Criteo S.A. Q1 FY2023 Earnings Call

Good morning, and welcome to Criteo's First Quarter 2023 Earnings Call. All participants will be in listen-only mode. After the prepared remarks, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to Melanie Dambre, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to Criteo's first quarter 2023 earnings call. Joining us on the call today, Chief Executive Officer, Megan Clarken; and Chief Financial Officer, Sarah Glickman are going to share some prepared remarks. Todd Parsons, our Chief Product Officer will join us for the Q&A session. As usual, you will find our investor presentation on our IR website now, as well as our prepared remarks and transcript after the call. Before we get started, I would like to remind you that our remarks will include forward-looking statements, which reflect Criteo's judgments, assumptions and analysis only as of today. Our actual results may differ materially from current expectations based on a number of factors affecting Criteo's business. Except as required by law, we do not undertake any obligation to update any forward-looking statements discussed today. For more information, please refer to the risk factors discussed in our earnings release, as well as our most recent Forms 10-K and 10-Q filed with the SEC. We'll also discuss non-GAAP measures of our performance. Definitions and reconciliations to the most directly comparable GAAP metrics are included in our earnings release published today. Finally, unless otherwise stated, all growth comparisons made during this call are against the same period in the prior year. With that, let me now hand it over to Megan.

Thanks, Melanie and good morning, everyone. Thank you all for joining us today. We’re off to a solid start this year and our team is firing on all cylinders to execute on our transformation strategy and capitalize on the significant growth opportunity ahead of us. Our transformation continues to shift our business towards a broader solution portfolio, centered on the fast-growing Commerce Media opportunity. Our Commerce Media platform puts the focus on both our Retail Media expertise and our expanded Targeting solutions with Commerce Audiences complementing Retargeting, which remains the lower funnel tactic enjoyed by marketers. Commerce Media represents a market opportunity of $110 billion by 2025, and it’s real. The agency holdcos have now all created dedicated commerce teams to capitalize on the momentum, and 73% of advertisers anticipate spending more on Retail Media Networks in the next two years than they are today, according to a recent survey from the US Association of National Advertisers. Notwithstanding the near-term challenging macroeconomic environment, our trajectory is intact. In Q1, we delivered continued strong growth in Retail Media and Commerce Audiences, which, combined with Iponweb, more than offset some of the pressures we’ve seen in Retargeting. While Retargeting remains an area of continued focus and opportunity, our New Solutions have now become close to half of our top line and will become the larger part of our mix going forward. This is exactly where we wanted to be at this stage of our transformation. We’re quickly gaining share and laying the groundwork for sustainable, long-term growth. Starting with Retail Media, we now partner with 200 retailers and 2,300 brands, and we’re expanding our reach into adjacent commerce verticals and geographies. No other player matches our market footprint, and our global presence gives us a significant competitive advantage. We secured the renewal of our multi-year exclusive partnership with Costco. As the third largest retailer in the US and one of the largest retailers in the world, Costco has significant room for growth in Retail Media, and we’re very excited to help them scale and realize this massive potential. We also won new retailers including ASOS, Rite Aid and SUNDRUG in Japan, strengthening our leadership in fashion, health and beauty. Our ability to scale quickly with our proven demand capabilities, AI-driven performance and support from Retail Media experts were among the deciding factors in the decision of these retailers to partner with Criteo. We’ve built a leading platform for retailers to manage their entire Retail Media business at scale. The ASOS and Rite Aid wins illustrate the power of our holistic value proposition, and both have chosen us for multi formats and placements, including onsite sponsored products and display, and offsite and, like most others, they have taken multi-year contracts. It’s no coincidence that more retailers are choosing Criteo as their exclusive Retail Media partner for the long term. We’ve worked with retailers for a very long time and understand their needs, we’ve built deep expertise in Retail Media over the past seven years, and this is what we focus on every single day. Agencies are increasingly contributing to our growth, and we’re confident that this will continue. An increasing number of brands, including most recently PepsiCo, are shifting from competitors to Criteo to access Retail Media Networks at scale due to our superior performance, customer service, and enhanced data analytics. Other brands such as Haleon are increasing their annual investments upwards of 75% in most part due to strong Return on Ad Spend and partnership. Looking now at Marketing Solutions, we delivered strong growth in Commerce Audiences as more clients are adopting full-funnel strategies to acquire and retain customers. Commerce Audiences are an integral part of our Commerce Media strategy and create the foundation for our success in Retail Media offsite, as we help retailers extend their advertising reach beyond their own content walls. Our AI-powered audience modeling technology finds in-market shoppers based on interests, demographics, location, brand and product affinity or lookalike modeling. We leverage prospecting audiences to engage new consumers in any environment, agnostic of third-party identifiers. PUMA is one of our new clients that has recently adopted our Commerce Audiences targeting solutions to engage the audiences that matter most to them. We’re also proud of our growing global partnership with one of the world’s largest marketplaces who’s leveraging the depth and breadth of our offering to drive performance across multiple channels including video and CTV. With full-funnel activation, they more than tripled their media spend with Criteo compared to a year ago, with Commerce Audiences now representing 90% of their media spend. Similarly, the travel marketplace Viator doubled their media spend with Criteo year-over-year with full-funnel activation. Our clients value our best-in-class performance, which is further amplified when engaging with consumers across the entire buying journey. Our Retargeting results in Q1 reflect the impact of a difficult macroeconomic environment on our clients, especially our retail and long-tail clients, partially offset by continued strength in Travel. We’re seeing caution and more frequent budget reforecasting compared to prior years, leading to lower spend this quarter. It’s important to note that we’re about halfway through our multi-year transformation. Despite the choppy macro backdrop, we continue to do what we said we would do, and we’re working hard to execute against our plan. We’ve made great strides in bringing our Commerce Media Platform to life, while building long-term trusted relationships with retailers and executing strategic partnerships to accelerate our strategy. Starting with our growing agency relationships, we saw a 