Criteo S A : Retail Media Event Transcript

CRTO

MANAGEMENT DISCUSSION SECTION

Melanie Dambre Fioen, VP Investor Relations

Hello and welcome to Criteo's 2024 Retail Media investor update. On behalf of our entire team, I want to thank you all for joining us today.

To kick things off, I'm going to give a quick overview of the presentation and then a few disclaimers. You will have the opportunity to hear from several members of our leadership team who have exciting content to share with you today. We're very pleased to have with us Chief Executive Officer Megan Clarken; Chief Revenue Officer and President of Retail Media Brian Gleason; General Manager of Global Retail Media Melanie Zimmermann; Executive Managing Director, Americas, Sherry Smith; Chief Product Officer Todd Parsons; and Chief Financial Officer Sarah Glickman. We'll start with some prepared comments, and will conclude the event with a live Q&A session.

Before we jump in, I'd like to remind you that our remarks will include forward-looking statements, which reflect Criteo's judgment, 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 most recent Forms 10-K and 10-Q filed with the SEC. We'll also discuss non-GAAP measures of our performance. Definitions and reconciliations to the most directly comparable GAAP metrics can be found on our Investor Relations website or our filings with the SEC.

With that, let's begin. I'd like to introduce our Chief Executive Officer, Megan Clarken.

Megan Clarken, CEO

Thanks Melanie and good morning, everyone. Thank you all for taking the time to join us today.

I've been leading this incredible company for five years now, and we've accomplished so much during that time. As part of our transformative journey, we've significantly grown our Retail Media business to be our largest growth driver. Today, our world-class team will discuss how we're executing on our strategy, the ways we expect Retail Media to reach its full potential and why we believe we're uniquely positioned for this next chapter of growth.

This update is an opportunity for us to unpack how our business is evolving alongside market dynamics and why we're confident and excited about our future.

We've been at the forefront of the rise of Retail Media. Not only have we been talking about it, but we've provided the fundamental technology that enables it. Retail Media sits at the core of our overall strategy to provide solutions for brands, agencies, and marketers to reach consumers on their buyer journey from where they discover products to the transaction at the point of sale. This performance with commerce at its core is part of the Criteo DNA and has enabled us to become a leading, independent AdTech player to help retailers and brands capitalize on the highest secular growth advertising end market - which is Retail Media.

The shift toward a more digital, personalized, and integrated e-commerce experience allows for highly targeted, data-driven advertising that engages consumers along this journey. This evolution in marketing and shopping creates new revenue streams for retailers, enabling brands to reach shoppers more effectively across the right channels at the right time with the right message.

It's important to view this in the context of our broader business. For nearly two decades, our world-class R&D and product teams have developed deep expertise in commerce AI. This expertise allows us to deliver better predictions and outcomes for 17,000 clients globally across both Performance Media and Retail Media. We see over 700 million daily active users and leverage over $1 trillion in e-commerce transactions across 4 billion product SKUs every year to fuel commerce-driven AI models.

Today, we have a healthy and thriving company that has been strategically repositioned for sustainable growth, and Retail Media now represents approximately 22% of our overall business. We entered the Retail Media space in 2016, and since then, we've cultivated a strong first-mover advantage and are closing in on being a $250 million business that continues to grow at a rapid clip. We empower brands and agencies to find valuable commerce audiences on retailer websites and activate sponsored, display and video ads, which we call onsite. It extends to commerce audiences that exist across the open Internet, leveraging multiple channels including video and CTV, which we call offsite. Our greatest assets are our leading technology, global scale and exceptional team of passionate individuals with a customer-first mindset.

With an expected global TAM of $204 billion by 2027, Retail Media is taking share from traditional and other digital advertising channels due to its emergence as a high-impact, data-rich channel that drives performance with measurable outcomes. Retail Media has overtaken traditional TV advertising, and in the U.S. alone, it's expected to represent about $1 of every $4 spent on advertising by 2027.

