Criteo S.A. (CRTO) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary and Q&A reflect a positive sentiment, with strong financial performance, strategic partnerships, and growth in retail media and AI innovation. Despite some uncertainties in monetization strategies and CTV timelines, the company's confidence in retaining its retailer base and unique value propositions in CTV and retail media provide a positive outlook. The market cap indicates a moderate reaction, leading to an expected stock price increase of 2% to 8% over the next two weeks.

Key Financial Performance

Revenue $483 million, with a year-over-year growth of 7% at constant currency. This growth was supported by better macro trends in May and stable environment since then.

Contribution ex-TAC $292 million, representing a 7% year-over-year growth at constant currency. This includes a $6 million tailwind from foreign currencies.

Performance Media Revenue $422 million, with contribution ex-TAC of $232 million, up 6% year-over-year at constant currency. Growth was driven by AI-powered audience modeling and Commerce Audiences.

Retail Media Revenue $61 million, with contribution ex-TAC growing 11% year-over-year at constant currency. Growth was driven by Retail Media on-site and off-site campaigns, as well as new retailer and brand partnerships.

Travel Vertical Growth 28% year-over-year growth, driven by momentum in EMEA and the Americas.

Adjusted EBITDA $89 million, reflecting strong operational leverage and disciplined cost management.

Free Cash Flow Negative $36 million for Q2, reflecting seasonality and payment of 2024 income taxes. Trailing 12-month free cash flow was $194 million.

Media Spend in Retail Media Close to $400 million, up 20% year-over-year, driven by multiyear partnerships and new demand sources.

Client Retention Close to 90%, indicating strong client loyalty.

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Operating Highlights

Commerce GO!: Campaign volume grew 200% quarter-over-quarter, driven by SMB advertisers and lower churn. It simplifies how advertisers plan, buy, and optimize across formats and channels using AI.

Social Capabilities Expansion: Enabled advertisers to activate Facebook and Instagram inventory at the SKU level for global commerce audience campaigns. Social campaign spend grew nearly 30% sequentially.

CTV Campaigns: Partnership with Jewelry Television showed strong results: 93% new users, 20% increase in average order value, and doubled qualified site visits.

Auction-based Display Technology: Launched in June, rapidly adopted by 16 retailers globally within a month, expected to double adoption soon. Provides programmatic flexibility to retail environments.

Retail Media Expansion: Added new retailers and brands globally, including Thermo Fisher, BJ's Wholesale Club, and others. Media spend in Q2 grew 20% year-over-year.

APAC Growth: Notable strength in APAC, driven by full-funnel activation and marketplace offerings.

Travel Vertical Growth: Travel vertical grew 28% in Q2, with strong momentum in EMEA and the Americas.

Operational Realignment: Consolidated product, R&D, and commercial strategy under two leaders to improve agility and accountability.

Cost Management: Disciplined cost management and operational fitness, including expansion of a lower-cost hub in India.

AI Innovation: Focused on Agentic AI to enhance commerce data and shopper journey signals. Developing model context protocol (MCP) for real-time shopper information delivery to AI agents.

Partnerships: Expanded global partnerships with dentsu and another major holding company, leveraging the full Commerce Media Platform stack.

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Risk or Challenges

Macroeconomic Uncertainty: The company noted uncertainties in the macro environment, which could potentially lower advertising budgets in discretionary categories. This poses a risk to revenue growth and financial performance.

Client Spending Reductions: Ad tech services were negatively impacted by lower spending from a large client in the media trading marketplace. This highlights dependency on key clients and the risk of revenue concentration.

Retail Sector Weakness: Lower spending in the retail sector, including a 6% decline in fashion, indicates challenges in certain verticals that could impact overall growth.

Competitive Pressures: The company faces competitive pressures in Retail Media, requiring continuous innovation and investment to maintain market share and attract new clients.

Operational Costs: Increased operational expenses, including investments in product development, marketing events, and personnel, could pressure margins if revenue growth does not keep pace.

Dependency on AI and Technology: The company’s strategy heavily relies on AI-driven tools and innovations like Commerce GO! and Agentic AI. Any delays or failures in these technologies could hinder growth and operational efficiency.

Geographic Variability: Growth was uneven across regions, with high single-digit growth in Asia Pacific and lower budgets in the U.S., indicating geographic risks to revenue stability.

Retail Media Client Dynamics: Specific client dynamics in Retail Media are expected to negatively impact Q4 2025 performance, highlighting risks tied to client-specific issues.

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Guidance & Outlook

Contribution ex-TAC growth for 2025: Expected to grow 3% to 4% year-over-year at constant currency, with growth in each segment.

Performance Media contribution ex-TAC growth: Expected to be up mid-single digits in 2025, raised from prior expectation of low single-digit growth.

Retail Media growth projection for 2025: Projected to be in the low to mid-single digits range at constant currency. Excluding two specific clients, underlying growth for 2025 is expected to be around 20%.

Adjusted EBITDA margin for 2025: Anticipated to be approximately 33% to 34%.