56% year-over-year increase in US Retail Media spend, driven by the major agencies we have strategic partnerships with, and our momentum with agencies continues to accelerate. Agencies are driving 35% of our overall media spend, and the adoption of our multiple solutions at speed and scale. We currently activate about $1 billion in annual Retail Media spend, and we believe the launch of our Commerce Max Demand Side Platform will be a game changer. Commerce Max gives agencies and brands one integrated self-service platform to access premium Retail Media inventory onsite, with both sponsored and display placements, and leverage unique third-party audiences built on real shopping behaviors for precision targeting offsite. It offers closed-loop measurement, across open internet supply, as well as retailers’ inventory onsite. For the retailers, Commerce Max is the platform to best monetize their onsite inventory and their valuable first-party data for onsite and offsite targeting with access to demand coming from agencies and brands. The integration of Iponweb accelerated the launch of our DSP, and following our initial successful market tests, we’re now partnering with half a dozen retailers and multiple brands, and we continue to see strong results. Our clients are excited about what we’re bringing to market, and we’re leveraging their feedback to add more features and functionality. This gives us a differentiated product as we build momentum in Commerce Media. We’re on track to move to general availability in Q3, and we expect Commerce Max to help us capture more agency and brand budgets, and drive further growth in Retail Media through the offsite advertising opportunities that it unlocks. Importantly, we continue to advance our moat and differentiation. Omnichannel is emerging as the next frontier, and we’re empowering retailers to own their entire Retail Media ecosystem across physical and digital stores. With the acquisition of Brandcrush, we now provide an omnichannel retail media monetization platform and we can tap further into traditional trade marketing dollars. Our platform not only centralizes online and offline retail media inventory management but also creates greater efficiencies for the retailers who otherwise rely on manual processes to manage these assets. We’re best positioned to address this market need as evidenced by the success of the recent pitches, including the Brandcrush capabilities. Our goal is to help retailers take full advantage of their media opportunity, and to solidify our Retail Media leadership position for years to come. The acquisition of Brandcrush also expands our client footprint and capabilities in the rapidly growing Asia-Pacific Retail Media market, where we added 18 retailer clients over the past year, including four wins in Q1 alone. We now have five Retail Media clients in Japan, from a standing start, and we’re actively capitalizing on cross-selling opportunities. In the region, we’re also pleased with the ramp-up of our offsite partnership with Flipkart, India’s homegrown e-commerce marketplace. Turning to our Commerce Growth offering, our second demand side product designed to automate our audience targeting and retargeting capabilities. A great example of how we plan to extend the reach of this self-service offering is our partnership with Shopify. We recently rolled out new self-registration capabilities allowing all Shopify merchants to quickly set up their account and start activating their campaigns with Criteo. Our Shopify merchant clients value the ease of use of our targeting tools and the performance we’re driving to turbocharge their business. Lastly, we’re pleased with the progress that we’re making on our multi-pronged identity strategy under the helm of Todd Parsons, our Chief Product Officer, and Dr. Boris Mouzykantskii, our Chief Architect. We continue to scale our First-Party Media Network to retarget consumers with first-party data matching in cookieless environments. As part of this direct supply strategy, we’ve more than doubled our traffic leveraging hashed emails since last October. Hashed emails are persistent IDs and foundational across our First-Party Media Network. Among others, Slate.com, CafeMedia and A360media are now partnering with us to monetize their inventory more effectively. This has led to a meaningful spend increase in Safari for our publishers. When looking at signals from publishers we have direct integrations with, we collect 10 times more hashed emails than similar alternative industry IDs. To support this work, we have now fully integrated our Criteo supply capabilities with Iponweb’s capabilities, taking the best of both into our Commerce Grid Supply Side Platform, or SSP. As part of the multiple investments we’ve made in our identity strategy, we’ve also been working side-by-side with Google for a long time, and we remain one of the largest scaled partners in the Privacy Sandbox. Our product and R&D teams have had an ongoing series of in-person workshops with Google, and we’re very encouraged by the productive collaboration and results to date as we continue to test and inform their APIs. We believe that Criteo leaning into a close collaboration with Chrome to develop specific use cases will enable us to deliver superior performance. Privacy Sandbox is an ecosystem effort, which means our investments are contributing to how the advertising industry at large needs to evolve for privacy. There’s a lot of buzz right now about the potential of generative AI to reshape advertising. Based on what we know today, we look to four main areas of impact. First, like all AI technologies, we believe it will drive better performance for those who have access to data through better use of that data. Second, the ability to have rich interactions with end users will likely change how people search online by being able to engage in conversational exchanges with AI chatbots. Third, the assistance it provides could enhance how advertisers are creating, managing and optimizing their advertising campaigns, particularly around creative where the change could be profound. And fourth, of course the tools and efficiencies that it creates. The most important point is that AI can only make a difference with access to data at scale. At Criteo, we believe we have the largest commerce data set on the open internet. We observe millions of buyer journeys each minute, predicting how they’ll unfold. We use our huge data set to predict consumer behavior and how ads will perform and convert. The combination of our highly advanced AI technology and access to more than one trillion in ecommerce sales every year is what allows our solutions to drive the best performance for our clients. To conclude, we’ve built a highly scalable Commerce Media Platform, and we’re on track to achieve our business ambitions that we laid out at our 2022 investor day. In 2023, we believe we’re best positioned to lead the market with Retail Media being a non-cyclical growth spot, and Commerce Audiences being the most valuable audiences to brands. Our ongoing progress wouldn’t be possible without our incredible Criteos. I’m very proud of our team’s collective efforts and hard work. We continue to transform our company to realize our vision while navigating a challenging environment. As we transform our business, we’re focused on driving efficiencies while allocating our resources to our growth areas. We hold ourselves accountable to deliver growth, expand our operating leverage, and deploy capital effectively and in a disciplined manner, all with a focus on driving shareholder value.

