrific job during the holiday season but those are the key reasons why we
Speaker Change: heightened the range. The other piece which we talked about was America's a couple of
Speaker Change: You know, larger enterprise US clients in the news.
Speaker Change: that have gone through changes in their own structures, including CEO changes, and we expect that to rebound, but there is some temporary, I would say, change in marketing strategies as they go through those transitions.
Speaker Change: All in, feel really good about the future, feel really good about Q4, and very excited also for the uplift, not only in the retail media to the top end of the range, but also in the adjusted EBITDA range as well. So we're excited to continue to close this year out strong.
Speaker Change: Okay, thanks. And then maybe on retail media, again, like others, I know we're going to get a lot more color in a few weeks here.
Speaker Change: on-site, as you called out, has driven
Speaker Change: so much of the growth. Meg's comments called out Costco and off-site partnership with United Airlines. I feel like maybe a little bit more than you have in the past and maybe just, you know, help us frame what the off-site opportunity could be, how it drives growth, and how you think about kind of the growth and off-site overall. Thanks.
Speaker Change: Yeah, let me start by saying that, you know, a 39% growth in Q3 for
Speaker Change: The U.S. is.
Speaker Change: It's very encouraging for us, it's very encouraging and speaking to the fact that we're winning in this space and when the prize is as large as it is against the spend that's going into search and social.
Speaker Change: and the share that's moving across into commerce media. We're right where we were hoping we would be.
Speaker Change: In fact, we're probably a little bit ahead. So very, very excited about the progress there. Within commerce media, and in particular in retail media, there are a lot of use cases
Speaker Change: to bring to life.
Speaker Change: There are a lot that we do already, some that we've just started to roll out, and some that have been available for some time, but our clients are just seeing the benefits of them as they move to them, and offsite is one of them. Offsite we've had capabilities for a while, as you know.
Speaker Change: and we're starting to see some very big clients come across and utilize that as part of their strategy, their whole retail media strategy.
Speaker Change: So we're excited about that move. We also are excited about what we're seeing.
Speaker Change: in display. So today...
Speaker Change: We dominate in sponsored ads and display is another format, if you like, on retailers' pages that we're starting to see some good traction in, so more to come there.
Speaker Change: And then there's other elements of taking brand data and producing better results.
Speaker Change: for them on-site and off-site that we spelt out here today as well. So just a lot of use cases still to unpack and which speaks to growth opportunities for us.
Speaker Change: Great, thank you.
Speaker Change: Your next question comes from the line of Doug Unmute with JP Morgan. Please go ahead.
Speaker Change: Great. Thanks for taking my questions. It's Brian Smiley, gone for Doug. Just to start, I think you guys had mentioned AI-driven performance enhancements have drove a contribution XTAC increase to the double-digit million range within performance median 3Q. So can you just talk about the monetization curve of AI, and I guess as we enter 2025, which investments are critical to continue to drive a compelling and differentiated product as other competitors into their AI strategies?
Speaker Change: Thank you for your answer, but give it to Todd. That's great. And there are a few different really important factors in our investment strategy on AI. And one goes to targeting and activation across a very fragmented space.
Speaker Change: and using deep learning as a way to do that more effectively to drive performance for the company. Obviously, we sell performance. We don't just sell any one of these tactics, whether retargeting or on-site.
Speaker Change: and AI sits at the center of doing that with efficiency in spite of the fragmented space that we're operating in, the addressability challenges that we all talk about. So that's the core.
Speaker Change: of our investing.
Speaker Change: Beyond that, there are a couple of other really important dimensions.
Speaker Change: One is making sure that the experiences that we deliver to
Speaker Change: to consumers that are buying advertising or exposed to advertising rather on-site with retail media or off-site on the open web are optimized for that experience so that ultimately a commerce outcome is achieved.
Speaker Change: That goes to AI-generated creatives, it goes to dynamically changing those creatives to be responding to the stage a person is in in their buying journey as they're discovering or researching or on-site choosing between brands.
Speaker Change: So, there are two very important things. And the third one is really how we operate as a company internally, changing the way that we get to strategies for clients more quickly, respond to their requests for service more quickly.
