Criteo SA

NASDAQ:CRTO

Earnings Call Analysis

Criteo Reports Strong Growth and Raises Annual Guidance

Criteo delivered double-digit organic growth for the third consecutive quarter, achieving record top-line and adjusted EBITDA margins. The company reported a 67% increase in adjusted EBITDA and a significant rise in net income to $28 million. Revenue was $471 million, with contribution ex-TAC growing by 14% at constant currency. Criteo raised its 2024 guidance, now expecting a 10-12% year-over-year contribution ex-TAC growth and a 32% adjusted EBITDA margin. The expansion of its partnership with Microsoft and strong performance in Retail Media, with a 24% growth in contribution ex-TAC, underpin the company's robust outlook.

Strong Quarterly Performance

In Q2 of 2024, Criteo showcased remarkable performance, achieving a revenue of $471 million and a contribution ex-TAC of $267 million. Notably, there was a 14% increase in contribution ex-TAC at constant currency, demonstrating broad growth across all business segments. This was primarily driven by significant contributions from both Retail Media and Performance Media, with retention rates remaining high at nearly 90%.

Growth Across Business Segments

Criteo's two primary segments exhibited double-digit growth in Q2 2024. Retail Media generated $55 million in revenue, and contribution ex-TAC rose by 24% at constant currency to $54 million. This was attributed to strong client performance, particularly in the U.S., Germany, and the U.K. Meanwhile, Performance Media brought in $417 million, showing an 11% increase at constant currency. Growth in commerce audience targeting soared by 41%, indicating robust demand for targeted advertising solutions.

Strategic Investment and Cost Management

The company remains focused on optimizing its operations. Non-GAAP operating expenses decreased by 6% year-over-year, and share-based compensation was down by 21%. These measures contributed to a significant 67% year-over-year increase in adjusted EBITDA, which amounted to $93 million for the quarter. The prudent cost management strategies implemented by Criteo enabled strong operating leverage despite seasonal challenges.

Solid Financial Position

Criteo's financial foundation is robust, with approximately $675 million in liquidity and no long-term debt. The company's strategic priorities include investing in its commerce media platform, pursuing organic growth, and returning capital to shareholders through an active share buyback program, which aims to repurchase $150 million worth of stock in 2024.

Encouraging Outlook for 2024

Criteo raised its guidance for 2024, now expecting contribution ex-TAC growth of 10% to 12% at constant currency, an uptick from the previous high single-digit forecast. In Retail Media, growth is anticipated to be 20% to 22%, reflecting strong performance and effective client transitions. In Performance Media, expectations have been uplifted to high single-digit growth due to strong early-year performance.

Impact of New Partnerships and Technology

A significant highlight was the discussion surrounding Criteo's partnership with Microsoft. This collaboration is set to enhance Criteo’s position in retail media by integrating retailers onto Criteo’s platform starting in 2025. Although no immediate impact is expected in 2024, this transition will allow Criteo to access new performance budgets and fortify its competitive advantage in the market.

Adaptations in a Changing Advertising Landscape

Recent changes in the digital advertising landscape, particularly concerning Google’s approach to third-party cookies, offer a favorable outlook for Criteo. With Google announcing a more balanced user consent model, Criteo anticipates reduced impacts on their revenue due to continued access to certain signals, thus ensuring performance and consumer privacy alignment. This is expected to enhance Criteo's addressability strategy and mitigate potential revenue declines.

Commitment to Shareholder Value

Criteo is committed to enhancing shareholder value through disciplined growth and shareholder return strategies. The planned $150 million share repurchase program reflects management's confidence in the business and its future potential, alongside a robust operational strategy aimed at sustaining growth and profitability.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, and welcome to Criteo's Second Quarter 2024 Earnings Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Melanie Dambre, Vice President, Investor Relations. Please go ahead.

[Melanie Dambre, executive]

Good morning, everyone, and welcome to Criteo's Second Quarter 2024 Earnings Call. Joining us on the call today is 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 investor 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 reflects 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 will 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.

[Megan Clarken, executive]

Thanks, Melanie, and good morning, everyone. Thank you for joining us for our second quarter earnings call and what a quarter it's been for Criteo. I'm excited to share that we delivered another strong performance with double-digit organic growth for the third consecutive quarter. Notably, we achieved record top line and adjusted EBITDA margin for Q2. These results reflect the outstanding work of our teams who are driving momentum across our business.

Before delving into this quarter's performance, I'd like to address Google's recent announcement to move away from their original plan to fully deprecate third-party cookies on Chrome. They are now proposing a new framework to continue to support third-party cookies with user choice.

This means that we expect to benefit from ongoing access to third-party signals for opted end users, and that Google will continue to support Privacy Sandbox for opted out users. As a result, we expect that any given scenario would lead to a smaller signal loss impact than previously anticipated. We look forward to our continued collaboration with Google to shape this new framework.

Although it's premature to pinpoint the time line and precise impact of this change, we welcome this good news, which provides more clarity and publisher stability, ultimately benefiting the entire advertising landscape.