Thank you, Megan, and good morning, everyone. Our first quarter performance reflects our clear focus on execution and cost discipline. Revenue was $445 million and Contribution ex-TAC was $221 million. Reported Contribution ex-TAC reflects a year-over-year $10 million unfavorable ForEx impact. At constant currency, Q1 Contribution ex-TAC grew by 6.3%, on top of 6% growth in Q1 2022. As expected, this includes organic Contribution ex-TAC down 5%, and Iponweb. Our organic performance was driven by Marketing Solutions down 10% year-over-year, with Retargeting down 17%, and Commerce Audiences up 27%. This was partially offset by continued strong growth in Retail Media, up 22%, despite a tough comparison and a seasonally low quarter. We continue to shift our top-line mix to our fast-growing new solutions. Retail Media, Commerce Audiences and Iponweb combined represented 44% of Contribution ex-TAC in our first quarter, up from 29% a year ago. Client retention remains high at close to 90%, and 37% of our live clients use more than one Criteo solution today. Turning to our business segments, in Retail Media, revenue was $38 million and Contribution ex-TAC grew 22% at constant currency to $37 million, in line with our expectations, and was up 70% on a two-year stack basis. Our growth was primarily driven by our client base in the U.S. and the UK, as well as our retailer marketplaces. Growth from existing clients remains strong with same retailer Contribution ex-TAC retention at 122%, and we continue to win new retailers. We also saw strong growth from our agency partners. Our 2,300 global brands are prioritizing Retail Media as a key channel to advertise to consumers at the digital point of sales across multiple Retail Media Networks. We saw strong brand bookings, mainly in CPG, our largest vertical, and health and beauty. In Marketing Solutions, revenue was $382 million and Contribution ex-TAC was $158 million with strong growth in Commerce Audiences, offset by lower Retargeting. Retargeting was down 17% year-over-year, or down 12% when excluding the impact of the suspension of our Russia operations and the expected $4 million impact from signal loss. Across all regions, we benefited from strength in Travel. Retail was impacted by the macroeconomic environment, which remains challenging as evidenced by the lower online traffic and lower online transactions across the majority of retail categories in the Americas and EMEA in Q1. We delivered strong growth in Commerce Audiences, up 27% year-over-year, and up 61% on a two-year stack basis, as client transition to full-funnel audience strategies to acquire and retain customers. This was driven by new business and cross-selling across thousands of performance marketers. Our clients value having one partner to help them engage with consumers across their entire buying journey, which we believe will drive higher media spend and enhance client lifetime value over time. As expected, Iponweb's performance was down slightly on a stand-alone basis in a seasonally low quarter. Strong growth for our Supply Side Platform, or SSP, was offset by softer media trading trends and lower traffic. We are pleased with the rapid and seamless integration of that business. We delivered an Adjusted EBITDA of $39 million in Q1 2023. Non-GAAP operating expenses increased 14% year-over-year, largely driven by Iponweb and targeted growth investments in sales, R&D and product talent, partially offset by planned cost reduction actions. Importantly, we lowered our expense run rate in Q1 compared to Q4, including headcount reductions, discretionary spend controls and other efficiency initiatives. We have already executed against many of our targeted cost savings and continue to ensure strong resource allocation measures and cost discipline across the business. Moving down the P&L, depreciation and amortization increased 14% in Q1 2023 to $25 million. Share-based compensation expense increased to $26 million, including $10 million related to treasury shares granted to Iponweb’s founder as part of the acquisition. The dilution from Iponweb in a seasonally low quarter and the non-cash share-based compensation expense related to the stock component of the acquisition resulted in a net loss of $12 million in Q1 2023. Our weighted average diluted share count was 60.5 million compared to 63.6 million last year. This resulted in diluted net loss per share of $0.20 and adjusted diluted earnings per share of $0.46 in Q1 2023. We benefit from a strong financial position with solid cash generation, no