Speaker Change: Indeed, the way we build our products itself from a coding perspective are all impacted by our investments in AI. Those are the three key dimensions.
Speaker Change: Yeah, and just in terms of, I would say, you know, if we're thinking as well of dollars of investment.
Speaker Change: Our team's already established. It's well-established. It's at the core of our platform. We've gone through our data center transitions over the last couple of years and invested heavily in more.
Speaker Change: Well, I wouldn't say heavily compared to our peers, but we were invested smartly.
Speaker Change: in terms of our infrastructure to ensure that we're optimized. We will continue to optimize our structure, but ultimately, I would say the investments you would expect would continue to be incremental to do everything that Todd just spoke about from an incredibly solid and very talented base of AI engineers.
Speaker Change: Great, thank you.
Speaker Change: Your next question comes from the line of Alex Rondeau with Wells Fargo. Please go ahead.
Alex Rondeau: Hey, thanks so much. Appreciate the feedback on the supply side of the Microsoft relationship. I would love to ask you about the demand side. I think it's pretty exciting that Bing and Zander customers might end up purchasing retail media inventory sometime in 2025. Could you maybe just give us an update on the timeline and functionally how that's going to work, at least as best as you know today? Thanks.
Megan Clarken: Well, this is Megan. Thanks for the question.
Megan Clarken: We don't want to kill Joy. I hope you're coming to our investor day. We'll take you through more detail about that on November 18th.
Megan Clarken: So I don't want to get ahead of that, but the team are working pretty hard with Microsoft to establish that connection between their demand-side clients and our DSP or other channels into our retail media supply.
Megan Clarken: It's an exciting opportunity in as much as...
Megan Clarken: The opportunity to bring that demand onto our retail media stack is a critical part of the Critios flywheel. I talked about that during the prepared comments.
Megan Clarken: But demand, to us, is so critical to the network of retailers that we have. And so the retailers are excited by the prospects of more demand coming their way. And it will come their way.
Megan Clarken: The returns from retail media spend for an advertiser speak for themselves, and so this sort of flywheel is going to come in motion as soon as we start to get things rolling with Microsoft. The implementation...
Megan Clarken: I'm looking at Todd. Implementation is underway. I should say implementation is being carefully thought through and underway. So that's about architecture and design. To Megan's point, we want to make sure that we're matching those 500,000 advertisers from the Microsoft side, which represent about $10 billion of demand.
Megan Clarken: into not just our whole retail media footprint, but also in places where there are unsold opportunities.
Megan Clarken: So there are different considerations in the design that we're going through to make sure that's as seamless as possible And we want to get it right
Megan Clarken: That's very actively being done right now with an eye to getting it right and starting to roll it out in 2025.
Megan Clarken: Thank you.
Megan Clarken: Because just to finish that point is that, you know, as we've started to express in the
Megan Clarken: In the dialogue, there is a slew of opportunities, there is an end-to-end shopper capability that we have.
Megan Clarken: that we will make available to those demand-side advertisers as well, not just to get access to supply.
Megan Clarken: on retail media, on retailer sites, but also to use everything that we have to get advertising in front of shoppers on their buyer journey. So this is a big deal.
Speaker Change: Perfect. Thank you.
Speaker Change: Your next question comes from the line of Brian Pitts with BMO Capital Markets. Please go ahead.
Brian Pitts: Thank you. Maybe some additional color on verticals. We're hearing some broader category softness in consumer discretionary, whether it's tech, entertainment, retail, CPG.
Brian Pitts: Although kind of offset by stronger, lower funnel. Are you seeing this? Maybe any broader thoughts on CPG and retail specifically into Q4 and 25? And then separately, maybe a quick update on Albertsons. How is that scaling?
Brian Pitts: And when do you think it should be a meaningful contributor to your earnings? Thanks.
Speaker Change: Thanks for the question, Brian. I would say it's a bit early to tell on the consumer categories for Q4. We definitely have seen some wait and see, which I spoke about earlier.
