For example, shop for laptops on an e-commerce site like Amazon (AMZN), and you'll spend the rest of your browsing session looking at banner ads highlighting Amazon's best available computer wherever you go in cyberspace. The sophisticated technology relies on programmatic buying for relevant consumer options that benefit the advertisers as well. Programmatic advertising is the real time automated bidding, buying and placement of banner ads.
Criteo was incorporated in France in 2005, and began selling their solution primarily to Western European companies two years later. They have since established a global footprint, and can now claim 7,000 clients in Europe, the United States and Asia. As of January 1st, 2015, 88.3% of Criteo's revenues were generated from outside the home country. All financial statistics for the past three years are reported in Euros:
| Year | 2012 | 2013 | 2014 |
| Revenues | €271.9 million | €444.0 million | €745.1 million |
| Revenues Excluding Traffic Acquisition Costs | €114.1 million | €179 million | €303.7 million |
| Net Income | €0.8 million | €1.4 million | €35.4 million |
| Adjusted EBITDA | €17.4 million | €31.3 million | €79.4 million |
Business is booming for the small cap company. They're profitable, too. Investor's Business Daily claims Critero's annual earnings growth is projected to be 31% or higher over the next three years. During the last conference call, the company raised full year 2015 guidance for Adjusted EBITDA to between €120 million and €127 million. If we split the difference and use €123.5, it would mean a gain of 55.5% for the year. Wall Street took notice, and the stock continues to rally.
Addressable Market:
According the the Annual Report:
- Business to consumer retail e-commerce was approximately a $1.3 trillion industry globally in 2014, growing at 19.5% per year from 2013 to 2017, according the eMarketer.
- Goldman Sachs has stated penetration of smartphones and tablets has driven rapid growth of mobile commerce, which represented $61 billion globally in 2012, and is expected to grow at a 53.3% compound annual growth rate between 2012 and 2017.
- ZenithOptimedia reports marketers spent $122.1 billion on Internet advertising in 2014, with this spend expected to grow at a compound annual growth rate of 15.5% through 2017.
Investor's Business Daily. The newspaper many consider to be the primary print source for momentum traders gave the company plenty of ink the past three months. From my experience, stocks IBD features in their "New America" column, and are highlighted in the IBD Top Fifty Stocks, tend to stay in motion until dethroned by a bad earnings call. Critero is in the sweet spot for revenue acceleration because of e-commerce trends, and sells for reasonable valuation metrics for a growth technology stock. I anticipate the equity going higher after the next conference call in early August unless expenditures get out of hand.
Analyst expectations are getting elevated for Criteo. Out of the twelve Wall Street firms that cover the stock, ten have a Buy, or, Outperform rating on the security. Last week, RBC Capital Markets initiated coverage with an Outperform rating. This goosed the price per share. If Critero has another good quarter, other brokerage firms will initiate coverage, or, up the ante for price appreciation.
The partnership with Facebook (FB) just got stronger. According to comScore data, Criteo ads reached 1.1 billion unique users worldwide on the desktop in March. Many of these end users may be part of the ever expanding Facebook universe. Now that Facebook has recently released Dynamic Product Ad for mobile devices, Critero has access to Facebook's mobile ad inventory. This could be a boon for sales going forward.
Finally, the Criteo Engine's ability to match shopping data across multiple devices is a new phenomena for the company, and will increase revenues. We have transitioned to a mobile world, and working with end users on desktops, as well as smartphones and tablets, keeps Criteo ahead of the competition. As is, the company has a 90% client retention rate. By the end of last quarter, 84% of customers were using the Criteo multi-screen solution.
Caveats:
Michael Corleone in The Godfather Part II is famous for saying: "Keep your friends close but your enemies closer.". Although the technology sector makes strange bedfellows, Critero should probably follow Michael Corleone's advice. The annual report sites Google (GOOG), Amazon, and Yahoo (YHOO) as well-established competitors. They are also customers. For instance, the latest conference call states several new clients were added including Hubbub, a subsidiary of Amazon.
In addition, Google is also one of the largest publishers working with Critero on the supply side. As Investor's Business Daily reported:
"In the self-serve formula, retailers or advertisers can bypass a manager such as Critero and go directly to ad platforms found on Facebook, Google or other ad publishers and suppliers. This path poses a competitive threat to Critero.".We live in a do-it-yourself world, and companies are always looking for ways to cut costs, and raise productivity.
Plus, there's always the threat of Criteo's bread and butter technology being leapfrogged by another entity. Two weeks ago, Apple (AAPL) announced a content-blocking feature for the soon to be released iOS 9. This translates into blocking banner ads in mobile browsers. Stocks in the advertising sector went down in unison for a week following this announcement. This includes Criteo. The stock has bounced back in tandem with the overall market during the past seven trading sessions.
Valuation:
This is not an expensive stock using traditional P/E and PEG Ratios. Although the trailing twelve month P/E is a lofty 74, the company's earnings are growing close to 89% for the current quarter. This gives us a PEG ratio of below one. That's in the wheelhouse for many technology investors. Wall Street is always looking forward, and when we examine the forward P/E ratio for the end of 2016, it decreases to 35. Trailing twelve month price/sales is also very reasonable at 3.5. Not dirt cheap, but you're not going to get a growth stock at distressed prices in this investing environment.
Conclusion:
Critero trades at an all time of $55, bucking the trend of European equities that have faced serious tailwinds in a recessionary environment. Nevertheless, this is a dangerous stock because of its small market cap of 3.5 billion, plus the fleeting nature of technology superiority in individual companies in the early 21st Century. However, the window for investors to hold an equity gets smaller and smaller as each day passes with actively managed mutual fund managers trying to beat high frequency trading platforms and index benchmarks like the S&P 500. I believe if you have a holding period of three to six months, you may make money with this one.