Tech

Leila Abboud is a Bloomberg Gadfly columnist covering technology. She previously worked for Reuters and the Wall Street Journal.

It's easy to mock Europe as a tech wasteland, incapable of nurturing start-ups to compete with Silicon Valley or Asia. Yet French advertising technology specialist Criteo is a reminder that innovation does happen here, and that the Old Continent's upstarts can even thrive after going public.

Anyone wanting to bet on the generational shift of ad dollars from old media to new might want to take a look, despite the company easing third-quarter sales expectations.

Exception to the Rule
Criteo shares have outperformed other advertising technology companies
Source: Bloomberg

Criteo helps its clients -- who include Expedia, Sony and Home Depot -- to pinpoint potential customers browsing the web so they can be shown relevant marketing. When a Zappos banner ad follows you around after you searched Google for shoes, you can probably blame Criteo's team of 500 engineers.

That concept of showing people ads related to their search history is known as "re-targeting." It's irritating, but it's pretty effective and a profitable niche that's given Criteo 30 percent year-on-year revenue growth for six quarters. The company's been profitable since its October 2013 listing, and the shares have risen 40 percent since then. Free cash flow was $60-70 million in each of the past two years, an unusual state of affairs for some bigger tech names. (Hello Rocket Internet!)

Criteo works on behalf of advertisers to make their online marketing more efficient. By profiling web surfers, they make the display ads on Facebook, Google and other sites a better investment for companies. The Paris-based company only gets paid when someone clicks on an ad, and sometimes earns more if there's a purchase. It's an appealing pitch.

On the Up
Criteo has continued to add advertisers to its client list
Source: Company reports

More important, the big beasts of online advertising -- Facebook and Google -- view Criteo as a partner rather than a rival that needs crushing. For now, at least. Google does have its own re-targeting service. But Criteo's retail and e-commerce clients are nervous about sharing too much customer data with Google. The smaller French company is thriving as a middleman.

Its biggest risk is the breakneck pace of change in online ads. Facebook and co. are diving into videos, something Criteo isn't ready to exploit yet. It also needs more customers in Asia, as well as from the autos and banking worlds to lessen its reliance on travel, retail and e-commerce. Its rapid revenue growth is predicted to slow as existing business matures.

Start-Up Slowdown
Criteo is expanding into new countries, adding advertisers, but analysts expect slower growth

Yet given its record, it deserves a chance. It's working on new tech to help advertisers target the product slots that appear on Google search. That could be a big market.

The shares trade at about 3.6 times this years' expected sales, well below their average since the IPO. That's ahead of peer Rubicon Project, on 1.7 times, but much lower than Google and Facebook. Obviously, those big beasts inhabit a different planet, but Criteo is a relatively cheap way to play the ad tech game. Plus telecoms operators are trying to bust into this business too: the $4-5 billion you'd probably need to lure Criteo shareholders into a sale is within the reach of Verizon and AT&T. This targeting specialist could well end up in someone's cross-hairs.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Leila Abboud in Paris at labboud@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net