Executive Summary / Key Takeaways

• Criteo is successfully transforming into a leading Commerce Media Platform, leveraging deep commerce data and advanced AI to drive performance across Retail Media and Performance Media segments.
• The company delivered solid Q1 2025 results with revenue up 0.3% (3% constant currency) and Contribution ex-TAC up 4% (7% constant currency), driven primarily by Retail Media growth and operational efficiencies leading to significantly higher net income and Adjusted EBITDA.
• Strategic initiatives like the Microsoft partnership, expansion into new formats (onsite video, native display, CTV), and the rollout of the self-service Commerce GO! platform are expected to fuel future growth and enhance competitive positioning.
• Near-term outlook for 2025 is impacted by macroeconomic uncertainty and the unexpected curtailment of services by the largest Retail Media client and a U.S. food delivery client, resulting in a revised low-single-digit constant currency Contribution ex-TAC growth forecast, though underlying Retail Media growth excluding these clients remains strong (~20%).
• Criteo maintains a strong financial position with over $810 million in liquidity as of March 31, 2025, robust cash flow generation, and a commitment to returning capital through an expanded share buyback program, underscoring confidence in its long-term strategy despite near-term headwinds.

The Commerce Media Evolution: Criteo's Transformation Story

Criteo S.A., originally founded in 2005, built its early success on a single-product retargeting solution. While effective for a time, this model faced increasing headwinds in a rapidly evolving digital advertising landscape, particularly with impending changes to data privacy and tracking technologies. Recognizing the need to adapt, Criteo embarked on a significant transformation over the five years leading up to early 2025, pivoting from a specialized retargeting provider to a diversified, multi-solution Commerce Media Platform.

This strategic shift positioned Criteo at the intersection of e-commerce and digital advertising, aiming to capitalize on the growing trend of advertisers seeking to reach consumers directly within their shopping journeys. The company's vision is to enable marketers and media owners to drive measurable commerce outcomes – sales, leads, and advertising revenue – by activating privacy-safe, first-party data and leveraging its technological strengths. This transformation is the central narrative of Criteo's investment thesis today: a company proactively reshaping itself to capture growth in a dynamic market, moving beyond its legacy product to build a more resilient and expansive business.

At the heart of Criteo's Commerce Media Platform lies its technological differentiation. The Criteo AI Engine, refined over nearly two decades of analyzing commerce data, is the core intelligence layer. This engine processes vast datasets, including trillions of intent signals and information across five billion SKUs, to drive hyper-personalization and budget efficiency in real-time. The Criteo Shopper Graph complements this by leveraging proprietary commerce data to understand consumer behavior and predict outcomes, enabling precision targeting.

These foundational technologies provide tangible benefits. The AI-driven optimization has consistently delivered a Contribution ex-TAC uplift in the double-digit million range in recent quarters, demonstrating its ability to unlock additional budgets and improve campaign performance for clients. The company's focus on leveraging in-store data, with a five-fold increase in retailers sharing this information, further enriches its AI models, contributing to more relevant targeting and better campaign results. New initiatives like Commerce GO!, an AI-powered automation toolset, aim to streamline campaign setup and management, allowing advertisers to launch high-performing campaigns in as few as five clicks, significantly reducing the cost to serve and improving client retention, particularly among small clients. R&D continues to focus on expanding capabilities, including new formats like onsite video (recently launched) and outcome-based native onsite display (coming soon), as well as exploring opportunities in CTV, all aimed at expanding the total addressable market (SAM) and serving the full buyer journey. This technological foundation is critical to Criteo's competitive moat, enabling it to offer differentiated performance and efficiency compared to more generalized ad tech platforms.

Competitive Dynamics in the Digital Advertising Arena

The digital advertising market, particularly the programmatic and retail media segments, is intensely competitive and rapidly evolving. Criteo faces a diverse array of competitors, ranging from large, integrated technology giants to more specialized ad tech players.

Giants like Alphabet (GOOGL) and Meta Platforms (META) possess immense scale, vast user data, and significant financial resources. GOOGL's dominance in search and display, coupled with its ecosystem integration, allows it to process data faster and potentially at a lower cost per impression than Criteo. META leverages its massive social graph for targeting and boasts superior operating margins (around 40% TTM) compared to Criteo's 10.26% TTM operating margin. Their scale and profitability allow for substantial R&D investment, potentially outpacing Criteo's innovation speed in certain areas.