Two years ago, we indicated a Serviceable Addressable Market of $42 billion in Retail Media by 2025, excluding Amazon and China. Today, we are looking at an even more compelling opportunity and growing SAM of $50 billion by 2027. This represents a CAGR of approximately 20% between 2024 and 2027.

Trade marketing and shopper marketing budgets shifting from in-store to online continue to fuel growth in Retail Media. Retail Media is also benefiting from marketers reallocating brand budgets from TV, radio, and print to digital advertising given its proximity to product sales and its hyper-targeting capabilities using valuable first-party data. Within the digital advertising sector, search and social budgets are moving to Retail Media networks due to their high performance. We are well positioned to capture these advertising dollars both organically and inorganically.

Retail Media growth is also supported by e-commerce growth, a secular trend we expect to continue as consumers are drawn to its convenience, wide product selection, and personalized shopping experiences. Amidst this backdrop, we help retailers maximize revenue across ads and organic product sales, all while working to seamlessly connect to the largest pool of advertising demand beyond Amazon and ensure relevant shopper experiences.

We saw the rise of Retail Media when Amazon disclosed that it had built a multi-billion dollar high margin advertising business in February 2022, one that continues to grow and still dominates the Retail Media landscape.

But here are the facts: approximately 70% of Retail Media ad spend was captured by Amazon in 2023, while Amazon represents only a third of total e-commerce Gross Merchandise Value, or GMV.

Amazon currently has a disproportionate share of Retail Media investments, and this presents a clear opportunity for brands to diversify their budgets across other Retail Media Networks.

Criteo provides a platform and services for Retail Media Networks to win share of what is a meaningful opportunity for them. Together with our network of retailers, we play a critical role in shaping the future of advertising by leveraging data, best-in-class AI and technology, and innovative ad formats to drive consumer engagement and sales.

Today, we're proud to power the Retail Media programs of 225 of the world's largest retailers that have an opportunity to gain their fair share. We've become the independent hub of Retail Media since we entered the Retail Media space eight years ago. There is no other player that matches our footprint.

We help retailers monetize their e-commerce sites to become media owners, securing a fair share of media budgets and attracting additional funds, while providing top-notch, full- funnel solutions to their brands. Our services help them scale efficiently and achieve media excellence at scale.

We power Retail Media with the same standards as other media buys. Our Retail Media Demand Side Platform, or DSP, allows brands and agencies to manage investments at scale, optimizing within and across retailers and ad channels while gaining deeper customer insights. This creates a flywheel, meaning the more retailers we partner with, the more brands we attract and vice versa. This flywheel is one hundred percent powered by Criteo.

By connecting retailers, brands, and agencies across 40 countries, we sit at the center of the global Retail Media ecosystem.

We partner with 65% of the top 30 retailers in the Americas, 50% of the top 30 in EMEA, and a growing footprint of close to 30 retailers in APAC. These retailers benefit from our access to demand from 3,100 brands, 200+ agencies including the 'big 5' agencies, or Holdcos, and multiple API partners.

Our 225 retailers collectively generate approximately $160 billion in eCommerce sales annually. We harness vast commerce data across billions of SKUs, a set of purchase and intent data that gives insight into consumer behaviors and journeys, in order to deliver personalized advertising to hundreds of millions of unique shoppers.

Our vision has turned into reality, powered by a unique flywheel effect. Securing retailers has been a strategic priority to attract brands that want to advertise on multiple retailer sites. As brand demand grows, more retailers will seek access to that demand to increase their revenue from ads. Brands get access to retailers' unique inventory and data, enabling them to reach relevant audiences and sell more products. This benefits both brands and retailers by reaching more shoppers. Brands gain insights into shopper behavior and ad performance allowing them to offer personalized recommendations and improve ad results. Through this dynamic, retailers enhance the user experience, leading to higher sales and greater customer loyalty.

Our state-of-the-art AI and valuable commerce data are the foundation of our performance, positioning us to drive higher transactions, increased revenue, and amplifying powerful network effects.

