When Criteo (NASDAQ:CRTO) released fourth-quarter results in February, the market couldn't have been more pleased. Shares of the advertising retargeting leader soared as much as 20% after it confirmed that revenue had climbed a modest but better-than-expected 0.1% at constant currencies. The quarter marked what CFO Benoit Fouilland described as "an inflection point in [Criteo's] trajectory" as its transition to a multi-product platform began to take shape.
To be sure, Criteo had increased its number of active clients by 7% year over year, to roughly 19,500. And 13% of those clients were using at least two of its solutions, more than tripling from just 4% a year earlier.
A shiny threat emerges
Last week, however, all that progress may as well have been for naught in many investors' minds. Criteo shares plunged more than 12% last Monday after AdWeek reported Alphabet's Google is considering new restrictions on how it handles third-party ads in its massively popular Chrome web browser.
To be fair, AdWeek also noted nothing is finalized at Google as of yet. But its sources warned whatever the outcome, it appears likely to "impact how ad-tech vendors operate within" Chrome.
Still, Criteo stock then slumped another 17% last Tuesday after multiple Wall Street analysts offered downgrades in response.
SunTrust's Matthew Thornton, for one, noted Chrome could be linked to around half of Criteo's total revenue, and worried further that any negative changes to Chrome by Google could prompt the makers of smaller browsers to follow suit.
KeyBanc's Andy Hargreaves was more tempered with his skepticism. Considering Criteo had already weathered the rollout of new Intelligent Tracking Prevention (ITP) features on Apple's Safari Browser in late 2017, Hargreaves admitted "a full ITP-like situation in Chrome [is] very unlikely" given the antitrust issues it would raise for the internet-search giant. But until Google offers some color on its plans, Hargreaves argued the stock will remain under pressure.
The thing is, as Hargreaves alluded, this threat shouldn't be a shock to astute shareholders. And Criteo management even addressed the issue during last quarter's conference call with analysts.
When asked how they're thinking about "Chrome risk and any potential changes that Google may make to the browser going forward," company chairman and CEO JB Rudelle responded:
I know it's tempting to draw an analogy between Chrome and Safari, but Google and Apple are in very different situations. [...] Google controls more than 60% of the browser market and has an even more dominant position in the digital advertising market. As you know also, Google is under a high level of scrutiny regarding their business practices, both in the U.S. and in Europe. Given all of this, although we cannot guarantee, of course, they will not replicate an exact ITP-like feeder, we believe it's highly unlikely that Google will take advantage of its control of Chrome to restrict the ability of other digital advertising players to compete in this market. As a matter of fact, we believe that any change promoted by Google in the way data is collected and processed will not only maintain, but hopefully improve the ability of all players in the ecosystem to compete in a fair way, and all in all, we'll be extremely vigilant, of course, to ensure this fairness is maintained.
The bottom line
Put simply: If Google makes any changes to the way Chrome deals with third-party ads -- and with multiple record-setting antitrust fines already under its belt -- it's in the company's best interest to ensure the move doesn't come at the expense of competition. As such, Criteo believes ad-tech leaders like itself should ultimately be better off for it.
That certainly doesn't guarantee Google can't come out with crushing new restrictions when all is said and done. But if it does, Rudelle made it clear Criteo won't hesitate to push back.
So with Criteo stock now trading near multi-year lows despite the recent progress of its underlying business, I think now could be an excellent opportunity for patient, long-term shareholders to consider opening or adding to their positions.