Back to top

Image: Bigstock

Bear of the Day: Criteo S.A. (CRTO)

Read MoreHide Full Article

Criteo S.A. (CRTO - Free Report) , a Zacks Rank #5 (Strong Sell), is a global technology company that specializes in performance display advertising. The Company offers clients a range of solutions such as click per cost, online banner displays, user optimization, data security, and search management tools to control campaign costs. It serves companies in the online retail, classifieds, and travel segments. Criteo SA is headquartered in Paris, France.

Recent Earnings Data

In early November, management announced Q3 17 earnings results where they missed the Zacks consensus earnings estimate, but beat the revenue estimate.  The company saw revenues increase by 32% YoY, with revenues excluding Traffic Acquisition Costs (ex-TAC) improving by +33%.  Adjusted EBITDA was up +45% with cash flows from operations rising by +43%.  Lastly, net income gained +51% when compared to the previous year.  

Management’s Take

According to Eric Eichmann, CEO, “Criteo Commerce Marketing Ecosystem is seeing very positive acceptance from chief marketing officers worldwide. Our open ecosystem approach brings large opportunities for us." The company’s CFO, Benoit Fouilland, stated, "Our solid Q3 results and increased profitability outlook for 2017 highlight the strengths of our business.  We are confident in our position and growth prospects."

Issues Ahead

While the company posted some positive data in its quarterly results, there are two major issues facing the company in both the near and mid-term which are expected to negatively impact revenues.  Apple recent release of its Intelligent Tracking Prevention (ITP) has nullified CRTO’s previous ITP workaround.  This has forced the company to attempt to find another way around the ITP.  Criteo is currently developing an alternate solution, but no date of its release has been announced.  Management stated that the new apple ITP threatened 22% of its revenues ex-TAC (Traffic Acquisition Costs).  

Another issue is the new law that takes effect on May 25th, 2018 in the European Union (EU); EU Parliament passed the General Data Protection Regulation (GDPR) designed to strengthen data privacy laws across Europe.  This gives credence to potential ePrivacy issues down the road.  The worry is that ePrivacy would require consumers to give explicit consent to tracking at the browser level, which requires actively choosing an option rather than a passive scroll to give consent (as had been the method previously).  This could potentially negatively impact ex-TAC revenues by almost 20%.  

Price and Earnings Consensus

Due to the Apple ITP issues facing Criteo, and the potential ePrivacy impact, the stock price has plummeted recently as you can see in the graph below.

Criteo S.A. Price and Consensus

Criteo S.A. Price and Consensus | Criteo S.A. Quote

Declining Earnings Estimates

Over the past 30 days, earnings estimates for Q4 17, Q1 18, and FY 18 have all seen negative estimate revisions; Q4 17 fell from $0.95 to $0.94, Q1 18 dropped from $0.53 to $0.32, and FY 18 was cut from $2.70 to $1.99.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>

 


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Criteo S.A. (CRTO) - free report >>