Specialized ad tech companies like The Trade Desk (TTD) are leaders in the demand-side platform space, known for their scalable, data-driven programmatic advertising capabilities and strong financial performance, including higher gross margins (81% TTM) and faster revenue growth (26% YoY in Q3 2024) than Criteo (51.83% TTM gross margin, 0.3% YoY Q1 2025 revenue growth). PubMatic (PUBM), focused on the supply side, competes for ad inventory access.

Criteo strategically positions itself as a leading independent Commerce Media Platform, aiming to be the hub for retail media outside of Amazon (AMZN). Its key competitive advantages stem from its deep specialization in commerce data and AI, its extensive network of direct integrations with retailers (partnering with 70% of the top 30 U.S. retailers), and its neutral stance compared to walled gardens. While Criteo may lag behind giants like GOOGL and META in overall scale and profitability metrics (e.g., GOOGL's 29% TTM net margin vs. CRTO's 7.36%), its AI Engine and Shopper Graph provide a distinct edge in commerce-specific targeting, enabling higher conversion rates and ROI for clients in this niche. The company's focus on building a multi-retailer, multi-channel platform directly competes with the single-retailer offerings of Amazon and the broader, less commerce-focused platforms of others. Initiatives like Commerce GO! are designed to compete directly with automated tools from giants, offering more transparency and control.

However, Criteo is vulnerable to the scale and financial power of these competitors, who can leverage their positions to influence the market (e.g., browser changes, platform policies) or outspend Criteo in R&D or market acquisition. The risk of large retailers developing in-house solutions also remains, as seen with the recent client transition. Criteo's strategy to counter these pressures involves deepening its technological moat, expanding its platform capabilities (onsite, offsite, social, CTV), fostering strategic partnerships (like the significant collaboration with Microsoft (MSFT) to consolidate supply and access demand), and evolving towards a more scalable self-service model to improve operational efficiency and cost structure.

Performance Reflecting Strategic Evolution and Market Realities

Criteo's financial performance in the first quarter of 2025 reflects the ongoing execution of its transformation strategy, albeit tempered by emerging market dynamics and specific client situations. Revenue for Q1 2025 was $451.4 million, a slight increase of 0.3% year-over-year, or a more robust 3% increase on a constant currency basis. This growth was primarily fueled by the Retail Media segment, which saw revenue increase by 17% (18% constant currency) to $59.5 million. This segment continues to demonstrate strong momentum, driven by activated media spend growth (up 21% YoY to $335 million in Q1 2025), expansion with existing and new retailers (now partnering with 70% of top 30 U.S. retailers), and increasing traction with agencies leveraging the Commerce Max platform.

The Performance Media segment, while still the larger contributor, experienced a 2% decrease in revenue (0.7% increase constant currency) to $391.9 million in Q1 2025. This was influenced by soft retail trends, particularly in fashion, and lower spend in the media trading marketplace, partially offset by continued strength in travel and classifieds and growth in Commerce Audiences.

Profitability showed significant improvement. Gross profit increased by 9% to $237 million in Q1 2025, benefiting from lower traffic acquisition costs and other costs of revenue. Contribution ex-TAC, a key profitability measure for Criteo, rose 4% (7% constant currency) to $264.4 million. This increase, coupled with a notable 9% decrease in total operating expenses (driven by lower headcount costs, reduced share-based compensation, and changes in earn-out fair value), led to a substantial increase in income from operations, reaching $48.2 million compared to $10.4 million in Q1 2024. Net income followed suit, climbing to $40 million from $8.6 million in the prior year period. Adjusted EBITDA saw a 30% increase to $92.1 million, reflecting the combined impact of higher Contribution ex-TAC and disciplined cost management.

Looking back at 2024, the company delivered double-digit growth for the third consecutive year, with Contribution ex-TAC growing 11% at constant currency to over $1.1 billion. Retail Media Contribution ex-TAC grew 25% constant currency to $254 million, while Performance Media Contribution ex-TAC was up 8% constant currency to $868 million, including 32% growth in Commerce Audiences. Adjusted EBITDA margin expanded to 35% in 2024, demonstrating operating leverage and cost discipline.