long-term debt and blue-chip bank relationships. We had $814 million in total liquidity as of the end of March, which gives us significant financial flexibility to execute our growth and capital allocation strategy. Operating cash flow was $42 million and free cash flow was $9 million in Q1, reflecting planned CapEx investments related to the five-year renewal cycle of our data centers as we transition to a more cost and energy efficient data center architecture. The primary goal of our capital allocation is to invest in high ROI organic investments and value enhancing acquisitions and to return capital to shareholders via our share buy-back program as we continue to see attractive value in repurchasing our shares. In Q1, we repurchased 1.7 million shares at an average cost of $29.9 per share. Turning to our financial outlook, which reflects our expectations as of today, May 3rd. We remain cautious about our outlook for the remainder of the year given the ongoing volatility in the macroeconomic environment, but we remain confident in our trajectory towards high single-digit to low double-digit Contribution ex-TAC growth at constant currency in 2023. This assumes low single-digit organic growth and the full year impact from our acquisition of Iponweb. We continue to expect Contribution ex-TAC growth of approximately 30% for Retail Media. For Commerce Audiences, we expect Contribution ex-TAC growth of approximately 20% as advertisers continue to shift more budgets and adopt full-funnel activation. Looking at the cadence for the year, we expect stronger organic growth as we lap the impact of the suspension of our Russia operations in March 2022 and easier comparisons in the back half of the year. We also expect to benefit from the ramp up of recent retailer partnerships and the continued rollout of our Commerce Media Platform capabilities and features. As our business mix is evolving, we expect more pronounced seasonality with Q4 including Iponweb’s strongest quarter and expected high growth in Retail Media. Lastly, our outlook incorporates our expected front-end loaded signal loss impact of $10 million and currency headwinds in 2023. We continue to anticipate an adjusted EBITDA margin of approximately 28% for 2023, including about 200 basis points of dilution from Iponweb. We are on track to deliver over $60 million in annualized cost savings over the course of the year, largely offsetting the annualized impact of our 2022 growth investments. We expect approximately half of our full year adjusted EBITDA to be realized in Q4 given business seasonality with Iponweb and realization of our expected cost savings. In addition to our top-line growth engine, a key part of our transformation is to realign our organization and optimize our operating model to enable scale and operational efficiencies, with strong profit contribution from all our products. This includes streamlining our processes and leveraging our assets to work better and faster, and ensure best-in-class client experience while driving meaningful operating leverage over the coming years. We expect a normalized tax rate of 28% to 30% in 2023. We anticipate CapEx of about $90 million, mainly related to the planned renewals of our data centers, of which most spend is expected in the first half of the year. We expect free cash flow conversion rate of about 45% of adjusted EBITDA. For modeling purposes, we assume a flat number of shares outstanding in 2023. For Q2 2023, we remain cautious given the impact of a slower macro environment on consumers, our clients, and conservative ad budgets. Overall, we expect Q2 Contribution ex-TAC of $228 million to $234 million, growing by 8% to 10% at constant currency. This assumes low single-digit organic decline and Iponweb inorganic growth. As a reminder, Q2 is a seasonally low quarter for Iponweb in terms of Contribution ex-TAC, adjusted EBITDA and cash contribution. Importantly, we expect Retail Media and Commerce Audiences to continue to show robust growth. We estimate ForEx changes to drive a negative year-over-year impact of about $3 million to $5 million on Contribution ex-TAC in Q2. We expect Adjusted EBITDA between $46 million and $50 million, reflecting low Q2 seasonality exacerbated by the dilution from Iponweb. To conclude, we are committed to driving shareholder value. We have a resilient business model, and we are executing our transformation with rigor and discipline. We have built a highly scalable Commerce Media platform to enable sustainable growth and support margin expansion over time.

