Criteo Expands Its Scope After Another Beat and Raise

Image source: Criteo.

Shares of Criteo SA (ADR) (CRTO 2.43%) jumped more than 10% Wednesday after the advertising retargeting specialist released strong third-quarter 2015 results. Now that the dust has settled, let's have a closer look at what drove Criteo's business as it entered the second half of the year.

Criteo results: The raw numbers

Data source: Criteo. Ex-TAC = excluding traffic-acquisition costs; YOY = year over year.  

What happened with Criteo this quarter?

• Revenue ex-TAC grew 30% year over year on a constant-currency basis.
• Adjusted net income grew 175% year over year, to $31 million, or $0.48 per diluted share.
• Adjusted EBITDA increased 55% (51% at constant currency), to $54 million.
• For perspective, Criteo's guidance called for lower revenue ex-TAC between $170 million and $174 million, and adjusted EBITDA between $42 million and $46 million.
• Cash flow from operations rose 149% year over year, to $43.6 million, and free cash flow was $24 million (compared with negative free cash flow of $7 million in last year's third quarter).
• Ended the quarter with cash and equivalents of $407 million, up from $354 million at the end of 2015.
• Added over 1,000 net clients during the quarter, marking another company record and leaving Criteo's total client base approaching 13,000.
• Mobile generated nearly 57% of total revenue.
• Users matched through Criteo's Universal Match technology generated 52% of revenue ex-TAC.
• Nearly 7,000 advertisers now use dynamic ads on Facebook and Instagram.
• On a geographic basis:
• Americas revenue ex-TAC grew 31% year over year, to $64 million, or 36% of total revenue ex-TAC.
• Europe, Middle East, and Africa revenue ex-TAC rose 23% (27% at constant currency) to $71 million, or 40% of Criteo's total.
• Asia-Pacific revenue ex-TAC climbed 51% (34% at constant currency) to $42 million, or 24% of Criteo's total.
• Launched Criteo Predictive Search, bringing Criteo's performance-based approach to the Google Shopping market.
• Agreed to acquire HookLogic, which specializes in connecting e-commerce retailers with consumer brand manufacturers, expanding Criteo's business to brand manufacturers and offering supplemental strength of its performance marketing platform. The acquisition should close "in the coming weeks."

What management had to say

Criteo CEO Eric Eichmann elaborated, "We continue to deliver terrific results for advertisers. And with the addition of HookLogic and Criteo Predictive Search, we will cover an ever-increasing part of their performance marketing and become a more strategic partner."

CFO Benoit Foulland stated, "We continue to deliver rapid growth and expanding profitability. Our ability to drive operating leverage while investing in the business demonstrates the scalability of our model."

Looking forward

For the fourth quarter, Criteo expects revenue ex-TAC between $207 million and $210 million, and adjusted EBITDA between $72 million and $75 million.

As such, Criteo increased its guidance for the full-year 2016, and now expects revenue ex-TAC growth between 33% and 34% (up from between 30% and 34% previously) at constant currency, with adjusted EBITDA margin as a percentage of revenue increasing year over year between 120 basis points and 140 basis points. Both Criteo's current-quarter and full-year outlooks exclude contributions HookLogic.

All things considered, there was nothing not to like about this solid quarterly performance. Criteo handily exceeded its own expectations during the quarter, is adding new clients at an accelerating clip, and strategically expanding the scope of its business through both acquisitions and promising new in-house products. As a result, it's hard to blame the market for so aggressively bidding up Criteo stock yesterday.