Ad tech company Criteo had to rebuild its business after Apple creamed its revenue — but its earnings are holding strong

Criteo CEO JB
Rudelle
Criteo

• Criteo is a rare example of a successful public ad-tech
  company, even with challenges around Europe’s General Data
  Protection Regulation and Safari ad blocking.
• The French-owned firm’s second-quarter overall revenue
  dropped 1% year-over-year but revenue excluding traffic
  acquisition costs increased 5% during the same time
  period.
• CEO JB Rudelle said that the firm “anticipated a bigger
  impact” from GDPR.
• After Apple’s restrictions on targeting ads on websites
  cut into Criteo’s revenue last year, the firm is trying to
  pivot to serving ads within apps and emails.

French ad-tech company Criteo has faced a fair number of
challenges in the past year.

On top of already shaky public markets for ad-tech companies, the
firm has had to weather Europe’s
General Data Protection Regulation. That law threatened
to wipe out Criteo’s most power digital ad tactic: retargeting
consumers with ads after they look or buy at specific products on
websites.

And after Apple
revamped its Safari internet browser last fall with a feature
called Intelligent Tracking Prevention (ITP) that significantly
limits ad targeting by preventing third parties to track users
for more than 24 hours, Criteo had to cut its 2018 forecast.

And while the company’s revenue isn’t skyrocketing, it’s also not
plummeting as some observers may have expected — at least
according to its second-quarter earnings.

Criteo is pushing Wall Street on a unique revenue
metric

Criteo’s overall revenue hit $537 million during the second
quarter, equivalent to a 1% drop from $542 million in the second
quarter of 2017.

To compare, Criteo reported revenue of $564 million in the first
quarter, representing a 9% year-over-year increase.

But according to CEO JB Rudelle, the company has been pushing the
metric of revenue excluding traffic acquisition costs to
investors in recent quarters. That metric generated $230 million
in revenue during the quarter, which is up 5% from $220 million
year-over-year.

“It’s a mix of fairly modest revenue growth and very meaningful
growth,” Rudelle told Business Insider ahead of earnings. “I
recognize that it’s fairly modest growth compared to what we’ve
shown in previous years — we had some headwinds at the end of
last year with
ITP and we had to readjust our financial forecast. 2018 is a
transition year for us.”

Specifically, Criteo now counts 19,000 advertisers on its
platform, representing a 16% yearly increase. In addition to
providing technology that helps retailers zero in on specific
audiences and deliver targeted ads, Criteo also provides
header-bidding software to help publishers manage their
programmatic ad revenue.

Criteo works with 2,300 publishers to power their programmatic
pipes, up from 2,000 in the first quarter of 2018.

Small publishers “went way above” the EU’s
recommendations for GDPR

According to Rudelle, the firm saw GDPR “coming for a long time —
it creates much more trust and clarity.”

But in terms of small publishers — think US-based newspapers and
local sites — “a small fraction of them had an implementation of
GDPR settings which went way above what is recommended … and that
created some friction,” he said.

Indeed, sites like Tronc-owned Chicago Tribune and New York Daily
News
blocked their websites from EU users on May 25, the day that
GDPR rolled out.

Rudelle referred to such approaches as “rigid” compared to the
more “mainstream” ways that involves publishers setting up pages
that require consumers to read about how their data is collected
and check a box confirming that a publisher can collect data on
them.

“We anticipate this small friction is going to last until the end
of the year as the outliers who have been implementing GDPR in a
much more rigid way,” he said. “Those outliers will hopefully
switch back to mainstream implementation but obviously we don’t
control when that is going to happen.”

However, he said that the company’s guidance for Q2 included a
buffer specific to GDPR and that the firm “had anticipated a
bigger impact.”

Criteo is trying to move away from Apple’s grip on mobile web
advertising

Criteo is most well known for its retargeting technology that
helps advertisers stitch together audiences across multiple
websites to serve targeted ads.

But after Apple clamped down on preventing firms like Criteo to
do so with a change to its Safari browsing app, the company’s

shares tumbled in December.

“We are recovering from this right now,” Rudelle said. “This
year, we had to rebuild our business, which limits any growth
that you can do with existing clients.” The decision to
readjusting the firm’s direction “took us too long.”

That said, Rudelle added that Criteo learned its lesson from
relying on manufacturers too hard and is “making a major effort
to redesign our platform architecture to be much more less
dependent on those types of browser manufacturing settings.”

So, Criteo is moving its business away from web advertising to
two areas that it believes Apple and other manufacturers will not
be able to interfere with: in-app and email advertising.

In-app advertising in particular is the company’s
“fastest-growing segment,” because it does not rely on cookies
that power web advertising, Rudelle said.

“This gives us a much more diversified way to identify users and
mitigate any risk on the back of any technology,” he said.