Criteo S.A. Beats Expectations Again on Innovation, New Customer Growth

Criteo SA (ADR) (NASDAQ: CRTO) announced second-quarter 2017 results on Wednesday morning, highlighting its ever-growing base of loyal customers, better-than-expected revenue growth, and reiterated full-year guidance. Nonetheless, Criteo shares pulled back modestly from near their one-year high as investors absorbed the news.

Let's dig deeper, then, to see what the advertising retargeting specialist accomplished over the past few months, as well as what we can expect from the company.

Criteo results: The raw numbers

What happened with Criteo this quarter?

  • Revenue growth was driven by a combination of innovation in both core technology and new products, better access to publisher inventory, and new client additions.
  • Similar to last quarter, net income was impacted by costs associated with Criteo's acquisition of HookLogic in the fourth quarter of 2016, as well as restructuring costs in China. On an adjusted (non-GAAP) basis -- which excludes those expenses and stock-based compensation -- net income grew 18% year over year to $0.39 per share.
  • Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) grew 38% (42% at constant currency) to $54 million.
  • By comparison, Criteo's latest guidance called for lower revenue ex-TAC of between $209 million and $213 million, and lower adjusted EBITDA of $44 million to $48 million.
  • Cash flow from operations increased 214% year over year to $60 million, while free cash flow swung to $33 million (compared to negative free cash flow of $3 million in the same year-ago period). Criteo ended the year with cash and equivalents of $308 million.
  • Criteo added 950 net new customers this quarter, bringing the company's total to over 16,000 commerce and brand clients. Client retention remained steady at 90%.
  • On a geographic basis:
  • Americas revenue ex-TAC increased 40% (39% at constant currency) to $84 million.
  • Europe, Middle East, and Africa revenue ex-TAC grew 27% (32% at constant currency) to $85 million.
  • Asia-Pacific revenue ex-TAC grew 29% (32 at constant currency) to $51 million.
  • Criteo Direct Bidder is now connected to more than 450 publishers globally, increasing their yields by 20% to 40%, on average.

What management had to say

"We are building the highest performing and open commerce marketing ecosystem for retailers and brands, allowing them to compete with large e-commerce companies," said Criteo CEO Eric Eichmann. "Our unique solution opens up a large opportunity for us."

Criteo CFO Benoit Fouilland added, "We delivered accelerating profitable growth and increased cash flow, while investing in the business. This attractive combination continues to differentiate our business model."

Looking forward

Shifting gears to the third quarter, Criteo expects revenue ex-TAC to be between $227 million and $230 million -- above the $224.4 million Wall Street was expecting -- with adjusted EBITDA between $69 million and $72 million. As such, Criteo reaffirmed its previous full-year 2017 guidance for revenue ex-TAC to grow between 28% and 31% at constant currency. Criteo also continues to expect 2017 adjusted EBITDA margin to increase between zero basis points and 50 basis points from 31% from 2016.

All things considered, there were no big surprises from Criteo on Wednesday. Rather, the company is still luring new clients through its differentiated platform and a continued focus on technological innovation. So with shares still up more than 24% so far in 2017, long-term investors should be nodding in approval of Criteo's results.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Criteo. The Motley Fool has a disclosure policy.