Google And Microsoft Will Shape The Future Media Landscape

Key Takeaways

• Google's extension of third-party cookies provides a strategic advantage for Criteo, stabilizing traditional revenue streams in Performance Media.
  
• Criteo's AI innovation and strategic partnerships are set to boost growth and efficiency, with a focus on scalable platforms and new product extensions.
  
• Revenue growth faces risks from major client service reductions, economic challenges, and competitive pressures, threatening Criteo's future profitability and client retention.

Catalysts

A technology company, provides marketing and monetization services and infrastructure on the open internet in North and South America, Europe, the Middle East, Africa, and the Asia-Pacific.

• The decision of Google's recent move to extend the use of third-party cookies offers a strategic advantage and clarity for Criteo, enhancing the long-term prospects of Performance Media by stabilizing revenue streams traditionally dependent on such data.
  
• Criteo's commitment to AI innovation, especially within its Performance Media segment, could provide new efficiencies and improve net margins by increasing the precision and outcome measurability of campaigns.
  
• Despite the loss of managed services for a major retail media client, Criteo's existing multiyear contracts and its shift toward a more scalable self-service platform could stabilize and potentially grow earnings by expanding offerings to the rest of its client base.
  
• The integration with major platforms such as Microsoft's advertising ecosystem and partnerships with large agencies like Office Depot and ODP showcase Criteo's strategic emphasis on leveraging synergies to boost top-line growth through increased media spend.
  
• The strategic rollout of new product extensions like Commerce Go and on-site video aims to capture additional market share, enhancing long-term revenue by expanding the company's presence across the full buyer journey and tapping into faster-growing segments like CTV.

Criteo Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Criteo compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Criteo's revenue will decrease by 17.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 7.4% today to 12.7% in 3 years time.
• The bearish analysts expect earnings to reach $139.3 million (and earnings per share of $2.44) by about July 2028, down from $142.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.8x on those 2028 earnings, up from 8.8x today. This future PE is lower than the current PE for the US Media industry at 20.2x.
• Analysts expect the number of shares outstanding to decline by 5.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.27%, as per the Simply Wall St company report.

Criteo Future Earnings Per Share Growth

Risks

• Criteo's largest retail media client has decided to discontinue the company's managed services and curtail brand demand sales services, which will significantly impact revenue growth rates in the Retail Media business starting in the fourth quarter of 2025.
  
• The macroeconomic environment is proving challenging, with soft consumer demand in April affecting various sectors such as beauty, fashion, and U.S. department stores, leading to potential revenue declines in these areas.
  
• The company expects a reduced scope of service for two major clients to result in a negative impact of $100 million between 2025 and 2026, which could pose risks to future revenue and profitability forecasts.
  
• Competition and unexpected client decisions, such as Uber's moving to another provider for U.S. food delivery market services, could impact revenue streams and create uncertainty about client retention.
  
• The pressure on discretionary spending categories due to economic challenges may lead to lower ad budgets and impact Criteo's growth potential in the Performance Media segment, thereby affecting revenue and earnings.
  

Valuation

• The assumed bearish price target for Criteo is $27.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Criteo's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $54.0, and the most bearish reporting a price target of just $27.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $139.3 million, and it would be trading on a PE ratio of 10.8x, assuming you use a discount rate of 7.3%.
• Given the current share price of $23.56, the bearish analyst price target of $27.0 is 12.7% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.