Our next-generation addressability strategy remains unchanged with additional strength coming with the news of more third-party signals. We remain confident in our ability to provide scalability and run time interoperability of privacy safe solutions for a more open, unified and efficient ecosystem that supports multiple addressability options.

Our vision is quickly coming to life as we continue to transform our company into a commerce media powerhouse. We continue to build our capabilities that focus on reaching consumers throughout their buyer journey from discovery to purchase, leveraging our unique commerce data assets, best-in-class AI and our supply and demand side relationships, creating a flywheel effect and making us the perfect platform for a unified commerce media ecosystem.

Partnerships are vital when scaling our value for all marketers and media owners. Over the past few years, we've worked closely with Microsoft to bring commerce audiences to the high-quality native advertising we deliver on Microsoft properties, and we're now excited to extend our long-standing partnership with Microsoft through our Retail Media suite.

Our most recent announcement reinforces the belief that the world of retail media is converging and together, Criteo and Microsoft can play a more central role in unlocking its full potential partners and for clients.

The collaboration with Microsoft is twofold. First, we're excited to bring Microsoft advertising's extensive demand to our global network of 225 retailers. This first of a client integration will enable retailers to tap into new budgets from Microsoft 500,000-plus advertisers, expanding the value and reach of their inventories in the process.

Integration, design and planning are underway, and we look forward to capitalizing on this opportunity together as more budgets shift to Retail Media.

Second, Microsoft shows Criteo as their preferred on-site partner, and we're working to consolidate the retail media supply onto our platform. The transition of these retailers from Microsoft's advertising to the Criteo platform is expected to start in 2025. We expect this to further strengthen our position as the leading ad tech player in retail media while creating an even more unified access for all media buyers.

Our shared focus on AI innovation is a unifying force behind our expanded partnership. Together, we aim to elevate retailer monetization and advertiser outcomes across the consumer journey, tapping into world-class strengths and predictive modeling to drive privacy-enhancing targeting, product recommendation, campaign workflows and creative formats. We are incredibly excited with this work and the opportunities that working with Microsoft on AI unlocked.

On top of this exciting development with Microsoft, we continue to gain market share in Retail Media in the second quarter with 30% year-over-year growth and Retail Media activated media spend, outpacing the market. We have a leading market footprint, including 65% of the top 30 retailers in the Americas and 50% of the top 30 in EMEA.

And we believe we've become the hub of retail media to complement Amazon. We had notable retailer wins across all regions over the past few months in the U.S. We're excited to partner with new large retailers, including Dollar General, QVC and Belk.

In Europe, we're proud to work with Euronics, a global leader in distribution of home appliances and electronics, and we expanded our relationship with MyTheresa, a global luxury e-commerce retailer that is now using both our performance marketing and retail media capabilities. We're also partnering with luxury department store Selfridges, to power the online retail media advertising technology on their e-commerce website.

Lastly, we're broadening our retail media presence in APAC and LATAM, including new retailers in Peru and Brazil. These retailers are coming to us for our global presence, ability to scale quickly, our end-to-end capabilities, simple-to-use products, AI-driven performance and world-leading sales and product expertise.

Our momentum carries into adjacent verticals such as tech-enabled services. For instance, we added Grab, the leading app in Southeast Asia, providing everyday services such as mobility, deliveries and digital financial services to over 38 million users. We've also seen strong demand and revenue growth for Uber Eats since we expanded our partnership to the spirits and beverages category across various regions earlier this year.

Importantly, we continue to experience strong client retention and expansion. Our multiyear and often exclusive contracts with deep technical integration contributes to the stickiness of our Retail Media business.

We're also very encouraged to see that over half of our retailers in the Americas and EMEA are leveraging multiple ad formats for their retail media network, building out their advertising offering. A recent example is the expansion of our DocMorris partnership with the launch of native video ads. This activity drives scale.

We added about 200 new brands in Q2, and we're pleased to see agencies lean in with our Commerce Media demand-side platform, or DSP, as we give them a single entry point to reach our valuable network at retailers. In the U.S., agency spend accelerated sequentially, and we saw the major holding companies grow more than 50% year-over-year. As a result, agencies now account for 2/3 of Commerce Max spend in the U.S.

This quarter, we launched further capability on Commerce Max with our new SKU-based planning tool. This further enables brands and agencies divide sponsored product ads across our 225 retail media networks within 1 simple consolidated workflow. Instead of executing campaigns on multiple retail media networks individually, brands and agencies can leverage our DSP to promote their products on any retailer and our network where their products are sold.

All in 1 streamlined campaign activation with management optimization workflow and closed-loop measurement. This allows marketers to focus on what really matters, selling products. In turn, it's expected to bring more demand for a larger number of retailers, enabling brands to reach the majority of world's retail supply outside of Amazon.

Commerce Max also brings demand to off-site campaigns, meaning using retailers data assets to extend their reach across open Internet inventory. French [indiscernible] Joy Club, is a recent addition to our off-site campaigns that we run without DSP in Europe, and we're currently bringing one of the biggest U.S. retailers on board.

Turning to Performance Media, which encompasses our targeting capabilities, including retargeting, commerce audiences and our supply and ad tech services. We're seeing continued strong momentum for commerce audiences up 41%.

