Ad Tech’s Future, A Quick Look at @criteo

Previously posted on Linkedin.

Andrew Frank, Research VP & Distinguished Analyst at Gartner, defines the Ad Tech industry as all technology that supports digital advertising activities. Of course, this is a general approach for a vast and complex industry, so I decided to set boundaries to my analysis and focus on customer engagement and conversion online (search and internet display marketing). This is why I chose to have a look at Criteo, a French Company listed on the Nasdaq Stock Market, which has important clients in this segment of the Ad Tech industry, such as Expedia, Ford,, IKEA, ING, L’Oréal Paris, Orange, Qatar Airways, Rakuten, Samsung, Sephora and Zalando.

Criteo compites on Internet display advertising, when the Advertiser pays an online company for space on one or more of the online company’s pages to display a static or linked banner or logo. This market accounted for $56.5 billion globally in 2014, while the total internet advertising spend (including search marketing, i.e. Google) was $122.1 billion and is expected to grow at a CAGR of 15.5% through 2017.

Source: ZenithOptimedia

With these numbers and growth rates there are reasons to be optimistic, however, this market is highly competitive and big players such as Amazon, eBay, Facebook, Google and Yahoo! may change the rules of the game since some of them also operate their own advertising networks or exchanges from which Ad Tech companies  buy advertising inventory (spaces), what result in a big threat to their business model sustainability.

Size of bubble represents Enterprise Value / Source: NOAH Advisors

The increase in digital marketing spend is benefiting large platforms like Google and Facebook, more than is benefiting the industry in general, what is reflected in their great stock performance. This results in a higher bargaining power of Google or Facebook as, not only direct competitors of Criteo, but as suppliers (remember that they provide their platforms to firms such as Criteo interested in displaying advertising of its customers to the social platforms large audiencies). To give you an example, Criteo traffic acquisition cost represented only by Google was 32% in 2012, 28% in 2013 and 29% in 2014. Therefore, it is critical for Ad Tech firms to diversify its advertising inventory(third party internet places in which they display advertisements).

The market seems to be aware of the complexity of sustaining long-term growth in this industry (if you don’t have the platforms and users) because, despite its good financial performance, Criteo’s stock does not hold a firm position since its IPO in late 2013.

YTD Price Returns for December 30, 2015: Facebook +36,14%, Criteo -1,46%, Nasdaq +6,96%, Google +49,92% / Source: Google Finance

The factors which make it extremely difficult for Criteo and similar firms to compete with companies such as Facebook or Google are:

So, what will the future bring? From my point of view we will continue to see funding rounds and new startups as a consequence of the online advertising spend growth (mobile advertising is still a long way off), along with acquisitionsof both big players and mid-market firms struggling to survive changes and competition.  Also, internet privacy regulation and its increasing concern to society (see the graph below) will be the key environmental factor to be considered by the industry in order to avoid important economic liabilities and reputational damage. What do you think?

Adblock interest over time / Source: Google Trends

Sources: Criteo SA Annual Report (2014), ZenithOptimedia, Gartner, Google Finance, Google Trends. Photo by @thomweerd.

Author: Francisco José Hidalgo-Barquero

Asesor de Fusiones y Adquisiciones. Consultor de Negocio.

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