IPO Report: Criteo (CRTO)

Criteo (CRTO) is in the online ad serving business.  CRTO’s ad delivery technology enables e-commerce companies to leverage large volumes of granular data to efficiently and effectively engage and convert customers.
Eight other operating company IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium.

F-1A  filed October 10, 2013.

CRTO scheduled a $176 million IPO with a market capitalization of  $1.5 billion at a price range midpoint of $24.50, for on Thursday, October 31, 2013.
Manager, Joint Managers: J.P. Morgan Securities, Deutsche Bank Securities and Jefferies

Co-Managers: Stifel, Nicolaus, Pacific Crest Securities, SG Americas Securities, William Blair & Company

Summary

The revenue model is based on pay-per-click.   

Revenue for the six months ended June 30 ’13 increased 72% to $252 million vs the year earlier period.  According to the mid-point of CRTO estimates, net income turned positive, $2.6 million and EBITDA % of revenue advanced to 10% from 3% for the six months ended June 30, ’13.

Each ADS will represent one ordinary share.

Valuation

FUEL appears to have the most advanced  artificial intelligence system in the ad serving business, but CRTO expects to have had  a profitable September ’13 quarter.

Glossary

Conclusion

Buy CRTO because of the surge in top-line revenue and because it expects to report of profitable results for the September ’13 quarter.

Business

Criteo is a global technology company that enables e-commerce companies to leverage large volumes of granular data to efficiently and effectively engage and convert their customers.

CRTO partners with its clients to track activity on their websites and optimize its advertising placement decisions based on that activity and other data.

Demonstrating the depth and scale of data, in 2012, CRTO clients generated over $200 billion in sales transactions on their websites for the twelve months ended June 30, 2013.

Pay–per-click revenue model

CRTO delivered targeted advertisements that generated 1.5 billion clicks over the same period. Based on these clicks, CRTO clients generated over $6.5 billion in post-click sales.

A post-click sale is defined as a purchase made by a user from one of the client’s websites during the 30 day period following a click by that user on an advertisement CRTO delivered for that client.

As of June 30, 2013, CRTO had more than 4,000 clients and in each of the last three years our client retention rate was approximately 90%.

Clients

Clients include 3 Suisses, BonPrix, CDiscount, Expedia, Gmarket, Gumtree.com, Hankyu Kotsusha, Hokende, Hotels.com, La Redoute, Lenovo, Lotte, Macy’s, NetShoes, Nissen, Orange, Rakuten, Recruit, Sarenza, Staples, Tiger Direct and Zalando.

67% of clients who were live at both the beginning and end of the twelve months ended June 30, 2013 had an advertising campaign that was live and that generated clicks on every single day during that period.

Over the first 11 months of 2012, over 76.2% of advertiser client relationships were held directly with the advertiser.

Technology

CRTO’s solution is comprised of the Criteo Engine, data assets, access to display advertising inventory, and advertiser and publisher platforms.

The Criteo Engine has been developed over the past eight years and consists of multiple machine learning algorithms—in particular, prediction and recommendation algorithms—and the proprietary global hardware and software infrastructure that enables CRTO’s solution to operate in real time and at significant scale.

The accuracy of the prediction and recommendation algorithms improves with every advertisement CRTO delivers, because they incorporate new data, while continuing to learn from previous data.

Intellectual property

As of June 30, 2013, CRTO held one issued French patent, which expires in 2026, and one issued U.S. patent, which expires in 2028, and have filed four non-provisional patent applications in the United States and one Patent Cooperation Treaty application.

Competition

CRTO currently competes with large, well-established companies, such as Amazon.com, Inc., eBay Inc., Google Inc., ValueClick, Inc. and Yahoo! Inc. as well as smaller, privately held companies.

Other competitors include Adobe Systems Incorporated, which recently acquired Omniture, Inc. and Efficient Frontier, Inc., AOL Inc., which acquired Platform-A, Inc. (advertising.com), and eBay Inc., which recently acquired Fetchback, Inc. and GSI Commerce Inc., all of which currently offer, or may in the future offer, solutions that result in additional competition for advertising spend or advertising inventory.

Venture Capital investors

Bessemer Venture Partners Enforta Cooperatief UA
Entities affiliated with Index Venture Associates IV Limited
Entities affiliated with Idinvest Partners
Entities affiliated with Elaia Partners

Use of proceeds

CRTO expects to net $160 million from its IPO.

Proceeds are allocated for general corporate purposes, including working capital, sales and marketing activities, research and development, product development, general and administrative matters, and capital expenditures.