Speaker Change: We're having terrific discussions with all our retailers and we would expect to see a good holiday season. So I would say no additional color, but I'm paying very, very close attention to the brands as they continue to
Speaker Change: to post their earnings and of course the retailers coming in next quarter.
Speaker Change: There is obviously some, I would say, broader angst related to Q4 consumer sentiment, and I think we'll keep track of that closely. But to your point, we're in two key areas, one in retail and media, where we know we have a strong, you know, strong market.
Speaker Change: Perspective 4Q4 and then in performance media where that's really you know we continue to see a strong spend especially during holiday season going into ensuring that they convert to a sale.
Speaker Change: Just a quick reminder as well that we announced a couple of new verticals this quarter, so Office Depot is a terrific new ad.
Speaker Change: and also United Airlines, so as we move away, or I would say expand out from retail media to commerce media, we're seeing terrific traction across multiple verticals and we expect that to continue going into 2025.
Speaker Change: On Albertsons in particular, I mean I would say it's as expected, you know terrific relationship, strong, they definitely were contributed to our growth and I think more to come there, we'll take that question and address that maybe in the Retail Media Day.
Speaker Change: Great, thank you.
Speaker Change: Our next question comes from the line of Tim Nolan with Macquarie. Please go ahead.
Tim Nolan: Hi everyone, thanks. I'd like to come back to the topic of retargeting which I think has now grown at least three quarters in a row
Tim Nolan: and we have almost gotten through this call without talking about cookies. I don't know if you've got an update you'd be willing to give us today on impact from cookies next year. I know it's probably very difficult to give, but my question really is how dependent is your retargeting business on cookies at this point? Or is it almost not relevant anymore because you're using so much first-party data? Thanks.
Tim Nolan: Thank you.
Speaker Change: Thank you for tuning in.
Speaker Change: Yeah, look, I, you know, I said in the opening remarks, we no longer run our business based on the demise of cookies.
Speaker Change: and dealing with a signal loss has all but gone away.
Speaker Change: has all but come to life, I should say, through the work of Todd and his team, our R&D team, and our product teams to make that front and centre in the way in which we find consumers on their biojourney. But I'll pass the cross to Todd.
Todd: Yeah, so there's a couple of things that are pretty encouraging there. To Megan's point about Privacy Sandbox, you may have seen, you know, recently that Google actually came around to addressing a couple of our key requests.
Todd: of them to make Privacy Sandbox itself function better. So, just knowing that that product is...
Todd: is actually being improved so as part of our overall addressability strategy it functions is very encouraging.
Todd: Further, we have been working towards influencing Google as a partner.
Todd: and the CMA on the upcoming user choice implementation that is anticipated this next year, all for the purposes of making sure that consumers have a better view of what keeping a cookie means to a personalized advertising experience.
Todd: In the net
Todd: More cookies around is a good thing to our strategy, but our strategy doesn't tie to it directly anymore, as Megan said. It's part of a bigger picture of addressability, and importantly, it's not just for retargeting.
Todd: It's for the entire buyer journey that Megan was laying out that we're able to address consumers. And this is very important because retargeting is still just one tactic in the mix that our advertisers are using to reach consumers and to drive commerce outcomes.
Speaker Change: Thank you for joining us.
Speaker Change: Okay, thanks. You had previously given a number for the impact of cookie deprecation next year, which I think last call you basically pulled back and said it won't be that much. I'm just wondering if there's any update to that number.
Speaker Change: I mean I think you know we don't know what Google's latest plan is and so I think you know ultimately we were not giving 2025 guidance now but to Todd's point we feel confident in our overall strategy and of course as and when we get updates on exactly what they're doing we'll update our assumptions in our model and in our guidance.
Speaker Change: Okay, great. Thanks.
Speaker Change: Next question comes from the line of Tom White with D.A. Davidson. Please go ahead.
Speaker Change: Hello.
Speaker Change: Can you hear me?
Tom White: We can hear you, yep. Okay, quick one on CommerceMax. You guys mentioned some of the growth that you're seeing at some of the holdcos. Curious whether you guys think you're kind of displacing any existing DSP tools at those agencies with CommerceMax or whether the spend is, you know, maybe coming from different budgets. And can you maybe just talk about over the next, say, three, four quarters, you know, what's the main driver of growth at CommerceMax? Is it just kind of deeper penetration of these big holdcos that are using it now? Is it adding more agencies? Any color there. Thank you.