We are leveraging the largest set of commerce data and shopping intent signals on the open Internet to reach valuable audiences across the entire shopping journey to drive more sales and grow customer lifetime value.

Similar to prior quarters, we benefited from the accelerated adoption of first-party data-driven solutions, successful cross-selling efforts, AI-driven performance enhancements and incremental third-party demand through our commerce grid SSP.

Today, 80% of our Performance Media revenue excluding supply and ad tech services comes from clients using commerce audiences in addition to retargeting. This was always our goal and we're continuously innovating to appeal to a larger pool of potential clients.

Our retargeting solution has returned to growth for the second quarter in a row, including the growing activation of Meta's large-scale inventory in combination with open Internet inventory. We're pleased to see continued success across our Facebook and Instagram campaigns, and in reach with performance.

For example, reed.co.uk, one of the U.K.'s leading careers marketplace partnered with Criteo to assess for vindicating social environment and effectively link open word candidate intent, the social channel. Our integration with Meta enabled them to generate thousands of additional applications while reducing the cost per application by approximately 8%.

We launched our Commerce Grid supply side platform, or SSP a year ago, and we're pleased with our progress to date. Commerce Grid, its agencies and brands access to our commerce audience packages with publisher inventory for highly targeted campaigns through third-party DSPs like Google's Display and Video 360.

It represents another part for us to capture incremental Commerce Media budgets and leverage the power of Commerce Media at scale. We continue to grow our premium roster of publishers and most recently added top names like the New York Times.

We also introduced new commerce formats like Plana, which is the first payment app to launch advertising with commerce grid, and we're already seeing high demand for its high shopping intent environments with our large base of performance clients. The strength of our data assets, combined with our best-in-class AI put us in a unique position to pioneer the future of performance advertising.

As a reminder, the objective of our comprehensive addressability strategy is to add value throughout the consumer buying journey with relevant, personalized and trusted advertising while meeting our clients' performance expectations. We leverage our deep learning models at the intersection of proprietary interest groups, commerce data and media data across retailer sites, social media platforms and the open Internet.

This work sets us the foundation of Criteo's Commerce Media platform setting both sides of our business with advanced targeting capabilities that set a new performance paradigm and ensure consumer privacy and control.

To conclude, we're right where we said would be as we progress through our transformation to be a world-leading Commerce Media platform. We have strong conviction towards our business strategy and we're well positioned to drive valuable, profitable growth in 2024 and beyond.

We recently announced the promotion of key leaders to further propel growth and continue building momentum in Retail Media and Performance Media. We're ready to see the exciting opportunities ahead, and we remain committed to delivering shareholder value.

And please save the date for our upcoming Retail Media investor update that will be a live webcast on November 18. You will get the chance to hear from our leadership team, who will provide an update on our Retail Media business and the opportunities ahead.

With that, I'll hand the call over to Sarah, who will provide more details on our financial results and our outlook. Sarah?

[Sarah Glickman, executive]

Thank you, Megan, and good morning, everyone. We delivered record Q2 results with strong operating leverage enabled by top-line growth and disciplined cost management.

Revenue was $471 million and contribution ex-TAC increased $267 million, including year-over-year headwinds from foreign currencies of $6 million. At constant currency, Q2 contribution ex-TAC grew by 14% with strong performance across the board. We continue to shift and rebalance our top line mix with our new solutions representing 52% of our business in Q2. Drive retention remains high at close to 90%.

Our 2 segments, Retail Media and Performance Media delivered double-digit growth in Q2. Starting with Retail Media. Revenue was $55 million, and contribution ex-TAC grew 24% at constant currency to $54 million, in line with our expectations. As previously communicated, our Q2 results included the expected transition of our largest retailer client to their direct sales model.

Our Q2 growth was primarily driven by our client base in the U.S., Germany and the U.K. Growth from existing clients remain strong, with same retailer contribution ex-TAC retention at 131%, and we benefited from the ramp-up of newly signed retailers.

We have unmatched scale and continue to experience strong fund retention in Retail Media. We are also excited to transition Microsoft advertising on-site retailers to our monetization technology stack, starting in 2025 to further scale our footprint.

On the demand side, we now partnered with 2,900 global brands and have onboarded about 200 new brands this quarter. Our activated media spend in Q2 grew 30% year-over-year above market demonstrating that we continue to gain share. We saw strong growth from our agency partners and robust brand bookings, mainly in CPG categories like beauty.

We are pleased to see the agencies and brands prioritize Retail Media as an impact for closed move marketing investments paying advertising directly to a sale. We are also excited about our upcoming demand integration with Microsoft advertising, which we expect will give us access to new performance budgets from thousands of advertisers.

In Performance Media, revenue was $417 million, and contribution ex-TAC was $213 million, up 11% at constant currency. We saw continued impressive growth in commerce audience targeting up 41% year-on-year on top of 41% growth in the same quarter last year as we leverage large-scale commerce data and AI-powered audience modeling technology to find in-market shoppers. Retargeting grew 4% and supply and AdTech services was up 3%.

