Criteo SA (ADR) Falls After Marketing a Mixed Quarter

It took seven quarters as a publicly traded company, but Criteo SA (ADR) finally fell short of Wall Street's expectations -- even if only on one metric.

Nonetheless, shares of the performance marketing technology company dropped more than 13% in Tuesday's early trading after it announced second-quarter revenue excluding traffic acquisition costs, or exTAC, rose 64% (51% on a constant-currency basis) year over year to 110.5 million euros. This marks a new quarterly high for Criteo, and was driven by a company-record 730 net client wins in the quarter, the continued roll-out of its technology on all screens, and the ongoing expansion of its publisher relationships.

More of the same strengthsOnce again, revenue ex-TAC growth in the Americas led the way, with sales jumping 114% year over year (81% at constant currency, accelerating from 78% this time last year) to 40 million euros. As it stands, that puts the Americas at roughly 36% of total sales. Meanwhile in the EMEA region, revenue ex-TAC grew 38% year over year (37% at constant currency) to 49 million euros, while the smaller Asia-Pacific segment saw revenue ex-TAC increase 66% (53% at constant currency) to 22 million.

That translated to 64.3% growth in adjusted earnings before interest, taxes, depreciation and amortization to 21.8 million euros, and 78.4% growth in adjusted net income to 9.9 million euros, or 0.15 euros per diluted share. Analysts, on average, were anticipating lower quarterly revenue of 106.8 million, but higher adjusted earnings of 0.17 per diluted share.

To be fair, Criteo told investors in its solid report three months ago to expect second-quarter lower revenue ex-TAC between 105 million euros and 107 million euros, and lower adjusted EBITDA between 18 million and 21 million. It appears, then, that analysts have simply overestimated Criteo's bottom line this quarter.

On necessary investments"We have successfully executed on our growth plans for seven quarters in a row," insistedCriteo CFO Benoit Fouilland, "and we will continue to invest in 2015 to maximize our growth potential."

So, why the bottom-line miss? For one, note operating expenses in the second quarter jumped 68% year over year to 90 million euros. For the majority of that increase, Criteo credits 42% headcount growth in research and development, and 48% headcount growth in sales and operations. What's more, Criteo states, "We intend to continue to invest significantly into Research & Development and Sales & Operations for the remainder of the year to support current and anticipated future growth." That's fair enough; both are necessary for Criteo to scale its business and ultimately grab as much share of its burgeoning market as possible early in the game.

Going forward, Criteo expects revenue ex-TAC in the current quarter between 116 million euros and 118 million euros, and adjusted EBITDA between 21 million euros and 23 million euros. Analysts' models called for lower revenue ex-TAC of 115.9 million euros, and adjusted earnings of 0.27 euros per share.

Finally, for the full year 2015, Criteo now anticipates revenue ex-TAX between 470 million euros and 475 million euros -- an increase from its previous guidance for between 454 million euros and 460 million euros -- and maintained its previous guidance for adjusted EBITDA between 120 million euros and 127 million euros. Analysts, on average, were expecting 2015 revenue of just 461.5 million euros, and adjusted earnings of 1.13 euros per share.

At the same time, today's declines aren't entirely surprising considering Criteo stock is still up more than 50% over the past year as of this writing. The response may also be amplified amid recent worries that Apple will soonincorporate ad-blocking features into its mobile Safari browser for the first time -- a move that would almost certainly come at Criteo's expense, but could also be overblown given Criteo's sustained growth despite existing ad blockers on the market.

In the meantime, however, apart from its slight bottom-line shortfall relative to consensus estimates, I think this represents yet another impressive quarter from Criteo.

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