Activist Petrus Advisers has a plan to help lift Criteo’s share price. Here’s how it might unfold

Enterprise: Criteo SA is a France-based firm specializing in digital efficiency advertising. Its resolution consists of the Criteo Engine, the corporate’s knowledge property, entry to stock, in addition to its advertiser and writer platforms. The Criteo Engine consists of varied machine-learning algorithms, together with prediction, advice, bidding and inventive algorithms. The Criteo Engine delivers commercials by way of a number of advertising channels and codecs, together with show promoting banners, native promoting banners and advertising messages delivered to opt-in e-mail addresses. The corporate operates in roughly 90 international locations by way of a community of over 30 worldwide workplaces situated in Europe, the Americas and the Asia-Pacific area.

Inventory Market Worth: $1.84B ($33.39 per share)

Share Possession:  5.60%

Common Value: n/a

Activist Commentary: Petrus Advisers, a Europe-based activist investor based in 2009, is concentrated on growing a deep, basic understanding of the general public corporations it invests in, paired with energetic engagement each publicly and behind the scenes. The agency focuses completely on European international locations the place it could possibly make investments just like the “locals” and inside industries during which it is an skilled.

On Feb. 22, Petrus despatched a letter to Criteo’s chair of the board Rachel Picard and CEO Megan Clarken, calling for the execution of the next actions: (i) put together an investor day as quickly as attainable to elucidate the corporate’s retail media technique and a brand new mid-term plan; (ii) speed up the prevailing share buyback via a considerable self-tender of as much as $150 million; (iii) provoke a complete strategic assessment no later than This autumn 2024; and (iv) refresh the corporate’s board by including impartial candidates whom Petrus will suggest.

Criteo SA is a world promoting know-how firm included and domiciled in France with a main American depositary receipt itemizing on the Nasdaq. The corporate leverages commerce knowledge and synthetic intelligence to attach manufacturers, retailers and prospects by way of their Criteo advert platform. Criteo operates throughout three segments – advertising options, retail media, and Iponweb – however generated 83% of its $1.95 billion of income in 2023 from the advertising options phase. Criteo is a market chief within the area and has entry to a few of the finest technical expertise in France. The corporate is worthwhile and has expanded gross revenue margins over the previous 4 fiscal years from 33% to 44%. Nevertheless, since its peak in 2018, it has suffered top-line contraction to $1.95 billion from $2.3 billion, and the inventory worth has fallen to $33 from $44 in 2021.

Traditionally, Criteo’s advertising options phase has been a “cookie monster” with their key tech and income technology coming from cookie data-based purposes for digital promoting. Nevertheless Alphabet’s Google mentioned late final 12 months that beginning in January 2024, it should begin phasing out using cookies and expects to section them out for 100% of Chrome customers by Q3 2024. To many within the investor neighborhood, this was the loss of life knell for cookies resulting in uncertainty for Criteo’s largest phase. Nevertheless, Criteo believes it has the technical capabilities and product suite in AI ad-tech to make use of algorithms that can exchange 60% to 70% of the income loss related to the top of cookies. Moreover, the corporate’s retail media phase is a really interesting and rising enterprise utilizing software program as a service for e-commerce corporations.

Accordingly, throughout its 2022 investor day on Oct. 31 of that 12 months, the corporate offered a 2025 internet income goal (outlined as contribution ex visitors acquisition prices (“TAC”)) of $1.4 billion and a plan to triple its retail media enterprise, with retail media internet income projected to develop at a compound annual progress price of 45% to 50% between 2022 and 2025. However a few 12 months later, on Nov. 2, 2023, Criteo said that the ambition to attain $1.4 billion in internet income was “not anticipated to materialize inside the 2025 timeframe” sending the inventory down almost 12%. 1 / 4 later, the corporate disclosed surprisingly upbeat outcomes of whole internet income progress of 10% 12 months over 12 months and retail media progress of 29%, sending shares greater. The volatility on this inventory is influenced by a administration staff that would stand to enhance its communications with the market. That not solely creates pointless volatility but in addition an absence of investor confidence in administration steering, which might have a big capacity to suppress a inventory, notably when Criteo’s largest phase is at an inflection level and buyers must consider administration once they say that they will exchange 60% to 70% of the income.

This example jogs my memory of a narrative from the nice basketball coach Frank Layden, during which he mentioned to a younger, proficient participant not reaching his potential: “Son, what’s it with you? Is it ignorance or apathy?” To which the participant responded: “I do not know, and I do not care.”

The excellent news is that the most important downside going through this firm is communications, not operations; and that may be solved with the addition of skilled administrators to the board with capital market information as proposed by Petrus. Further worth may be created by way of higher capital allocation. Criteo is sitting on over $400 million of internet money and $150 million of earnings earlier than curiosity, taxes, depreciation, and amortization. In consequence, Petrus is asking upon Criteo to take 4 key actions: (i) refresh the corporate’s board by including impartial candidates whom Petrus will suggest; (ii) put together an investor day as quickly as attainable to elucidate the retail media technique and a brand new mid-term plan; (iii) speed up the prevailing share buyback via a considerable self-tender of as much as $150 million; and (iv) provoke a complete strategic assessment no later than This autumn 2024.

Petrus will probably nominate outdoors administrators to the board as they not often suggest Petrus insiders for board seats. Petrus is the form of investor that likes to work with administration to create shareholder worth, however this administration staff has not proven an ideal willingness to work with others. In a rational world, this might settle shortly. If it doesn’t settle, Petrus has proven that they’re prepared to take a proxy struggle to a vote. However this one mustn’t go that far as it’s comparatively simple for each Petrus and Criteo to know the place they stand in a possible proxy struggle. There’s a very concentrated shareholder base with the highest ten shareholders — together with Petrus — proudly owning 68.48% of the inventory. Even higher for Petrus, these should not the traditional index fund homeowners however buyers like Neuberger Berman, AllianceBernstein and Cadian Capital Administration, who usually tend to assist a shareholder on the board.

However Petrus can be calling for a complete strategic assessment no later than This autumn 2024. This isn’t as a result of Petrus is being a short-term minded shareholder searching for a fast bump on a sale. They take positions like this as a result of they consider within the firm and the CEO. But when administration can not reinvigorate the fairness story, they should discover a suitor. And there have been experiences that suitors have an interest. As early as February 2021, Bloomberg reported, citing individuals with information of the matter, that Criteo is “attracting takeover curiosity from strategic and monetary buyers.” Then, in February 2023, Reuters reported, citing individuals acquainted, that Criteo is “making a brand new try to promote itself” and employed Evercore to help in that endeavor. Nevertheless, on a Feb. 8, 2023 convention name, administration dismissed the Reuters article as hypothesis, making some ponder whether administration is genuinely exploring strategic alternate options or not.

Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.