Criteo maintains a strong financial position. As of March 31, 2025, cash and cash equivalents stood at $285.9 million, contributing to total liquidity of over $810.2 million, which includes marketable securities, treasury shares, and access to its revolving credit facility. Cash provided by operating activities was robust at $62.3 million in Q1 2025, a significant increase from $14 million in Q1 2024, reflecting improved operating income and working capital. The company continues to return capital to shareholders, repurchasing $56.2 million of shares in Q1 2025 under an expanded authorization of up to $805 million. Capital expenditures are expected to remain disciplined, projected at or slightly below 5% of revenue for 2025, focused on necessary infrastructure and software development. This strong liquidity and cash generation provide financial flexibility to invest in growth initiatives and manage potential market volatility.

Outlook and the Path Ahead

Criteo's outlook for 2025 reflects a blend of strategic confidence and near-term caution. Management has adopted a prudent approach, acknowledging the uncertain macroeconomic environment and the specific impact of client transitions. For the full year 2025, Criteo now expects Contribution ex-TAC to grow in the low-single digits year-over-year at constant currency. This includes an estimated positive foreign exchange impact of $10 million to $12 million.

The revised guidance incorporates a significant headwind in the Retail Media segment. While the underlying business, excluding the impact of two specific clients (the largest Retail Media client and a U.S. food delivery client), is expected to grow in the ballpark of 20% in 2025, the reduced scope of services for these clients is projected to result in a negative impact of approximately $25 million in 2025, largely affecting Q4, and around $75 million for the first ten months of 2026 until it annualizes. Consequently, the projected 2025 Retail Media growth is now in the low-to-mid single digits range at constant currency. This downward revision also considers potential delays in retailers' technology roadmaps influenced by the macro environment.

The Performance Media segment is expected to grow in the low-single digits in 2025. This forecast assumes continued traction with advertisers leveraging Criteo's solutions for performance throughout the buyer journey and the ramping up of Commerce GO!. However, it also factors in tough comparisons from the significant AI-driven performance enhancements implemented in 2024 and the potential for lower ad budgets in discretionary categories due to macroeconomic pressures.

Despite the revised top-line outlook, Criteo remains committed to profitability and cash generation. The company anticipates maintaining an Adjusted EBITDA margin of approximately 33% to 34% for 2025. This reflects ongoing cost discipline, operational efficiencies, and a focus on high-ROI investments in the Commerce Media Platform, including scaling Retail Media capabilities and continued AI innovation. A one-off internal event in Q2 2025 is expected to impact Q2 Adjusted EBITDA, which is guided between $60 million and $66 million on Contribution ex-TAC of $272 million to $278 million (down 2% to flat constant currency). For the full year, CapEx is expected to be around $100 million, and free cash flow conversion is projected to be above 45% of Adjusted EBITDA before non-recurring items.

Risks and Considerations

While Criteo's strategic transformation and technological advancements present significant opportunities, investors should be mindful of key risks. Macroeconomic volatility, including inflation and geopolitical events, could dampen advertising spend across the industry. The company's reliance on data collection remains a vulnerability, subject to changes in consumer privacy choices, browser policies (although Google's recent decision provides some clarity), and regulations. Competition is intense, with large players potentially leveraging their scale and resources to Criteo's disadvantage. The recent client transitions highlight the risk of client concentration and the potential for large partners to alter their strategies, impacting Criteo's revenue. While the company is diversifying and building a scalable platform, successful execution of these initiatives is crucial to mitigating these risks and achieving the projected growth and profitability targets.

Conclusion

Criteo's journey from a single-product retargeting specialist to a diversified Commerce Media Platform is a compelling narrative of strategic adaptation. Powered by its sophisticated AI Engine and deep commerce data, the company is well-positioned to capitalize on the convergence of e-commerce and digital advertising, particularly in the high-growth Retail Media sector. While near-term challenges, including macroeconomic uncertainty and specific client transitions, have tempered the 2025 growth outlook, the underlying momentum in the core business, the strategic partnerships (like Microsoft), and the continued investment in platform capabilities and AI innovation underscore the potential for durable, profitable growth in the years ahead. Criteo's strong financial health and commitment to shareholder returns through share buybacks further support the investment thesis. For discerning investors, Criteo represents an opportunity to invest in a company actively reshaping its future, leveraging technological leadership and strategic focus to navigate a dynamic competitive landscape and unlock value in the evolving world of commerce media.