Criteo’s High Performing IPO

According to ad agency ZenithOptimedia, global ad spend is estimated to be worth $503 billion in 2013. The US accounts for $109.7 billion of this market. The research study estimates that last year, 22% of US ad spend was on digital media, compared with 19% in 2012. Internet advertising is projected to grow 16% annually over the next two years and will account for 28% of all US ad spend by 2015. Global ad spends are expected to follow similar trends.

Criteo’s Offerings
Paris, France-based Criteo (NASDAQ: CRTO) is a global leader in the Performance Display advertising market. Founded in 2005 by Jean-Baptiste Rudelle and Franck Le Ouay, Criteo uses their predictive software algorithms to enable advertisers to make more targeted ad placements.

Criteo’s offering is chiefly driven by their Criteo Engine, database assets, access to display advertising inventory, and their advertiser and publisher platforms. Criteo’s data portfolio includes clients’ proprietary data including transaction activity on their websites, publisher-specific data including performance of advertisements, third-party data such as customer demographic and internally developed data based on proprietary knowledge from previous campaigns. The Criteo Engine then uses several machine learning algorithms to analyze each opportunity that the end consumer is faced with and converts the volumes of data collected to observe and predict user intent. Criteo partners with their clients to track activity on their websites and thus optimize their advertising placement capabilities. Criteo believes that their solutions help their clients in creating more effective ad placements that are more likely to be converted to sales.

Earlier this year, Criteo announced the acquisition of Tedemis, a provider of real-time opt-in personalized email marketing solutions, for an estimated €21 million (~$28.9 million). Tedemis solutions help their portfolio of more than 200 clients by providing them with the ability to address the user’s expectations via email to deliver high performing Internet traffic. Criteo plans to leverage the acquisition to expand their presence into new channels.

Criteo’s Financials
Criteo charges their clients based on the number of clicks on an advertisement they deliver. The strength of their offering can be ascertained from the fact that even with a pay-for-performance pricing model, Criteo boasts of extremely high client retention rates.  Their client list includes names like Expedia, Macy’s, and Staples to name a few. They also have a strategic relationship with Yahoo! Japan which grants them privileged access to the advertising inventory.

Over the past few years, Criteo has seen strong growth in revenues. Revenues have increased from €65.6 million (~$90.5 million) in 2010 to €271.9 million (~$375.1 million) in 2012. For the first half of the previous year, Criteo saw revenues grow 72% over the year to €194.3 million (~$268.1 million). Adjusted EBITDA has grown from €9.0 million (~$12.4 million) in 2010 to €13.9 million (~$19.2 million)  in 2011 and €17.4 million (~$24 million) in 2012. For the first half of 2013, adjusted EBITDA fell 40% to €5.2 million (~$7.2 million).

For the recently reported Q4, Criteo saw revenues grow 57% to €135.9 million (~$187.5 million) with adjusted EBITDA recording a 227% increase to €14.5 million (~$20 million). They ended the year with revenues of €444 million (~$612.5 million) and adjusted EBITDA of €31.3 million (~$43.2 million).

Till October last year, Criteo was venture funded with $63.4 million from investors including Idinvest Partners, Elaia Partners, Index Ventures, Bessemer Venture Partners, and SoftBank Capital. Last October, they raised $251 million by selling 8.08 million ADS at $31 each on the Nasdaq under the ticker CRTO. Their stock is trading at $44.39 with a market capitalization of $2.53 billion. It touched a high of $60.95 earlier this month.