Please ensure Javascript is enabled for purposes of website accessibility

Why Criteo Just Lowered Its Full-Year Guidance

By Steve Symington - May 2, 2019 at 4:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors will need to wait a while longer for the ad-retargeting leader to complete its multiproduct transformation.

When Criteo (CRTO -1.28%) announced strong first-quarter 2019 results on Tuesday, it was surprising at first to see shares of the ad-retargeting company plunge as much as 13% the following day. After all, revenue excluding traffic acquisition costs (ex-TAC) climbed 2% at constant currency (but fell 2% as reported) to $235.7 million, above the high end of Criteo's official $233 million to $235 million guidance range. Adjusted EBITDA of $69 million also handily outpaced Criteo's outlook for between $59 million and $61 million.

But it all made sense when Criteo followed by reducing its full-year target calling for 2019 revenue ex-TAC to be flat to up 2% at constant currencies, compared to its previous guidance for 3% to 6% growth.

What changed? Criteo was coy in its earnings press release, vaguely citing "identified execution issues" that will delay the benefits of "new capabilities we are building to achieve our company transformation."

"While making progress on several priorities, we recognize 2019 is another transition year," stated CEO JB Rudelle. "We are working hard to accelerate our transformation."

Tired businessman looking at his laptop

IMAGE SOURCE: GETTY IMAGES.

Here's what happened

During the subsequent conference call, though, management elaborated on exactly why they're asking for more time to implement this transformation.

According to Rudelle, Criteo's challenges stem from two problem areas (emphasis mine):

One, our ability to successfully sell our product suite at scale requires further expertise building. While we're shipping new features on time, we need to evolve the sales organization and go-to-market further in order to grow the solutions even faster. This relates primarily to our web upper-funnel and our app-install products. In those 2 areas, the gap in terms of sales pitch, client onboarding process and campaign management as compared to retargeting is significantly larger than what we anticipated. Two, our demand-generation programs for mid-market are not ready yet. While the technology for self-service onboarding will be ready on time at the end of Q2 as planned, we realize that our demand-generation programs to attract new small clients in large numbers will take until 2020 to be fully effective in driving new client additions at scale.

To that end, Criteo's number of clients increased 5% year over year to 19,373, with client retention remaining steady at close to 90%. But, while client counts can admittedly ebb and flow on a sequential basis from quarter to quarter, that's also down slightly from approximately 19,500 clients three months ago.

As an aside -- and as I suggested earlier this month -- these challenges have nothing to do with recent reports that Alphabet's Google is considering new restrictions on how it handles third-party ads within its Chrome web browser. Though with Criteo's share-price declines in recent weeks due to those concerns, Rudelle did reiterate that Criteo believes Google is unlikely to impose significant restrictions as it faces increasing scrutiny from antitrust authorities worldwide.

...and what Criteo is doing to fix it

To address the scaling and "expertise building" issue, Rudelle says Criteo is implementing a number of initiatives, including increasing the size of its sales forces, bolstering training for its client-facing teams, and adjusting hiring processes and sales management structures to help foster sales growth for "upper-funnel products."

"In retrospect, while we understand that we needed to adjust our go-to-market," he elaborated, "we underestimated the time it takes to hire specific sales experts in a very competitive market for talent."

Next, to improve mid-market demand generation, Criteo is grouping together three initiatives including selling its products through third-party sales channels, integrating with e-commerce platform partners, and ramping lead-generation programs on social media. All told, after this transitional 2019, Criteo believes it will begin to see "significant" mid-market client momentum by the first half of next year.

The bottom line

Time will tell whether these adjustments are exactly what Criteo needs to spur its multiproduct transformation forward. However, our near-term-oriented market isn't always inclined to be patient. For now, that's why I'm content to stay on the sidelines, and I think investors would do well to at least add Criteo to their watchlists for the next few quarters to keep an eye on how this story unfolds.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Criteo S.A. Stock Quote
Criteo S.A.
CRTO
$26.17 (-1.28%) $0.34

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
344%
 
S&P 500 Returns
120%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.