Thank you. Good morning everyone. I appreciate the additional insights on the various components of the full year outlook. Could you elaborate a bit more on the retail media segment? How do you plan to achieve that 30% growth for the full year? This suggests a significant acceleration in the second half, so perhaps you could break it down between growth from existing retailers and the new opportunities you foresee. Additionally, you mentioned CTV today. Can you help us understand its current size? As the DSP launches and gains traction, how should we view its contribution from a channel perspective over time? Thank you.

Yeah, perfect. So just on Retail Media, and we're accelerating because there's no signs of slowing down. And clearly, this is an area of massive growth, not only for the industry but also for Criteo. To achieve the 30% growth, our assumptions are that we have strong costs coming into Q1 and for Q2 and that obviously become easier over the year. Our Q1 is seasonally a low quarter for retail media and obviously Q4 being the highest strongest quarter. We are expecting most of our growth to continue to come from our 200 retailers and our same retail upselling contribution ex-tax as well as the ramp up. We've now had 200 retailers on the platform. We've effectively doubled the number of countries that we operate in. So we're seeing ramp-up there. We have more features in our Commerce Media platform. So there's continued growth in new formats, including display and video. And, of course, we have the launch of Commerce Max coming in Q3. So all of those are the factors that we built into our forecast, we have line of sites to our customer forecasts and we feel that we're tracking in line with the forecast as well.

Yes. Mark, I'll just pick up the CTV just for a second, and I'll hand it across to Todd. Our premise there is still pretty small. We announced a partnership with Magnite last time around, and that's got off the ground. Remember for us, CTV is a channel, and for some of our advertising clients, it's an important one, but for performance, middle, bottom of the funnel, it's still a little ways away. And our focus is on Retail Media and Commerce Media. But to have an opportunity and to have availability to the CTV screen as a channel is an important one to get to offer our clients, and that's helping there. Todd, would you add anything to that?

Not much to add to that. I would just say that just to add to Megan's point that closing the loop between the living room and CTV with our Retail Media partners advertising from a product perspective is group job one. The second thing is making sure that we continue to innovate in formats that work in the living room and bring commerce into those environments. We've invested in both, and the partnership with Magnite really gives us a scale – I mean doorway into the business when our clients are ready for it.