Our platform leverages cutting-edge AI and our Criteo AI lab keeps innovating to offer leading performance for our clients. Our latest AI-driven performance optimization drove a contribution ex-TAC uplift in the double-digit million range again this quarter and unlock additional budgets with valued clients like [indiscernible] in South Korea. We delivered solid growth in the U.S. and Europe. Travel remains our fastest-growing vertical, up 31% followed by classified and retail.

In retail, which is our largest vertical, spend from department stores and marketplaces grew double-digit year-over-year in Q2, while we saw lower demand for fashion. We delivered adjusted EBITDA of $93 million in Q2 2024, up 67% year-over-year.

Our double-digit top line growth and a lower cost run rate resulted in strong operating leverage. We also benefited from the timing of some investors -- investments that moved into the second half of the year as well as a reduction in bad debt expense due to lower DSOs for Retail Media and a milestone payment related to one of our large partnerships.

Non-GAAP operating expenses decreased 6% year-over-year, reflecting continued rigor on resource allocation. We are driving our transformation by investing in growth areas and optimizing our operating model for scalability and efficiency. We are also enhancing our operational effectiveness with streamlined processes and the deployment of AI-powered productivity tools.

Moving down the P&L. Depreciation and amortization was $16 million in Q2 2024. Share-based compensation expense decreased 21% to $22 million as expected, which includes $4 million related to shares granted to icomweb founder as part of the acquisition.

Our income from operations increased to $37 million and our net income grew to $28 million in Q2 2024. Our weighted average diluted share count was 59 million, which resulted in diluted earnings per share of $0.46 per share, and our adjusted diluted EPS was $1.08 in Q2 2024 up 104% year-over-year.

We continue to benefit from a strong financial position and robust balance sheet with solid cash generation and no long-term debt. We had about $675 million in total liquidity at the end of June, which gives us significant financial flexibility to execute our growth strategy and disciplined and balanced capital allocation.

As expected, operating cash flow was $17 million and free cash flow was negative by $4 million in Q2 reflecting seasonality, partially offset by lower CapEx. Our trailing 12-month free cash flow was $142 million.

We are confident in our business strategy and financial strength, and we are fully committed to driving shareholder value. Our key priority is to continue to invest in our commerce media platform to enable sustainable organic growth alongside value-enhancing acquisitions and to continue to return capital to shareholders via our share buyback program.

We have a long-standing record of returning significant capital to our shareholders and we are on track to repurchase $150 million of stock in 2024, including $40 million deployed in Q2. This included 1.1 million shares repurchased at an average cost of $36.70 per share. We also canceled 2 million shares in early Q2. At the end of June, we had $166 million remaining in our Board share buyback authorization.

Turning to our financial outlook. We have raised our guidance for the year based on our expectations as of today, August 1, 2024. Despite macro uncertainties, we entered the second half of the year in a position of strength and confidence to deliver double-digit growth with continued margin expansion.

For 2024, we now expect contribution ex-TAC to grow 10% to 12% year-over-year at constant currency with growth in both segments. This is an increase from our prior guidance of high single-digit growth and is a meaningful acceleration compared to our organic growth of 4% in 2023.

As a reminder, comps to the prior year become tougher as we progress through the year. In Retail Media, given our year-to-date performance, we are confident in our ability to deliver contribution ex-TAC growth of 20% to 22% at constant currency in 2024. This is an increase from our initial guidance of approximately 20% and includes the impact of our largest client transitioning demand to a direct sales model as previously communicated.

As a reminder, we have tougher comps for Q3 and Q4 with Q4 being our largest quarter. We do not expect a strategic collaboration with Microsoft Advertising to have a material impact in 2024.

In Performance Media, given our strong performance in the first half of the year, we raised our guidance to high single-digit growth for 2024. We have also raised our adjusted EBITDA margin from 31% to 32% for 2024. This reflects our confidence in operating leverage from top line growth, strong expense management and the transformation of our operating model as we continue to invest in areas of growth.

For 2024, we expect a normalized tax rate of 25% to 30%. Our overall CapEx is expected to be slightly below $100 million as we continue to invest and optimize our leading AI infrastructure.

Lastly, we expect a free cash flow conversion rate of approximately 45% of adjusted EBITDA before any nonrecurring items. For Q3 2024, we expect contribution ex-TAC of $264 million to $268 million, growing by 8% to 10% at constant currency as we continue to drive superior performance for advertisers across our product portfolio. We estimate ForEx changes to drive a negative year-over-year impact of about $1 million to $3 million on contribution ex-TAC in Q3.

We expect adjusted EBITDA between $72 million to $76 million, and as previously mentioned, this includes the timing shift of certain investments from the second quarter to the third quarter.

Looking ahead, Google's favorable announcement brings clarity to one of the pillars of our next-generation addressability strategy. While this is recent news we expect to retain more third-party signals, and we continue to advance our addressability strategy, including Privacy Sandbox API. As a result, the potential loss of signal in Chrome would have a smaller financial impact than previously communicated.

In closing, we have strong conviction in our strategy and resilient business model. We are well positioned for continued success, and we are committed to maximizing shareholder value. The future is wide open for Criteo.

And with that, I'll hand it over to the operator to begin the Q&A session.

[Operator]

[Operator Instructions] Your first question comes from Ygal Arounian with Citi.