Speaker Change: It's incredibly encouraging, getting demand come through agencies is a very big part of the flywheel.
Speaker Change: and that is going as well as it possibly could be at this point in time. This is very new for agencies and they've been asking for it for a long time, which is a good thing. We're delivering to them what they're looking for.
Speaker Change: It's now a matter of momentum, and we are building momentum incredibly well at 60% this quarter.
Speaker Change: I think for agencies, they have got a shift to make, which is to see commerce media spend and retail media spend in a network of retailers.
Speaker Change: a viable proposition, in fact, a better performing proposition for their advertisers.
Speaker Change: So that they move more and more dollars across into retail media and they have a couple of choices They can go to Amazon. They can go to Walmart or they can go to Criteo and Criteo has Network of you know, most of the other top retailers
Speaker Change: sitting there waiting with a really strong demand, sorry, supply proposition for
Speaker Change: those advertisers.
Speaker Change: So it is about momentum, Tom, just building that momentum, making sure the tools are doing everything that encourages an agency buyer to use them and produce the results and the data that they need to show that it's an effective buy.
Speaker Change: Yeah, Tom, I'd just add something to what Megan said. Obviously, we're building on a very strong moat here, and what is important to spur the momentum that Megan talked about with agencies that we have relationships with and partnerships already built.
Speaker Change: from a product perspective is making sure that budgets are
Speaker Change: easy to plan and allocate across the retail media mix that we sit on top of. So you can imagine it's a little bit more challenging to get that done, which plays to our advantage because we're looking across 225 plus retailers.
Speaker Change: rather than just Walmart or Amazon. So you can imagine, if you make it easier for allocations and activations to happen for holdcos across
Speaker Change: those 225 and growing, then those budgets will ultimately come into the space through Commerce Max.
Speaker Change: and I would just close by encouraging everyone to listen to the Retail Media Investor Day on November 18th.
Speaker Change: I think we have one more question.
Speaker Change: Question comes from the line of Justin Patterson with KeyBank. Please go ahead.
Justin Patterson: Great. Thank you very much. Good morning. This is more of a theoretical question around Google and regulation. If Google is forced to divest AdEx and or double-click for publishers, how do you think that could access or change your access to supply and winning bids in the market? Thank you.
Speaker Change: It's a good question, Justin. I'll start and maybe Todd can weigh in as well. Firstly, it's just incredibly hard to speculate as to what could happen here. The options are endless. The timeline to actually get any kind of resolution here, if a resolution comes,
Speaker Change: is way out into the future in which the landscape could have changed considerably.
Speaker Change: So we, you know, we tend to, firstly, we do support a level playing field. So we do support anything that makes sure that the industry remains strong and.
Speaker Change: and that the ecosystem is a vibrant one which is not dominated by one or two players.
Speaker Change: And, of course, if there are changes to some of the ad tech properties that are owned by Google, then it will be interesting to see, you know, what happens from there. And, Todd, if you've got any kind of speculation, be sure to let us know.
Speaker Change: We'll be careful, but for the fun of it.
Speaker Change: Yeah, I think, I'll hold back on the speculation. What we are doing is continuing to work more deeply with the different parts of Google. I think we all know that Google is a very strong partner of ours. So, you know, whether there is a breakup or not, that we're well prepared for what's on the other side of that. But I do think you can say that while the speculation rages about what might happen,
Speaker Change: More attention from our customers is coming back to us, and that's really helpful. It's blue sky for Critio while people are confused about what might happen elsewhere.
Speaker Change: So just an observation, not an empirical one, but one that's really important, because as these changes happen, and as the market seems to be equalizing, there's great opportunity for this company.
Speaker Change: Thank you. Great question. All good questions. Thank you very much everybody. Thank you Megan, Sarah and Thad. This now concludes our call for today. Thanks everyone for joining. The investor relations team is available for any additional questions. We wish you all a great day.
Speaker Change: Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: [music]