Hi, good morning, everyone. Thanks for the questions. Maybe just to start on the macro, if you could talk a little bit about April. I know we're just a few days into May. But we're at this point, I think, some major shocks from last year and how advertisers are thinking about the rest of the year and how the budgeting lapping some of those comps, but also potentially heading into the recession. So just maybe for us a little bit more color on the overall macro.

Yes, absolutely. In terms of what we’re observing in the macro environment and to provide some data points from our product insights, we noted that for Q1, transactions in department stores decreased by approximately 13%. Fashion sales dropped around 9%, which are significant categories for us in retail. The traffic for these areas was also down by about 4% and 8%, respectively. We recognize that we will transition into somewhat easier comparisons as the year progresses. We’re starting to see some traction in retail media, with small signs of recovery in retargeting as budgets are slowly reopening across the board. This year will likely consist of modest gains rather than monumental successes. Our expectation is to work closely with our clients, who are highly focused on performance, and we are committed to delivering results for them. We maintain a high retention rate of 90% with our significant client base, which we see as a crucial factor for us as we navigate the year. We anticipate a challenging environment ahead. As Megan noted, all our clients are conducting more frequent forecasting since every dollar is vital, and our plan with our client teams involves collaborating closely with our customers to demonstrate the performance we provide and to drive increased budgets, not only in retargeting but also for acquisition and retention efforts, allowing us to showcase overall performance. In retail media, we aim to shift more brand dollars to point of sale through retail media networks, which is central to our C-MAX launch. Additionally, I want to emphasize that retail media and commerce audiences remain strong for us in Q2, which is an important consideration when evaluating the business as a whole.

Thanks. You’ve mentioned the cross-selling opportunity before and again today. As Commerce Max is entering the market, I found your comments about utilizing first-party retailer data for retargeting very interesting. Can you provide an update on how the cross-selling opportunity is trending and any potential opportunities we might see as we progress through the year? Thank you.

Let me address that. The core of our operations revolves around the data we leverage for our retailers. The way we apply this data varies depending on the tactics used by advertisers. For retailers selling advertising, we utilize data to enhance their ability to find and qualify audiences off-site, as well as to improve targeted recommendations on-site. This is a crucial aspect of our sales strategy. Additionally, each of these retailers needs to acquire new customers. For us, this involves providing a product that utilizes their first-party data, similar to how Performance Max and Advantage Plus function for Google or Facebook. We are concurrently focusing on both of these strategies. It's worth noting that there are different buyers within the same company, and we cater to both. Recently, we have organized our sales teams to facilitate cross-selling, and you are beginning to see the impact of this initiative. We are prepared to address both aspects from a product perspective.

Yes. The advantage of having a unified solution is that our clients can utilize multiple services. Currently, 37% of our life clients are engaging with more than one Criteo solution, allowing us to access their data in various ways. This is crucial because the accuracy of that data is vital for measurement and optimization, which are extremely important for our clients. Therefore, having this platform is essential for maximizing the value of the services we provide.

Thank you. You mentioned your expanded partnership with Shopify. Can you provide more details on what you're doing for them now that you weren't doing before? How did that conversation develop? What did you have to demonstrate to them to deepen the partnership? Additionally, could you give us an update on the Commerce Max launch, including any key milestones ahead and the expected timing for the launch? Thank you.

I can address both of those topics. First, regarding Shopify, we've concentrated on becoming a valuable partner. One key focus has been simplifying the onboarding process and helping their shopkeepers launch their first campaigns with Criteo, whether for acquiring new customers or retaining existing ones. We've successfully delivered this product and are now featured in their app marketplace, with early signs of success. Additionally, we are exploring how to integrate our commerce audiences with their audience product, and we have plans to test this partnership in the future. A crucial aspect underpinning our efforts is performance; small shopkeepers often lack the time for extensive A/B testing in their acquisition and retention strategies, an area where we excel. We aim to maximize their performance without incurring significant expenses. Looking ahead, as we facilitate shopkeepers' onboarding with Criteo, our priority will be to enhance their performance repeatedly, not just at launch. Secondly, concerning the Commerce Max launch, our alpha and beta phases have provided invaluable insights for developing Max products. A significant differentiator for Commerce Max is its capability for buyers to plan and activate Commerce Media based on the products they wish to sell and their stock availability. This fundamentally alters the traditional DSD model and enhances advertising effectiveness. The launch of Commerce Max emphasizes deep integration with retail commerce systems and data, allowing for effective planning and buying. As Megan previously mentioned, this enables buyers collaborating with retailers to measure results across various planning and buying KPIs. This aspect has been particularly exciting as we advance in launching Max, and we aim to ensure that our product facilitates comprehensive measurement and optimization across the various tactics retailers use to sell to advertisers as it becomes broadly available.