[Ygal Arounian, analyst]

I guess with the Google announcement will start with cookies. And you're giving good color, helpful to understand that signal also will be less, and that's going to have less of an impact on the revenue. But could you just maybe talk through your expectations for how this evolves the user opt-in choice with IDSA while maybe a little bit different, certainly wasn't a good signal for what opt-in might look like. So how do you see this evolving? And how do you think about the balance on Privacy Sandbox and opting in and opting out and kind of what that means for you in the ecosystem? And then I have a follow-up.

[Megan Clarken, executive]

Good to hear from you, and thanks for the question first up. It's a very good one. It's a very good one because they are still clearly working through what that looks like. The Google team are in design. They're only just come to the first part of this, which is to go to this model, and we're really working closely with them and collaborating with them as we have now for many, many years. I'm going to pass you across to Todd for sort of a bit more color as to what he sees because he's closer to them in terms of how they're going to do it.

But let me just start by saying that I reiterate how good the news is for us and for the industry that there is some clarity around what Google are going to do, what they're not going to do and a [indiscernible].

We anxiously await the time line in more detail about the Optum model. But for us, we will see something better than nothing. In this case, we're sort of now going from -- if you can imagine a highway of cookies to a single-lane road of cookies, which is still very effective and does the same thing in terms of getting you from A to B.

So we're thrilled. We want to make sure that we stay close to Google in the way that they set that up so that, that single lane can be as big as it can possibly be by doing it effectively and making sure that we can capture as many consumers opting in as possible. But that's work to come. I will pass to Todd.

[Todd Parsons, executive]

Great. I can build on that a little bit, Ygal. The comparison to the ATT that you mentioned, I think important to say that -- because we're close with the Google team, we have it straight from the top of that team, that the objective in user choice design is going to emphasize clarity for consumer trade-off to opting in or opting out as well as take a fair and balanced approach to that messaging. So what I do think will be different this time around is that the language that consumers are addressed with and the way that they're educated should be more favorable.

Secondly, to Megan's point about the fact that some is better than none, if you consider the fact that we have built a performance machine on cookies in the past. And only in the last 3 years, have built additional signals into that approach, you can imagine that we're excited about using whatever cookies are left to compare and contrast our new approaches with what has worked for years like a song. So we're excited to have the additional cookies that are remaining regardless of how small, and we think this is an amazing progression for Criteo and our partners.

[Ygal Arounian, analyst]

All right. Great. We'll see how all this evolves, but that's really helpful. My second question, I wanted to focus on the Microsoft partnership on the Retail Media side a little bit. Understanding it's not going to have a material impact in 2024. If you could help us maybe size we think about what the impact might be in 2025 and beyond and what it means?

And maybe more importantly, what this means for Criteo's positioning within the Retail Media landscape. This was of key competitor that you're kind of partnering up with. I know you've had relationship with Microsoft, but on the Retail Media AdTech side. And then similarly, with the agencies. We hear agencies continuing to invest in their retail media products, but they're also becoming larger customers of Commerce Max and bigger partners. Just maybe walk us through how your positioning and the landscape has evolved and how it evolves from here?

[Megan Clarken, executive]

Yes. Thanks again. Good -- another good question. This speaks to consolidation is how I would start. Retail Media has -- is the fastest-growing medium -- digital medium that there is today. And if you look out a few years at the numbers, it continues to be that way. And it takes things -- it takes shifts like this to bring that to life.

This is Microsoft identifying a player who has put the work in that we have and is world-leading to trust with their clients to pass their supply clients across to the Criteo platform. And that's trust that they've given us and not towards the need to consolidate the ecosystem. And we don't take that lightly, and we don't take that for granted. We have to nurture those clients as well.

By bringing a network of retailers onto a single platform to create a very large and compelling offering to advertisers of which Microsoft happens that have access to 0.5 million of those advertisers is a very big nod forward for retail media in general with Criteo sitting in the center of that.

So I see this as -- it's hard to put it in words. I see there's a shift in retail media, which we've announced a few weeks ago, but that you'll hear more from us as we get closer to actual implementation, how this gets rolled out, how that demand from Microsoft's advertising starts to flow through the system. And how Microsoft retailers or supply side clients get comfortable with using the Criteo platform.

All of this is very, very good. And we speak a lot about creating an ecosystem of retailers, which is not an alternative but a supplement to -- or a way to not [indiscernible] against -- across Amazon in a retail environment. This is it. This is the other retailers coming to life and having compelling offering for advertisers.

So we're very excited about this move, and we can give you more color on what this means from a financial perspective as we get sort of closer to the implementation of the product set and the clients for 2025.

[Operator]

Your next question comes from Mark Kelley with Stifel.

[Mark Kelley, analyst]

I want to go back to the cookie deprecation stuff really quick. Maybe first, a clarifying question. Todd, when you said you expect the language to be more favorable relative to ATT, more favorable to Criteo in the ecosystem or more favorable to the consumer as in maybe we'll see more people opt out of cookies or maybe I heard that wrong, I think I heard. So please, by all means, correct me. And then as part of that -- we can start with that one. I can ask the other one after that if you want to start with that.

