Shares of advertising-technology company Criteo (NASDAQ:CRTO) pulled back on Wednesday after the company reported results for the third quarter of 2020. Top- and bottom-line results were ahead of expectations but were still sharply down year over year. Furthermore, guidance for the fourth quarter indicates the company will continue to be growth challenged, and investors didn't seem to like that. As of 3 p.m. EDT, Criteo stock was down less than 1% but it had been down as much as 10% earlier in the day.
For Q3, Criteo's revenue fell 10% year over year. Management estimates the COVID-19 pandemic cost the company $80 million in revenue. Assuming that's true, revenue would have been up 5% from the the third quarter of 2019. But the drop in revenue was costly. Net income was just $5 million -- down $16 million from last year. Management attributed $12 million of this to restructuring costs.
While other ad-tech companies are reporting improving results, Criteo maintains a cautious outlook. Specifically, management is looking at Europe. The company's revenue for Europe, the Middle East, and Africa (EMEA) accounted for 36% of total Q3 revenue. Right now, surging coronavirus numbers are threatening to shut down the region more than it already is, which would likely lead to a decline in advertising demand. This is one reason management is guiding for an adjusted revenue decline of 15% year over year in the upcoming fourth quarter.
Criteo stock currently trades almost 70% below three-year highs. From a valuation perspective, it looks cheap from a variety of metrics. But the cheap stock reflects investor concerns with third-party cookies. Management rightly points out it collects a lot of first-party data, but the company still relies on third-party browser cookies nonetheless. These allow for targeted ads, but privacy concerns keep pushing cookies closer to theoretical extinction. Therefore, Criteo needs to keep looking for new ways to thrive in a cookie-less world.
To that end, Criteo made another announcement today. It's collaborating with The Trade Desk (NASDAQ:TTD) on a project called Unified ID 2.0. This is a potential alternative to the browser cookie and it will allow for targeted ads while still addressing privacy concerns.
As demand-side advertising platforms, Criteo and The Trade Desk are competitors -- Criteo specifically mentions The Trade Desk as a competitor in SEC filings. To me, the collaboration demonstrates that this issue is bigger than either company. It's in the best interest of both to develop stronger alternatives to browser cookies, contributing to the long-term viability of ad platforms like this.