Criteo SA (ADR) (NASDAQ:CRTO) released third-quarter 2017 results on Wednesday morning, detailing continued strong customer growth, healthy cash flow, and increased guidance for full-year profitability. But thanks to Apple's (NASDAQ:AAPL) ongoing rollout of a troublesome new feature, Criteo also slightly reduced its expectations for revenue growth this year.

Let's take a closer look at how Criteo kicked off the second half of 2017, and at what investors should expect from the ad-retargeting specialist in the coming months.

Criteo 3-D logo angled away from the viewer


Criteo results: The raw numbers


Q3 2017

Q3 2016

Year-Over-Year Growth

Revenue (ex-TAC*)

$234.4 million

$176.6 million


Net income available to shareholders

$19.8 million

$13.5 million


Net income per share (diluted)




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

What happened with Criteo this quarter?

  • Revenue growth was driven by continued product innovation, broader and improved access to publisher inventory, and new clients.
  • On an adjusted (non-GAAP) basis -- which excludes acquisition and restructuring expenses and stock-based compensation -- net income climbed 42% to $44 million, or $0.65 per diluted share.
  • Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 48% (45% at constant currency) to $79 million.
  • These results compare favorably to Criteo's latest guidance, provided last quarter, which called for lower revenue ex-TAC (excluding traffic-acquisition costs) of between $227 million and $230 million, and adjusted EBITDA in the range of $69 million and $72 million.
  • Cash flow from operations grew 41% to $62 million, and free cash flow rose 43% to $34 million. Criteo ended the quarter with cash and equivalents of $358 million, up from $270 million at the end of 2016.
  • The company added 930 net new clients during the quarter, to bring its total to over 17,000. Client retention remained at roughly 90% for Criteo's core product.
  • On a geographic basis:
    • Americas revenue ex-TAC increased 36% (35% at constant currency) to $86 million.
    • Europe, Middle East, and Africa (EMEA) revenue ex-TAC rose 29% (24% at constant currency) to $92 million.
    • Asia-Pacific (APAC) revenue ex-TAC grew 33% (40% at constant currency) to $56 million.
  • Criteo Direct Bidder is now connected to 950 large publishers worldwide, up from 450 last quarter.
  • The company released beta versions of Criteo Audience Match and Criteo Customer Acquisition, with both demonstrating "very promising" early results.

What management had to say

"Criteo Commerce Marketing Ecosystem is seeing very positive acceptance from chief marketing officers worldwide," stated CEO Eric Eichmann. "Our open ecosystem approach brings large opportunities for us."

"Our solid Q3 results and increased profitability outlook for 2017 highlight the strengths of our business," added CFO Benoit Fouilland. "We are confident in our position and growth prospects."

Looking forward

Criteo also noted that in September, Apple released its new Intelligent Tracking Prevention (ITP) feature on mobile devices, resulting in a modest negative impact to revenue ex-TAC of less than $1 million in the third quarter. Apple's ITP, for its part, aims to protect users' privacy by limiting third-party access to "cookies," tracking files used by companies like Criteo to facilitate the ad-retargeting process.

In the fourth quarter, however, Criteo expects Apple will roll out ITP on iOS 11. And because its current solution for Safari users will likely mitigate only about half of the feature's potential impact, Criteo expects ITP will have a net negative impact of between 8% and 10% of base-case revenue projections for Q4.

As such, Criteo anticipates fourth-quarter revenue ex-TAC will arrive between $260 million and $263 million, which is well below the $285.3 million investors were expecting. That should translate to fourth-quarter adjusted EBITDA of between $106 million and $109 million.

Finally, for the full year of 2017, Criteo now expects revenue ex-TAC to grow between 26% and 27% at constant currency, down from previous guidance for between 28% and 31%. At the same time, Criteo increased its guidance for adjusted EBITDA margin to improve between 100 and 200 basis points on a year-over-year basis, up from previous guidance for the metric to be flat to up 50 basis points from 31% in 2016.

To be fair, Criteo has also insisted it will "continue to improve and deploy [its] solution for Safari users over the coming quarters." But in the meantime, with shares down around 8.4% in Wednesday's trading as of this writing, it's clear that the impending effects of Apple's ITP rollout have cast a shadow on an otherwise-great report from Criteo.