[Todd Parsons, executive]

Yes. So we would say favorable to both. I mean I think my reflection on ATT was that the prompt to consumers sort of vilified the value of advertising. And the assurance that we've had from Google is that they're not going to take the same approach, which would mean that one could assume more consumers will opt in to third-party cookies and that there will be more remaining after the implementation is rolled out. So ergo friendly to Criteo friendly to advertisers and publishers that are all helped by that.

[Mark Kelley, analyst]

Okay. All right. Perfect. And then the other one, let's -- I want to focus on Retail Media. You already have a big footprint. You're bringing on this Microsoft supply. When you take a step back and look at adding incremental supply, I guess, are there any obvious end markets or geographies? Or I guess where is the next component of the retail media opportunity in your view?

[Megan Clarken, executive]

Good question, but an easy one. We've always -- we went into this year with a strategy of winning more retailers. You'll probably remember us saying that as we came into 2024. And this is sort of a testament to the fact that we continue to bring on more retailers to build out that footprint. We're also building out the actual stack or the -- I called it a flywheel earlier on. It is a flywheel.

So by having both the demand and sort of sandwiching the retail media offering on -- looks supply at the bottom and the demand at the top and then building out capability through the center that our retailers can continue to enjoy and can feed us back to things that they need to continue to prove scale or have the opportunity to bring scale and to their assets is also something that we're leaning into.

And those 2 things together, if supply attracts demand, and demand -- you got a lot of demand coming and it's looking for supply and supply is sort of building out because it's getting scale, you're getting geo footprint, you're getting as I talked about other clients -- some of our clients who are doing more and new statements with their advertising format. All of this thing is just a creation of a flywheel that just drives more supply and more demand.

So for us, we're focusing on making sure that, that wheel is moving, and we're contributing to that wheel as we see momentum, which we're seeing. And also that we're helping our clients who are on the supply side, the retailers get scale because right now, in some pockets, it is still nascent.

They are still trying to work out how this works. They are still trying to grow, and there's no doubt that they are growing, but this is all the momentum that we're building, and it comes with these sorts of announcements, huge demand coming at us, more supply coming at us, more capabilities being offered to the supply side, this flywheel built -- being built up that stuff to move faster and faster. And that's exactly what we're doing here at Criteo.

[Operator]

Your next question comes from Brian Pitz with BMO Capital Markets.

[Brian Pitz, analyst]

Maybe a quick follow-on from the first few questions. If you take a step back with respect to the retargeting business, does this change your long-term strategy for retargeting? Obviously, when you look at and talk to retailers, they love the product. But in the new world of different identity providers and solutions as well as having some of the legacy still available. It seems like it's hard to step away as ever from this business.

How are you kind of thinking just more strategically about putting some of the changes in place? Or just give us some sense for how you're thinking? And then just on TAC, you executed very well coming in 8 below -- 8% below what the Street I think was expecting. What were the drivers here? And do you expect that momentum to continue?

[Megan Clarken, executive]

Okay. Good. Thank you. Thanks, Brian. Let me take the first one before the beginning of it, and then I'm going to hand across to Todd for some more detail and how he's driving the product roadmap for retargeting. But retargeting for us or the entire retargeting is part of the entire performance portfolio with commerce audiences coming across top, for instance.

And the fact that our clients now are using both of those tactics is just testament to how well they work together and how sticky that entire sort of targeting environment up and down the funnel from a performance perspective has become. I think it's now 80% of clients are now moving their money between the retargeting capability or tactic and the commerce audience tactics.

And I say tactic because they too -- both of them serve slightly different purposes. Their objective is the same, but the way that they work and go about getting that objective is slightly different. And our clients want to be able to do both at different times for different reasons.

So for us, retargeting has been reinvented given now that we do more than retargeting that we're now offering products that are complementary and supplementary. And we have a renewed focus on retargeting, which is causing excitement internally and excitement externally and you're seeing that now as it's appearing in the numbers. So the product lead -- from product lead, I'll pass it across to Todd because he's leaning into this area very, very closely.

[Todd Parsons, executive]

Well, I would just build on what Megan said. If you think about the performance-minded buyer, which, of course, everything we do is focused on performance. But if you think about the traditional performance-minded buyer, we're now supporting all of their performance activities within the budgets that they control.

Retargeting is just one of those tactics. And it's nothing for us to run away from. It's something for us to preserve as much as we possibly can. So those budgets can spend and get the performance that they've always gotten from Criteo.

The way that we have approached that from a product roadmap perspective is through our multipronged addressability strategy expanding from the open auction, open RTV in the social environment where we're able to get to new reach and still maintain performance expectations for our partners. And of course, we'll continue to do that, Mark.

So our landing for retargeting is to provide as much retargeting reach as possible for our customers while maintaining their performance. And we're not going to stop emphasizing that as a goal. But as Megan said, it is important to point out that we're servicing 2 different tactics in addition to that these days.

So Brian, retention, we've talked about before, we've talked about customer acquisition and the fast growth of our commerce audiences, and so those things together really help deemphasize retargeting for being what it is, a single tactic in the performance mix.

