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HomeFinanceCriteo Stock Plunges on Weak Guidance; Lost Ad Deals

Criteo Stock Plunges on Weak Guidance; Lost Ad Deals

Criteo, online advertising, retail media, revenue forecast, earnings, stock, Nasdaq, Uber Eats, contract loss, financial results, Sarah Glickman, Michael Komasinski, Q1 2024, business news

Criteo Adjusts Growth Forecast After Losing Key Retail and Food Delivery Contracts

Criteo, the French online advertising company, has revised its annual growth projections downwards following the loss of significant advertising contracts within the e-commerce and food delivery sectors in the United States. This announcement comes despite a reported "record" first quarter, highlighting the unexpected nature of these contract terminations and their potential impact on the company’s future performance.

The company now anticipates a marginal increase in net revenue for 2025, a key industry indicator that reflects sales minus payments to partners, previously referred to as contributions excluding traffic acquisition costs (ex-TAC). This revised outlook contrasts sharply with the earlier projection of at least 5% growth. The news sent Criteo’s stock plummeting on the Nasdaq in New York, with shares experiencing a significant decline of 14.47% to $28.59 as of 1:45 PM GMT.

Sarah Glickman, Criteo’s Chief Financial Officer, addressed the situation during a conference call with analysts, stating, "We have preferred to adopt a cautious approach given the uncertainty of the macroeconomic environment and the reduction in the scope of services provided to our largest retail media client." This statement underscores the interplay between broader economic concerns and specific client relationships in shaping Criteo’s financial outlook.

The concept of "retail media" refers to the practice of displaying sponsored links directly within the online pages of retailers, mirroring the placement of strategically positioned products at the end of supermarket aisles. It’s a high-growth area for Criteo, and a key driver of its recent success. The loss of this significant contract is therefore particularly painful.

The largest retail media client in question, whose identity remains undisclosed, has unexpectedly announced its decision to discontinue utilizing Criteo’s advertising services, effective November. While the client will continue to leverage the platform provided by Criteo under a multi-year agreement, the discontinuation of advertising services represents a substantial blow to the company’s revenue stream.

Michael Komasinski, the newly appointed Chief Executive Officer of Criteo, acknowledged the gravity of the situation, stating, "This is a sudden change that will have a significant impact on the growth of our +retail media+ business for the twelve months starting from the fourth quarter of 2025." This statement highlights the temporal concentration of the anticipated revenue loss, with the most pronounced effects expected to materialize towards the end of the following year.

Adding to the company’s challenges, Criteo has also lost a contract with the food delivery platform Uber Eats in the United States. While the two companies maintain a collaborative relationship in other countries, the termination of the US contract further exacerbates the negative impact on Criteo’s overall financial performance.

Sarah Glickman elaborated on the expected financial repercussions of these contract losses, stating, "We expect the scope reductions for these two clients to have a negative impact of $25 million in 2025, primarily in the fourth quarter of 2025, and approximately $75 million for the first ten months of 2026." This detailed breakdown provides investors with a clearer understanding of the magnitude and timing of the anticipated revenue decline.

Despite these setbacks, Criteo leadership sought to reassure investors and stakeholders, emphasizing the company’s underlying strengths and resilience. "We are a resilient company with a robust platform, proven performance capabilities, and a broad and diversified client base," stated Sarah Glickman, conveying a message of confidence in the company’s ability to weather the current challenges.

The company’s first-quarter performance, while seemingly strong on the surface, underscores the unexpected nature of the recent contract losses. Criteo reported a more than fourfold increase in net profit (+367%) to $40 million, alongside a relatively stable turnover (+0.3%) of $451 million. The company’s net revenue, fueled by its retail media activity, reached $264 million during the first three months of the year, representing a 4% increase compared to the previous year.

The contrasting narratives of a strong first quarter and a subsequent downward revision of annual growth projections highlight the inherent volatility and unpredictability of the online advertising landscape. Criteo’s reliance on key client relationships, particularly within the rapidly evolving retail media sector, exposes the company to potential risks associated with client churn and shifting business priorities.

The loss of the undisclosed retail media client, in particular, raises questions about the competitive dynamics within the online advertising market and the factors influencing client decisions. The client’s decision to continue utilizing Criteo’s platform under a multi-year agreement, while discontinuing advertising services, suggests a potential shift in strategy or a desire to explore alternative advertising solutions.

The impact of macroeconomic uncertainty, cited by Criteo’s CFO as a contributing factor to the revised growth projections, further underscores the complex interplay of internal and external forces shaping the company’s financial performance. Global economic fluctuations can influence consumer spending patterns, advertising budgets, and overall business confidence, thereby impacting the demand for Criteo’s services.

Looking ahead, Criteo faces the challenge of mitigating the negative impact of these contract losses by diversifying its client base, strengthening its relationships with existing clients, and exploring new growth opportunities within the evolving online advertising landscape. The company’s stated commitment to resilience, a robust platform, and proven performance capabilities will be crucial in navigating these challenges and restoring investor confidence.

The company’s future success hinges on its ability to adapt to changing market conditions, innovate its product offerings, and effectively communicate its value proposition to potential and existing clients. The focus will be on how Criteo navigates the next few quarters, particularly as the effects of these contract losses start to become more apparent. The market will be watching to see if Criteo can effectively leverage its "robust platform" and diversified client base to overcome these setbacks and return to a path of sustainable growth.

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