Stricter Privacy Laws And Rising Costs Will Undermine Ad Targeting

Key Takeaways

• Shifting privacy regulations and platform restrictions are diminishing Criteo's targeting capabilities, causing declining revenue and eroding its competitive position.
  
• Intensifying competition from tech giants and rising operational costs challenge market share, margins, and earnings stability.
  
• Strategic retailer partnerships, AI-driven solutions, and an expanding commerce ecosystem fuel growth, while financial strength and share buybacks enable flexible investment and sustained shareholder value.

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 accelerating shift in consumer privacy expectations and tightening global regulations, especially the full deprecation of third-party cookies and the spread of GDPR/CCPA-like laws, is likely to sharply reduce the effectiveness of Criteo's audience targeting, threatening core retargeting revenues and undermining future revenue growth.
  
• Major browsers and mobile operating systems, such as Apple's Safari, Firefox, and upcoming changes in Android and iOS, continue to block tracking technologies that underpin Criteo's data-driven advertising, leading to a sustained erosion of addressable inventory and a declining ability to compete, impacting both revenue and net margins over time.
  
• The growing dominance of walled gardens like Google, Meta, and Amazon in digital ad budgets, along with large retailers' in-house commerce media networks, will siphon advertiser spend away from open-web ad tech providers such as Criteo, resulting in persistent market share loss and top-line pressure.
  
• Increased investment requirements in AI/ML and the competition for engineering talent, as highlighted in the earnings call, will drive up research, hiring, and compliance costs, resulting in prolonged margin compression and slower earnings growth, particularly as performance expectations are raised by Big Tech benchmarks.
  
• Ongoing client churn and the risk of losing large retailers, as evidenced by recent client roll-offs and noted client dynamics affecting forecasts, expose Criteo to lumpy revenue, weaker retention metrics, and make it increasingly difficult to achieve sustainable revenue growth or maintain current profitability levels in future quarters.

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 17.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 7.0% today to 13.2% in 3 years time.
• The bearish analysts expect earnings to reach $146.8 million (and earnings per share of $2.64) by about August 2028, up from $136.5 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 8.9x on those 2028 earnings, down from 9.2x today. This future PE is lower than the current PE for the US Media industry at 20.7x.
• Analysts expect the number of shares outstanding to decline by 6.53% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.38%, as per the Simply Wall St company report.

Criteo Future Earnings Per Share Growth

Risks

• The ongoing expansion and scaling of Criteo's Retail Media platform, reinforced by strategic partnerships with over 230 retailers (including 70% of the top U.S. retailers), points to robust high-margin recurring revenue and a diversified client base, which supports both revenue and net margin growth over the long term.
  
• Criteo's accelerated investments in AI and machine learning, such as its Agentic AI and Commerce GO! platforms, position it to deliver improved campaign performance and measurable outcomes, enabling higher client retention, better ROI for advertisers, and potentially supporting premium pricing, positively impacting both revenue and earnings.
  
• The company's ability to win and deepen partnerships with major agencies and holdcos like dentsu and WPP, including the adoption of the full Commerce Media Platform stack, drives platform-wide spend and indicates growing share-of-wallet and cross-sell opportunities, supporting top-line growth and resilient earnings.
  
• The proliferation of new commerce channels (e.g., Connected TV, on-site video/auction-based display, and deeper integration with LLM agents) is expanding Criteo's addressable market and inventory pools, which can further unlock incremental revenue streams and market share.
  
• Criteo's strong financial position, highlighted by high free cash flow conversion, substantial liquidity, no long-term debt, and ongoing share buybacks, provides ongoing flexibility for value-accretive acquisitions or organic investments, supporting sustained earnings and shareholder value accretion over time.

Valuation

• The assumed bearish price target for Criteo is $25.0, 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 $51.0, and the most bearish reporting a price target of just $25.0.
  
• 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 $146.8 million, and it would be trading on a PE ratio of 8.9x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of $23.95, the bearish analyst price target of $25.0 is 4.2% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.