Criteo IPO Is A Jolie Paris Offering

Oct.21.13 | About: Criteo S.A. (CRTO)

Criteo S.A. (NASDAQ:CRTO), a Paris, France-based pay-per-click ad-tech firm, plans to raise $176.4 million in its upcoming IPO. The firm will offer 7.2 million shares at an expected price range of $23.00-$26.00. At the midpoint of that range at $24.50 per share, CRTO will command a market value of $1.5 billion.

  • CRTO filed on September 18, 2013.
  • Joint Bookrunners: J.P. Morgan, Deutsche Bank, Jefferies & Co.
  • Co-Managers: Stifel, Pacific Crest, Societe Generale, William Blair

Summary

Founded in late 2005, Criteo is a global technology company that allows companies to use large volumes of granular data to engage customers with specific advertisements. The firm's solution is comprised of the Criteo Engine - a set of proprietary predictive software algorithms - data assets, access to display advertising inventory, and advertiser and publisher platforms. Criteo's solution prices and delivers relevant and personalized internet and mobile display advertisements in real time.

Criteo collects massive amounts of data from its clients and other sources in order to enable and improve its engine; the firm observed over $200 billion in sales transactions on our clients' websites in the twelve months ended June 30, 2013 whether or not a consumer saw or clicked on a Criteo advertisement. The firm delivered targeted advertisements that generated approximately 1.5 billion clicks over the same period, leading to over $6.5 billion in post-click sales. As of June 30, 2013, the firm had over 4,000 clients, and in each of the last three years its client retention rate was approximately 90%.

Valuation

Criteo offers the following figures in its F-1 balance sheet for the six months ending June 30, 2013:

  • Revenue: $252,732,000
  • Net Loss: ($6,392,000)
  • Total Assets: $217,769,000
  • Total Liabilities: $140,811,000
  • Total Equity: $76,958,430

Conclusion

We're positive on this IPO if it prices in the $23 to $26 range . Though Criteo wasn't profitable in the first half of 2013, it did turn a small profit for calendar 2012. Ad tech IPOs in general have been a mixed bag in 2013; the success of explosive stars like Rocket Fuel (NASDAQ:FUEL) has been tempered by flops like YuMe Inc (NYSE:YUME) and Tremor Video (NYSE:TRMR). The market for ad tech in general should continue to grow as the global economy transitions more and more to an online marketplace, but there is no guarantee that ad tech firms will be able to convert a larger market into profit.

Business

Criteo relies on its ability to collect data through web browsers in order to maintain and improve its predictive engine. In order to collect this data it must employ technologies like cookies and similar tracking technologies. However, recent voter pushback against such technologies and "snooping" in general has led to proposed and enacted legislation preventing or restricting these technologies both in the EU and the US, which may have a negative impact on Criteo's ability to collect critical data.

Large Internet and technology companies like Adobe Systems Incorporated (NASDAQ:ADBE), Amazon.com, Inc. (NASDAQ:AMZN), AOL, Inc. (NYSE:AOL), Apple Inc. (NASDAQ:AAPL), eBay Inc. (NASDAQ:EBAY), Facebook, Inc. (NASDAQ:FB), Google Inc. (NASDAQ:GOOG) and Yahoo! Inc. (NASDAQ:YHOO) have the power to alter the internet display advertising marketplace in ways potentially harmful to Criteo, especially in terms of data collection. Apple, for instance, warned iOS developers in August 2011 that it would limit their access to unique device identifiers, or UDIDs, and subsequently instructed developers to make use of other identifiers, such as a new Identifier for Advertising, or IDFA, which was introduced by Apple in Fall 2012. In May 2013, the Apple App Store stopped accepting iOS apps and updates attempting to mine UDID data. While this change was not directly harmful to Criteo, since it did not use UDIDs, similar changes easily could be.

Management

Co-founder, Chairman, and CEO Jean-Baptiste Rudelle, has been with Criteo since its inception in 2005. He previously founded and served as CEO of K-Mobile, a mobile content provider. Mr. Rudelle holds a degree in Engineering from Ecole Supérieure d'Électricité (Supélec).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.