In summary, we're the leading AdTech player in Retail Media, a space set to be the largest secular growth trend in advertising over the next several years. As an independent Retail

Media business with technology leadership and unmatched scale, we're uniquely positioned to capitalize on this massive opportunity and outpace market growth while sustaining strong profitability.

The insights we'll share today will demonstrate that Criteo is a Retail Media powerhouse and a compelling investment opportunity, set to create shareholder value for many years to come.

Brian Gleason will share how we're expanding our lead over the competition with our exciting and comprehensive demand strategy. After him, you'll hear from Melanie Zimmermann who oversees our Retail Media business globally. Melanie is a fantastic addition to our team and will walk you through our strategic approach with retailers. You'll also hear from Sherry Smith, a pioneer in Retail Media, who has been instrumental in driving our success across the Americas. Todd Parsons will then showcase our cutting- edge AI and latest innovations in Retail Media. Finally, Sarah Glickman will highlight the strong financial profile and future opportunities of our Retail Media business.

I'll now pass the baton over to Brian.

Brian Gleason, CRO

Thank you, Megan, and good morning, everyone. It's been an incredible journey since I joined Criteo in April 2022, and I've never been more excited about our achievements and future opportunities.

Our client-centric approach and focus on execution have fueled substantial growth in Retail Media over the past few years. We are building on that success with a powerful demand strategy to drive scale and unlock Retail Media's full potential.

Today, I'll explain why agencies and brands select Criteo to engage high-intent shoppers along their buyer journey. Deepening our agency relationships has been an integral part of our strategy, and we continue to simplify Retail Media buying and evolve our offering to attract more brand spend.

By the end of this presentation, I hope you'll have a deeper understanding of the progress we've made and the significant growth opportunities ahead.

As the leading Retail Media AdTech player, we have a relentless focus on driving demand. We now activate about $1.5 billion in media spend annually, representing a CAGR of approximately 32% over the last two years and largely outpacing market growth. We have seen outsized growth in verticals like Beauty, Consumer Packaged Goods and Consumer Electronics where demand continues to increase.

With our flywheel, securing access to premium retailer inventory at scale has been critical to attract brand spend. Agencies now represent approximately two-thirds of the spend going through our Commerce Max DSP in the Americas, and we've only begun to tap into this massive opportunity.

It's important to understand where the demand is coming from. More and more ad budgets are shifting to Retail Media because it performs and it scales, and these budgets are coming from multiple sources. We continue to benefit from incremental funds and the shift of in-store trade and shopper marketing budgets to Retail Media as shoppers are spending more time online. We are also seeing a clear shift of national media budgets from social media, search, TV or non-digital channels all into Retail Media.

More than two thirds of brands and agencies in the U.S. and Europe plan to increase their investments in Retail Media this year. For example, Scotts Miracle-Gro, a manufacturer of gardening products, now spends about 40% of its total enterprise media budget in Retail Media. Another client in consumer electronics now allocates about 30% of its global spend to Retail Media.

Our Retail Media full funnel offering positions us incredibly well to tap into a broader pool of budgets and help retailers capture brand spend in addition to direct supplier budgets.

We anticipate this trend will persist as 80% of agencies and brands consider Retail Media a more effective channel compared to others to drive incremental sales. With Retail media, we help brands own the digital shelf, reach high-intent consumers at the digital point of sale and, ultimately, increase sales. The ability to tie an ad to a sale with closed-loop reporting brings immense value to brands. Brands benefit from retailers' vast amount of first-party data such as purchase history, browsing patterns, demographics or loyalty data to target shoppers with a high return on their investments. The average Return On Ad Spend for our largest global brands was an impressive 3.7 times over the past 12 months.

We think that multiple key factors will drive the expansion of Retail Media in the coming years. These include helping brands reach more customers through cross-retailer campaigns, increased engagement from Chief Marketing Officers and simplifying the buying process with a unified platform. We also see omnichannel closed-loop measurement as a key growth driver.