Thank you. Good morning. So I wanted to just focus on off-site. It's certainly a hole in the market today. And I'm not sure if I overemphasize this a bit too much, but it seems like it could be a really big opportunity for you guys. And I'm just hoping you can maybe, specifically talk about progression there and how that might be being received in the market today? What further progress you can see there, maybe is it too early to talk sort of case studies on off-site, but any progression there would be helpful. Thanks.

Sure. Let me provide an overview of our thoughts on off-site, which is a significant aspect of Commerce Max, and then I'll turn it over to Todd for more specifics. Currently, off-site represents about 10% of the Retail Media revenue, with the remaining 90% coming from on-site. Our initial focus has been on on-site, which has been our Retail Media strategy for the past seven years, starting with sponsored ads and then expanding to display advertising, allowing us to manage the maximum number of payers for retailers. With this approach, we gain access to retailer data, enabling us to optimize their pages. Once we've established on-site capabilities, we then shift our attention to off-site, which presents a further opportunity for retailers to extend their reach. This is part of our unique Max opportunity, emphasizing products for retailers over consumer-oriented strategies. Once we engage in off-site, we also gain access to more data. Further enhancing this, we incorporate omnichannel strategies, which provide additional data insights. We operate both on and off retail pages and across various channels, including physical store locations, which enhances our data access and capabilities. This is crucial because having data from the source allows us to deliver optimal closed-loop measurement and real-time optimization for retailers. This essential aspect defines Commerce Media, highlighting its promise in the advertising landscape, which is why many are gravitating towards it. For us, this is an important piece of the overall strategy, and we are committed to being there with the right solutions at the right time.

I don't expect much in terms of advertising during our testing phase. It's essential to highlight how on-site and off-site efforts work together, utilizing the data from the retailer's source. We've observed that combining on-site and off-site efforts can lead to double the conversion rates. This is an important factor to consider, as the excitement around off-site opportunities stems from this integration. Additionally, it's encouraging that our clients are eager to engage with the solution again. Many have expressed genuine enthusiasm, which is rewarding for us as product professionals. It’s great to see different media types coming together and delivering significant performance improvements. We're very optimistic about off-site opportunities, but we view it as part of a larger strategy.

Thank you very much, everyone. There are two points I’d like to address that haven't been discussed yet. Megan, could you share insights on your progress in strategically tapping into larger pools of social commerce inventory, such as Facebook, Pinterest, or other platforms where you’re observing significant commerce and signals? And Todd, in light of the work you mentioned that Megan referred to regarding email tracking in Safari and testing the Privacy Sandbox with Google, do you think these collaborations—particularly around attribution concerning new identification methods—could potentially help reverse the ongoing decline or extend the retargeting window? Many of us have been monitoring that decline for a while, and I’m curious if you believe there’s an opportunity for improvement as the Privacy Sandbox is implemented and as you gain an edge in attribution.

Thanks. Thanks, Richard. I'll do this first. Obviously, probably a 10 of the given my franchise here, it's close to the conversations that are going on with the social platforms. Just with Meta, this is good progress for us in terms of implementing the retargeting API across there. There's still testing going on to optimize that integration into Meta. But we'll keep you posted. But what I will say is that part of how does that work has really set us for us. The ability to explore additional opportunities for Commerce Audiences, extensions and things that we can do with Meta, which are very interesting and potentially very exciting for us. Note that we also look to formats and other social environments. We talked earlier in the year, I think about text and TikTok and looking for content in which it leaves itself to our Commerce Audiences and it leads itself to commerce-based advertising. And we're still working through those brands and finding the right partners to have as part of our supply our partnership.

