JP Morgan-Criteo: Looking for Advertiser Growth. Overweight and $42 - Doug Anmuth

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Criteo reports 4Q13 earnings on Tuesday, February 11 after the close with a conference call scheduled at 5pm ET (dial-in: 646-254-3364, ID# 9118936). We expect Criteo to report solid 4Q results with likely upside to our estimates, which are at the high end of guidance as advertiser growth, geographic expansion, and mobile should offset what appears to have been a sluggish holiday season. Overall retail, Amazon and eBay results, and Channel Advisor data have been light, partially driven by fewer shopping days, but we project 52% TTM advertiser growth and continued strength in the Americas and APAC. We also look for greater traction in mobile—now more than 6% of revenue ex-TAC—especially in Japan where more than 40% of Criteo's advertisers are mobile enabled. We continue to believe Criteo is well positioned to benefit from the shift in display ads toward real-time bidding and programmatic buying—our $42 price target is based on 7x 2014E net revenue.

What to expect. We are forecasting 4Q13 net revenue of €51.6M (+46% Y/Y), in line with consensus of €51.4M and guidance of €50-52M. Our net revenue estimate is based on gross revenue of €128M (+47% Y/Y) and a 59.6% TAC rate—we note that Criteo optimizes for net revenue and has control over its TAC rate. We expect ~5,140 TTM clients (+52% Y/Y, +11% Q/Q). We project Americas net revenue of nearly €15M (+50% Y/Y) and EMEA net revenue of €26M (+31% Y/Y), and we are modeling APAC net revenue of €10M (+92% Y/Y). Our €11.7M EBITDA estimate is in line with consensus of €11.5M and guidance of €10-12M. We are forecasting PF EPS of €0.11 vs. consensus of €0.09, potentially due to a lower tax rate.

1Q and 2014 Outlook. We are modeling 1Q14 revenue and EBITDA of €53.9M and €11M, respectively, and €239M and €48M for the full-year 2014. We expect large financial services and autos clients signed in 3Q13 to begin adding to revenue growth in the Americas region in early 2014 and for mobile to expand geographically.

What to watch for: 1) Americas net revenue growth to reaccelerate strongly Q/Q—we're at 25% Q/Q; 2) adoption of Criteo's mobile products by advertisers and mobile % of revenue; 3) progress in on-boarding additional clients on the Facebook Exchange (FBX); 4) update on the Yahoo! Japan partnership and ability to access more premium inventory; 5) any commentary on potentially working with Twitter on Tailored Audiences; and 6) an update on key hires in the Americas and China, including Rob Deichert as North America COO.

Douglas Anmuth is a Senior Vice President and senior research analyst covering the Internet industry. From 2005-2007, Doug was recognized by Institutional Investor magazine's "All-America ResearchTeam" survey as a Runner-Up in the Internet category. Doug can be reached at douglas.anmuth@jpmresearchmail.com.

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