[Megan Clarken, executive]

And I apologize Brian, we couldn't hear your second part of your question.

[Brian Pitz, analyst]

Sure. Sorry. Just about TAC. You obviously outperformed on your TAC. And then how sustainable are those improvements in TAC? Can you just give us some of the drivers there?

[Todd Parsons, executive]

Yes. I mean, generally speaking -- I'll answer that as well. Generally speaking, and I think we've talked about this quite a bit before. We are doing more with direct supply, which has been part of the company's lineage for a long time. And we're doing more with supply path optimization with our indirect supply partners. So what you're seeing coming through there is a combination of those 2 things. And of course, we're excited to produce upside in our ability to acquire traffic.

[Operator]

Your next question comes from Doug Anmuth with JPMorgan.

[Katy Ansel, analyst]

This is Katy, on for Doug. First, I just have a follow-up on the Microsoft partnership. I mean, this feels like a pretty big and exciting undertaking. I know the integration begins more so in 2025. So can you just talk more about how much uplift an investment is required to get this up and running? Or do you feel like you're in a good place, I mean, not much more like incremental investment is needed?

Second, on Commerce Max. I mean, it's been almost a year since its launch, and it sounds like you've had some pretty good client wins. So just taking a step back, can you provide an update on how this has been progressing relative to your initial expectations?

[Megan Clarken, executive]

Yes. Katy, good to hear from you, and thanks for the questions. On the Microsoft, I have to start with -- firstly, yes, it's very exciting news for us and a fantastic project for us to get our teeth into.

There's not a lot of investment in here. So if you can imagine that from the demand side, Microsoft would make Criteo's retail networks available to its advertisers. So it will use its own DSP to get there. So there's not opening up so that they can get access there. And then on the supply side, this is work where we have to sort of one by one work through Microsoft's client base -- Microsoft advertising's client base and work with them to migrate across to the Criteo platform.

Again, we don't take this one for granted because we have to understand, we have to fill in any gap that might be caused by moving from one platform to the other that are not all the same. So in there, there may be some incremental investments to make sure that we're giving client base what they need to make that transition smooth. But from an overall, there's nothing here that's being -- we're not reproducing anything or building anything from scratch. It's a migration and it's the welcoming of Microsoft advertising client base.

On the MAX side of the house, this has been terrific in terms of having it -- 2 sides to MAX, remember. One side is that MAX is the gateway, if you like, the pathway for agencies to get access to our Retail Media networks, so they're buying through MAX. And that buying all that demand grew $150 million through MAX for the second consecutive quarter.

So this is multiyear partnerships that we have with agencies who are just increasing that spend as they come through MAX to get access to the retail -- retail media inventory. So we're extremely happy with that. Agencies are doing a terrific job working with us on that front.

On the other side of MAX, which is the, what we call off-site, it is early innings for off-site or the use of off-site as an advertising vehicle for retailers. It's early innings everywhere, in terms of retailers using off-site to extend their advertising campaigns with their brands across the open Internet.

And I said today that we've seen some wins, we talked about Joy Club here in France. At the moment, we're working with a very big U.S. retailer to help them with those offsite campaigns. And we have a solid pipeline of different third-party DSPs coming through MAX to be able to get access to those audiences and come out across the open Internet as well. So there's a lot of activity going on through MAX, whether it be buying Retail Media inventory or buying off-site inventory. And so we're -- it is exactly where we'd like it to be at this point in time.

[Operator]

Your next question comes from Mark Zgutowicz with Benchmark Company.

[Mark Zgutowicz, analyst]

Todd, maybe just a quick follow-up on cookies. Just curious how and when you expect Google to implement the user consent or choice as you call it? And would you anticipate any temporary business disruptions in the process?

And then Megan, just maybe digging in a little deeper on Cmax. 2/3 of agencies, you mentioned comprised majority of spend. Just curious, if you think about the roadblocks or what's preventing more volume from coming from the agencies. Just curious how much of that was by bottlenecks?

Is just breaking agencies spend from their existing DSP relationships and getting that sort of funnel to you versus the variability that we hear from agencies ourselves in terms of just how Retail Media Networks in general, are set to accept or buys and how they take their inventory, just a lot of variability at -- aside from the fragmentation that we hear. That would be helpful.

[Todd Parsons, executive]

Mark, I'll take the first one then. Obviously, we stay incredibly close to Google as well as to the CMA and many partners who are -- and have been supportive of the Privacy Sandbox rollout. What I can say about timing is that across the board, things are very much in the discovery phase. Google is solicitous of our feedback. We work a lot with them to help inform how they might think through presenting user choice. And that work has just begun.

The same is true with the CMA. The CMA has been directly solicitous of our feedback, and we have given it to them in the same accord. So I would say it's still early to talk about timing, and it will be a process to get that right. It's clear that there's thoughtfulness around it. So to your point about business disruption, we don't expect any business disruption from this. And of course, we'll make sure that in our closeness with all those parties that we're always working to continue making sure there is no disruption.

[Megan Clarken, executive]

Let me jump in on MAX. So firstly, again, the ecosystem has got to find its feet in terms of the tools that it uses to get access to. And we feel like we're in a terrific position with MAX. I mean we're getting so much closer to the agencies who, as I said, grew $150 million from -- put $150 million through MAX for the second consecutive quarter, and we expect that we'll just continue to see them increasing their presence there.