According to the Path to Purchase Institute, more than a third of advertisers work with more than 10 Retail Media Networks at once, demonstrating the critical role we play in providing our frictionless cross-retailer planning and buying capabilities. They rely on us to bring the integrated solutions, scalability, superior performance and media excellence standards that they need and expect.

With our unified AI-powered platform, they can execute and optimize both onsite and offsite campaigns and understand the effectiveness of their spend with our real-time, SKU- level closed-loop measurement capabilities. Our platform gives brands the control and flexibility to allocate budgets and update campaigns quickly in response to performance trends.

Our global retailer footprint, demand generation capabilities, neutrality, strategic partnerships and full-funnel solutions are some of the key factors that set our platform apart from AdTech competitors that typically lack scale or only offer point solutions.

We are playing a critical role in establishing standards to drive scale and media excellence for one of the largest sources of Retail Media inventory in the world. Microsoft Advertising leaning in with Criteo validates the effectiveness of our strategy and the strength of our technology.

This positions us incredibly well to compete for advertising dollars against the walled gardens.

Now, I'd like to share more about our demand generation capabilities that have been a critical factor in retailers' decision to partner and grow with Criteo over the long term. We currently support multiple Retail Media activations and have plans to incorporate more demand sources moving forward.

This starts with our Commerce Max DSP for large global and national brands to manage their Retail Media onsite and offsite campaigns with self-service access and closed loop measurement. We also have seamless integrations with 13 third-party API demand partners such as Flywheel, Pacvue and Skai that facilitate cross digital activation for media buyers to maximize reach and impact across multiple channels including retail media, search, and social. And, we plan to continue to build integrations with other partners to connect to an even wider pool of advertiser budgets and marketing use cases. We also have direct activations from retailers into Commerce Yield.

The combination of these direct and indirect demand activations is important to capture different budget sources, from trade to national media budgets, to maximize the advertising revenue opportunity for retailers.

Starting with trade marketing budgets, retailers' direct relationships with endemic brands provide the starting point to build their media business. Our full-funnel capabilities maximize the benefits of existing trade spend shifting to digital. This drives stronger supplier relationships and deeper investments. Retailers rely on our services and insights to grow these accounts, month over month, and over time.

However, it's more difficult for retailers to gain access to national media budgets, and this is where Criteo's strong agency relationships, self-service Commerce Max DSP and seamless integration with our third-party API demand partners enable our retailers to bridge that gap. In this case, investments are brand-centric rather than retailer-centric and leverage our solutions to buy media at scale with high standards of media excellence, such as standardized and accredited measurement.

So, how can we sustain our growth and continue to grow faster than the market?

First, we have substantial growth opportunities by expanding capabilities for our brand and agency partners who are prioritizing investments in this channel.

Second, we are building from our success with sponsored ads to attract demand for our newer ad formats and channels including display ads, video and offsite advertising.

Third, we are building partnerships that allow us to access large pools of untapped demand. For example, we are building a demand integration with Microsoft Advertising to access search budgets and could expand with additional partners interested in accessing our scaled network of retailers in the future.

I will elaborate on a few of these opportunities, and Melanie Zimmermann will walk you through the specifics at the retailer level.

Our multi-year partnerships with leading agencies and brands represent hundreds of millions of spend in Retail Media. One year after launching our Commerce Max DSP, it is part of the trading desk of all the major agency holding companies, and we have reached an annual spending run rate of over $500 million.

Our objective is to make Retail Media easy to buy for brands and agencies that use Commerce Max to access hundreds of retailers through one platform with standard workflows, optimization and closed-loop measurement. They use self-service access to manage, optimize, and report on performance. Our DSP brings together multiple formats and channels from onsite sponsored products, display and video to offsite to address the full buyer journey.

We are highly focused on innovating and recently launched a SKU-based buying tool to surface more eligible ad inventory for brands and agencies and help them seamlessly scale campaigns across more retailers. Rather than running campaigns separately on various Retail Media networks, they can use our DSP to advertise their products across any retailer in our network where they are available. This unified campaign activation enables marketers to concentrate on what truly matters - selling products. Among our largest global brands, L'Oreal and Unilever have increased the number of retailers they advertise

on by an average of 40% over the past year. This has led to a 31% average increase in their media spend and a 75% average increase in attributed product sales.

