Criteo S.A. Sustains Its Momentum

Criteo SA (ADR) (CRTO 2.10%) announced better-than-expected first-quarter 2017 results on Wednesday morning, including continued strong growth of its global client base and a slight increase of its full-year guidance.

But shares of the advertising retargeting specialist declined around 1.8% today as the market digested its report -- albeit after touching a fresh 52-week high earlier this week. So let's take a closer look at how Criteo kicked off the new year, and what we should expect from the company going forward.

Image source: Criteo.

Criteo results: The raw numbers

Data source: Criteo. Ex-TAC = excluding traffic-acquisition costs. 

What happened with Criteo this quarter?

• Revenue growth was driven by a combination of improved access to publisher inventory, new client additions, and progress made with new products, including Criteo Sponsored Products (formerly HookLogic) and Predictive Search.
• Net income was hurt by costs associated with Criteo's acquisition of HookLogic last quarter. On an adjusted basis, which excludes those costs and items such as stock-based compensation, net income increased 10% year over year, to $31 million, or $0.46 per share. 
• Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 16% (18% at constant currency), to $56 million.
• These results were well ahead of Criteo's latest guidance, which called for lower first-quarter revenue ex-TAC between $200 million and $205 million, and adjusted EBITDA between $47 million and $52 million.
• Cash flow from operations came in at $44 million, up 134% year over year. Free cash flow also climbed 136%, to $16 million.
• The year ended with cash and equivalents of $304 million, up from $270 million at the end of 2016.
• More than 950 clients were added during the quarter, while the company maintained a 90% client retention rate, bringing Criteo's total client base to over 15,000.
• On a geographic basis:
• Americas revenue ex-TAC grew 41% year over year (38% at constant currency), to $79 million.
• Europe, Middle East, and Africa revenue ex-TAC increased 19% (25% at constant currency), to $82 million.
• Asia-Pacific revenue ex-TAC rose 30% (28% at constant currency), to $49 million.

What management had to say

Criteo CEO Eric Eichmann stated, "I'm excited about the significant 30% growth in Q1, which demonstrates the broadly accepted value of our performance marketing platform for commerce companies and brands."

"We continue to deliver impressive cash flow generation, while investing in the business," elaborated Criteo CFO Benoit Fouilland. "This, combined with rapid profitable growth, makes our model differentiated and attractive."

Looking forward

For the second quarter of 2017, Criteo anticipates revenue ex-TAC of between $209 million and $213 million -- roughly in line with consensus estimates -- which should result in adjusted EBITDA of $44 million to $48 million. And for the full year of 2017, Criteo now expects revenue growth ex-TAC to be between 28% and 31% at constant currency, a slight increase to the bottom end of previous guidance for 27% to 31% growth. Criteo continues to expect adjusted EBITDA margin to be flat to up 50 basis points from 31% of ex-TAC revenue in 2016.

In light of its relative outperformance the past several quarters, we should also keep in mind that Criteo regularly underpromises and overdelivers on its guidance. In any case, this was another strong showing from Criteo, as it demonstrates the popularity and stickiness of its growing portfolio of products. And I think Criteo investors should be more than pleased with its position today.