One of the things we know, I think you've already noticed is that the agency workflows vary, and they have a lot of their own tools and a lot of their own partners in place and that retail media, especially retail media, where you're buying across multiple retailers is relatively new in the scheme of things, particularly to agencies.

But we work very closely with them, and have done now for a couple of years since we've sort of broken the tie and become very strong partners with them. And we're building out tools that are getting them what they need to get closer to us. So this is a bridge that's coming together.

I talked before about the SKU-based buying tool that we've just put in place, which enables an agency to buy multiple retailers through MAX where the brand is actually appearing across those retailers, so same product across multiple retailers through one product or one access point. And those sorts of things are exactly what retailers are -- sorry the agencies are looking for to make it easy for them to get access to retailers, which remember they have never had before. They've had to go one retailer at a time.

So as we just continue to bring tools to market that tick the boxes with retailers, and we've brought some terrific talent to Criteo over the last 12 months that are helping us understand exactly what it is that we need to put together for retailers. These bridges are being sort of roll closer and closer together. And our relationships with agencies are only getting stronger. So we're really excited about what's in front of us here and the collaboration that we have with agency now and going forward.

[Operator]

Your last question comes from Richard Kramer with Arete Research.

[Richard Kramer, analyst]

A couple of quick ones. Megan, with the elevation of Brian to CRO and President of Retail Media, and you talked about cross-selling of solutions and full funnel activation, and you mentioned the renewed focus on retargeting. Are you now expecting performance to return to growth materially in 2025? I don't know if it's too early to comment on that, and how you're bringing sort of Retail Media and performance closer together?

And maybe a quick question for Todd. Outside of Retail Media, where you can absorb first-party data, do you see any alternative IDs that are at scale now and how much would be enough third-party cookie inventory to model off of to sort of sustain your signal in retargeting.

[Megan Clarken, executive]

Richard, thanks for that. Good -- all good questions from everyone. The performance question, it's too early to tell. I think we covered that earlier on, relies a lot on, as you know, how Google sets this thing up and their timing and -- we maintain where we are for '24, but '25 is a little hard to read until we get closer to exactly what it is that they're doing.

On the shuffle internally, nothing too much to read into that, but let me just say a couple of things. Firstly, I'm very much a believer for having a team of extremely strong professionals who can do a lot of things. And when we need things done, we need to shuffle people around to do even quickly and effectively and efficiently. And so that's one of the objectives in changing the landscape a little bit to make sure that we've got accountability and drive throughout the organization.

I also think it's just a sign -- you should read it also top most sign of just high-performing professionals at Criteo, who I want to stretch and give a challenge to. But also, the last thing I'd say on that one is that you've read something here into the move around. And it's close to what I said in the opening remarks around the power of what Todd is doing from a base of -- a Criteo base of performance and the tools that we have access to, the data that we have access to, the AI that sits on top.

And now you can hear our excitement to that, the opportunity that Microsoft's AI capabilities can bring to us as we learn from them. All of this creates this foundation of which Performance Media and Retail Media sits on top of. And the two are very strong together. And I want to be able to exploit that and make sure that both sides of our business are really benefiting from the power of that core, the power of our addressability, the power of our performance and that we bring that out to our clients.

And so I just have to move the team around internally, they are athletes, and I expect that the team move around to make sure that we can deliver and we can do that quickly and effectively, and that's what that was all about.

[Todd Parsons, executive]

Yes. I can -- Richard, I can answer the second piece. I think first of all, alternative IDs, we -- at least those that are tied to deterministic data, we don't see the scale up, not the scale that a company like us would need to be successful into the future. Hence, our investment in other addressability approaches along with alternate ID.

So what I want to emphasize is that we still look at an important role or alternative IDs. What we don't want to do is make it complex for our customers to have to choose between them. We want to make sure that at run time when we find a user for retargeting or retention of any sort that the decision is made for them at the best possible performance outcome. And that's what we're doing today exactly.

So we have a variety of different alternative ID partners that we have been testing, but I can't say that not one of them would provide the scale needed to replace third-party cookies, hence several of them and also the other prongs of our addressability strategy and making them work together without having our customers go through the complexity of choosing, testing and doing all the work that we're doing that Megan described earlier.

The last thing is data minimization. You talked about how much data. I do want to say that our addressability strategy counts on and assumes data minimization over time, and that our use of advanced AI and deep learning is aimed squarely at what we can do with a lot less signal than what we see today with identity being stitched together and graft.

It's too early to say how well those models will perform at what level of data, but what I can say, and you know we're very specific about proving things and letting data do the talking. What I will say is that our teams know that less data is needed to get performance out of models in the deep learning and advanced AI environments, and we're very excited to develop that as we go forward.

[Operator]

We have no further questions at this time. I will turn the call over to Ms. Dambre.

[Melanie Dambre, executive]

Thank you, Megan, Sarah and Todd. This now concludes our call for today. Thanks, everyone, for joining. We're available for any additional questions. Have a great day.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.