Hi. How are you doing, Richard? So just to add to that a little bit, I think it's important to reemphasize that our addressability strategy is a multifaceted one. We're making a variety of investments. And in other words, we're not all in on one IT solution that could potentially be a point of failure for us. Obviously, the social platforms play into that. An important call out there is, do the economics hold up for all the scale and matching that you get the additional signals that the economics hold up for our clients or for our retailers or selling into those audiences. So that's something that we continue to work through with better bidding and better testing that we've been doing with Meta, as Megan said. Google is in addition to something that we've talked about a lot, which is fast e-mail and our true set and contextual solutions with identity and addressability. Google has been a partner with us since the beginning of their work on Sandbox. And we've seen that partnership accelerate. Our team's products and engineering team spent a lot of time in person with the Privacy Sandbox team, helping inform the way that APIs work, both the PA product and the topics product, but especially PAA, Richard, so that we can increase our coverage model for retargeting. And then maybe make up some of that difference. At this point, it's upside. And we're very excited to continue to contribute and make that solution something that does scale and provides precision. And we still keep an eye out for the economics. And those are the things that we measure our addressability strategy against the economics have to work for our clients.

Hi guys. Thanks for taking my question. I'd like to ask about your agency relationships. I think, Megan, before you came on board, agencies contributed minimal amounts to Criteo's revenue, and now it's like 1/3 or more. I'm curious because, agencies talk about Retail Media a lot. I wonder, if there's a bit of a competitive dynamic with Sand versus a collaborative dynamic with others, maybe a little bit of both. I wonder if you could just talk about how those relationships work and what you are gaining from agencies. Thanks.

Sure. We have significantly strengthened our relationships with agencies over the past three years. Previously, the company didn't view agencies as clients or partners but rather as competitors. We have shifted that perspective and now see agencies as essential to e-commerce. A considerable portion of our advertising spending is now funneled through these agency relationships, and this trend is on the rise. While some agencies compete with us in Retail Media, others collaborate very closely with us to access our Retail Media networks. They appreciate our approach of consolidating retailers into a single platform, allowing them to purchase advertising across multiple retailers without needing to engage each one individually. This also helps them reach smaller retailers that may not have visibility through traditional platforms. In essence, agencies value the retail media channel we've created, which offers them a streamlined access point into the expanding Retail Media landscape, making it more appealing for them and their clients. Brian Gleason’s expertise and connections have greatly enhanced our position in this area, making it an exciting opportunity for us.

Hey, good morning, everyone. Thanks for taking the question. I've got one on Commerce Max and one on Privacy Sandbox. On Commerce Max, the beta clients that you have as we head into full commercial availability, are they signaling that they're going to shift budget from another DSP to your DSP? Are they not currently using DSP? And as we think about take rate, I guess, without getting into specifics, are we thinking about a market rate take rate, below market rate, above market rate? Any color on those would be helpful. And then just on Privacy Sandbox, just building on a prior question. Todd, given the most recent update that we've seen at a Privacy Sandbox, I guess, does that in any way change directionally your thinking about the timing and the ultimate impact of third-party IT deprecation in the next couple of years here? Thanks, guys.

I will address the second question first and say that we do not foresee any changes to the timeline. We are still aiming for a 14-month period as it stands. Additionally, there is a conditional acceptance by the CMA that is relevant to this. Overall, everything suggests that the timeline will remain the same. From our standpoint, we are heavily engaged in testing the effectiveness of the API, particularly focusing on PAA while not overlooking other topics. We find the prospects very encouraging, assuming the economics are favorable, which is crucial for scalability and precision. The economics must be in place, and we are conducting various tests to validate this, with ample time available for the process. Regarding the second question, it is challenging to predict where the budgets will be allocated. We are observing some interesting dynamics; traditional DSPs that concentrate on audience and media, which are the primary methods for planning and activations, are particularly interested in venturing into commerce media and accessing retail media inventory. If they cannot achieve this through their current DSP, it makes sense that they might shift their budgets to a different DSP. We anticipate this shift occurring. An intriguing point is that some DSPs which manage significant spending are also aiming to access the same inventory, and we have developed a strategy to collaborate with them using our Commerce Grid product, which is part of our Iponweb acquisition. We have several factors at play here. These developments could affect take rates based on how clients choose to purchase and what they ultimately seek. We don't discuss take rates explicitly, but we are focused on maximizing the benefits of Retail Media and Commerce Media for the widest range of buyers, and I've outlined two approaches to achieve that.

Thank you. Today's first question comes from Mark Kelley at Stifel. Please go ahead.

Thank you, Megan, Sarah and Todd. This now concludes our call for today. Thanks, everyone for joining. The Investor Relations team is available for any additional questions. We wish you all a great day.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.