CapEx for 2025: Expected to be approximately $100 million to $110 million.

Q3 2025 Contribution ex-TAC: Expected to be $277 million to $283 million, up 5% to 7% at constant currency.

Q3 2025 Adjusted EBITDA: Expected to be between $81 million and $87 million.

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Shareholder Return Plan

Share Buyback Program: We deployed $48 million for share repurchases for this quarter, which included the repurchase of 1.7 million shares. Year-to-date, we have allocated $104 million to share repurchases, and we have $115 million remaining in our Board share buyback authorization as at the end of June.

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Key Q&A

Q:What is the monetization strategy for the Agentic AI product?

A:The monetization strategy for the Agentic AI product is still being determined. Potential strategies include affiliate programs, sponsored citations, commerce transactions, and product recommendations inside platforms. Commercial models could vary from calls to the API on a CPM or CPC basis. The company is setting up its backend to be flexible enough to accommodate the prevailing pricing model once it is defined.

Q:How does the Agentic AI product impact Retail Media?

A:Currently, AI assistance is being used more for discovery rather than conversion, which is positive for Retail Media. The company is preparing its backend to support product recommendations, audience capabilities, and full-funnel capabilities to be called by agents. This setup aims to ensure monetization regardless of the prevailing pricing model.

Q:Are clients actively spending on or working with the Agentic AI product?

A:It is still early days in discussions. Retailers are focusing on setting up Agentic front ends to control data flows and maintain relevance in the shopper journey. Brands are looking at changes in search behavior to ensure discoverability. The company is setting up to serve both branded agents and LLMs for product recommendations and monetization.

Q:What is the sales motion and competitive differentiation for agency relationships?

A:The sales motion involves starting conversations at the highest level to establish partnerships with agencies. This includes creating shared economics, data integration strategies, and co-development strategies. The company bundles its commerce growth platform, performance offering, Commerce Max, and Commerce Grid to differentiate its offerings. Training and customer service are also emphasized to drive adoption at the user level.

Q:What is the timeline for ramping up the CTV channel?

A:The company is in the early stages of assessing how CTV fits into its strategy. Partnerships like the one with WPP Media are enabling commerce-first CTV strategies. The company is focused on creating connections between the living room and other channels, and expects CTV to become a more meaningful mix of its supply base, ramping up into 2026.

Q:How does the Miracle partnership help penetrate the long-tail marketplace sellers?

A:The Miracle partnership allows the company to unlock demand from third-party sellers in the mid- to long-tail marketplace. Miracle provides marketplace support, and the partnership enhances its value proposition by enabling demand generation with targeting and retargeting tools from Criteo. This is mutually beneficial as it drives demand and usage of Criteo's platform.

Q:How confident is the company in retaining its retailer base after recent challenges?

A:The company is confident in retaining its retailer base. It now partners with over 230 retailers, including 70% of the top 30 retailers in the U.S. and 50% in Europe. Recent roll-offs represented less than 2% of CXT. The company continues to expand its footprint globally and has added new partnerships, such as with Microsoft.

Q:What is the company's unique value proposition in the CTV channel?

A:The company's unique value proposition in the CTV channel is its ability to tie advertising to sales lift and better cost per order. This differentiates it from competitors by showing incremental return on ad spend and sales lift from CTV sessions, making it a performance-based and accountable medium.

Q:What are the drivers for increasing total activated media spend?

A:The company is focused on growing activated media spend through its Performance Media strategy, which includes full-funnel, cross-channel, self-service offerings. Growth in Retail Media spend and new agency agreements with volume expectations are also contributing factors. The company is addressing the drag from its ad tech services unit and focusing on performance products to drive growth.

Q:What is the company's strategy for attracting and retaining AI and engineering talent?

A:The company has a strong base in its Paris Hub, which is a key area for AI engineering talent. It has hired 60 new engineers and maintains high retention rates due to its interesting work environment and strong company culture. Recent promotions and new hires, such as the Head of Product Activation, also contribute to its strategy.

Q:What is the outlook for Retail Media growth over the next 12 months?

A:Retail Media growth will be driven by new supplier wins, scaling new products like on-site video and programmatic display, and developing technology for open RTB for retail supply. Programmatic display has seen strong uptake, with 16 retailers live and expected to double in the coming weeks. The company is also focused on improving fill rates and normalizing demand in Retail Media networks.

Q:What is the impact of tariffs and holiday demand on advertiser sentiment?

A:The company has been prudent in its outlook, noting that tariffs impact consumer sentiment more than direct spending. Certain categories and retailers, particularly in Performance Media, are affected. Same retailer contribution ex-TAC remains strong, and the company expects continued growth with its existing base and new retailers.

Q:Review of Unclear Management Responses

A:Management appeared to avoid giving a direct answer to the monetization strategy for the Agentic AI product, stating that it is still being determined and depends on the prevailing pricing model. Additionally, discussions on the timeline for ramping up the CTV channel and the impact of tariffs on advertiser sentiment lacked specific details or concrete data.

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Earnings Word Cloud

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