Additionally, hundreds of brands are harnessing the power of our insights to strategically design campaigns to win or defend market share, leading to an average 35% increase in their investments.

As part of our journey to bring in more demand to our platform, we're excited about our work with Microsoft Advertising to access new budgets from their 500,000+ advertisers. To put this into perspective, addressable search budgets are a subset of Microsoft's search and news advertising revenue amounting to $13 billion today.

Retail Media is well-suited to attract search budgets as it operates like a search environment where we can leverage high-intent shopper data to elevate the user experience.

The planning and architecture design with Microsoft are well underway. We look forward to testing in the coming months and rolling this out more broadly over the next few quarters.

Later this morning, you'll hear directly from Microsoft on why they selected Criteo as a partner.

Retail Media offsite represents a complementary way to help retailers and brands expand their reach. We hear from clients that our holistic, AI-powered platform is the easiest way for them to place their advertising dollars both onsite and offsite with closed loop measurement to demonstrate the ROI on their investments.

According to our recent survey, about 50% of brands and agencies invest in Retail Media onsite and offsite. For Criteo, conversion rates increase when running integrated onsite and offsite campaigns, which leads to incremental investment from both agencies and brands.

Retailers need to grow their overall audience for ecommerce, and we have seen that they are most successful when they combine online and offline data to maximize their reach potential offsite. We currently partner with over 20 retailers for offsite campaigns, and we continue to add more tools and features like creative assets and additional performance metrics.

To conclude, we have become the partner of choice to help brands and agencies scale Retail Media. Now, let's hear directly from our clients and partners.

We are confident that our comprehensive demand strategy will enable retailers to attract more brand investments and increase their advertising revenue, representing a larger

percentage of their e-commerce Gross Merchandise Value, or GMV. Next, you will hear from Melanie Zimmermann who joined us at the beginning of this year to drive the global expansion and growth of our Retail Media business. Drawing from her proven track record at Macy's where she built Macy's Media Network, Melanie will walk you through our strategy to drive success for our retail partners.

Melanie Zimmermann, General Manager Retail Media

Thank you, Brian, and good morning, everyone. I'm thrilled to be here today as the General Manager of Global Retail Media at Criteo. Joining this incredible team at such a pivotal time in the industry has been both exciting and inspiring.

Prior to my role here, I witnessed firsthand the unmet needs and vast opportunities for retailers, brands, and agencies. I realized quickly that most retailers simply are not in a position to develop the necessary technology in-house, they need a partner offering best- in-class technology, connections to the broadest ecosystem of Retail Media demand and flexibility. That's why I'm convinced Criteo stands out as the true leader in this space, with the ability to address these requirements and reshape the entire landscape.

We'll talk about our expanding retailer footprint across multiple regions and verticals, and their rising expectations as Retail Media plays an increasingly important role in enabling their e-commerce strategy and being a strong contributor to their financials.

My goal is to help you understand the strong moat we have built around our business and why I am confident in our ability to drive sustainable growth ahead of the market.

When Criteo entered the Retail Media space eight years ago, it was a nascent opportunity for retailers and marketplaces but many of them have since followed suit to emulate the success of Amazon.

The acceleration of ecommerce during the Covid-19 pandemic drove an uptick in the number of Retail Media Network launches, and we've seen other commerce players launch similar media businesses in adjacent verticals over the past couple years.

We are proud to be the Retail Media partner of choice for 225 retailers globally, including some of the largest retailers in the world in grocery, department stores, beauty, consumer electronics and service delivery.

From my experience at Macy's, I know that Retail Media is an integral part of retailers' business model and an increasingly important contributor to their P&L.

Disclaimer

Criteo SA published this content on November 20, 2024, and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on November 20, 2024 at 13:51:01.667.