Paris, France – Tech company Criteo has positioned itself as a leader in the retail media advertising sector, with a projected revenue growth of over 20% this year. Recent client acquisitions and strategic partnerships indicate a promising future for the company. Their Performance Media division has seen substantial growth from new products focusing on first-party data, while their retargeting services have shown resilience. Revenue is expected to grow by approximately 10% this year, with a continuation at a similar rate through 2026. Adjusted EBITDA is anticipated to improve to 35% in 2026 compared to the expected 32% this year, with a significant portion of free cash flow being allocated towards share repurchases. Currently, the shares are trading at a Price/FCF multiple of 15.2, which some view as fully valued considering the high level of stock-based compensation.

In the realm of retail media advertising, Criteo’s growth potential shines brightly. Retail media is identified as the fastest-growing segment in digital advertising, with a projected annual growth rate of 12%, expected to reach nearly $140 billion by 2026. Criteo’s Retail media segment has seen a 24% increase in contribution ex-TAC year over year in Q2. Through partnerships with major retailers in the Americas and innovative platforms like Commerce Media DSP, Criteo continues to expand its reach and offerings.

Despite facing revenue declines in previous quarters, Criteo’s retargeting business has returned to organic growth in recent months. The company’s Performance Media segment saw an 11% year-over-year growth last quarter, attributed to successful sales of multiple solutions to customers, including their first-party data based SSP solution. Additionally, Google’s decision to support third-party cookies based on user choice is expected to benefit Criteo, minimizing the impact on their targeting methods.

Looking ahead, Criteo’s management anticipates a 21% growth contribution ex-TAC for the full year in their retail media segment. This implies a deceleration in revenue growth for H2 2024, influenced by a change in contract with their largest customer. Management projects sustained annual growth of around 15% through 2026 in this segment, exceeding market growth rates. On the other hand, Performance Media is forecasted to grow in the high single-digits for 2024, with an expectation of sustainable growth through 2026.

In terms of financials, management predicts an adjusted EBITDA margin of 32% for this year, translating to an adjusted EBITDA of $360 million. With anticipated improvements in adjusted EBITDA margins and lower restructuring costs in the future, higher free cash flow conversion is anticipated. Criteo also plans strategic capital allocation strategies, including a $150 million share buyback initiative and potential future acquisitions.

As for the company’s stock valuation, Criteo boasts a net cash position of $230 million, with an enterprise value of $2.5 billion. The EV/adjusted EBITDA multiple stands at 6.9, while the Price/FCF multiple sits at 15.2. While the company trades at a premium compared to peers, the valuation takes into account industry tailwinds and robust business momentum.

However, risks such as dependency on large clients, competition, macroeconomic conditions, and user-privacy regulations pose potential challenges for Criteo’s future growth. Despite these risks, the company’s strategic position and growth potential warrant a neutral rating.

In conclusion, Criteo’s strategic partnerships, growth trajectories, and financial prospects highlight a promising future for the company. While challenges and risks exist, the balance between opportunities and valuation concerns shapes a nuanced perspective on Criteo’s outlook.