Edouard Lassalle - Head of IR Jean-Baptiste Rudelle - CEO and Co-Founder Benoit Fouilland - CFO.
Debra Schwartz - Goldman Sachs Douglas Anmuth - JPMorgan Ross Sandler – Deutsche Bank Brian Fitzgerald - Jefferies & Co..
Good day and welcome to the Criteo Q2 2014 Earnings Conference Call. Today’s conference is being recorded. Please be advised that the media will be partaking in today’s call on a listen-only mode. At this time I would like to turn the conference over to Edouard Lassalle, Head of IR. Please go ahead sir..
Thank you, Leon. Good afternoon to all of your and welcome to Criteo’s financial results for the second quarter ended June 30, 2014. Joining us on the call today are JB Rudelle, Criteo’s Co-founder and CEO and Benoit Fouilland, Chief Financial Officer.
Please note that this call is being broadcast live on our Investor Relations website at ir.criteo.com. A replay of the call along with the earnings release issued after the close of the U.S. market today will also be available on our Investor Relations website.
Before we begin discussing our earnings I would like to remind you that some of our discussion today will contain forward-looking statements which may include projected financial results, our operating metrics, business strategies, anticipated future product and services, anticipated investment and expansion, anticipated market demand or opportunities and other forward-looking statements.
As always these statements are subject to risks, uncertainties and assumptions. Actual results and the timing of certain events may differ materially from the results or timing predicated or implied by such forward-looking statements and reported results should not be considered as an indication of future performance.
Also I would like to remind you that during this course of this call we will discuss non-IFRS measures of our performance. Reconciliation to the most directly comparable IFRS financial measures are provided in the tables in the earnings press release published earlier today.
Unless otherwise said all comparisons made in the course of this call are against the same period in the prior year. Now with this in mind let me turn the call over to JB Rudelle, Criteo Co-Founder and Chief Executive Officer. JB the line is all yours..
Thank you Edouard. I am delighted to share our second quarter results with all of you today. We close another record quarter of profitable growth, while exceeding the high end of our guidance, both on revenue ex-TAC and adjusted EBITDA. In the second quarter our revenue, ex-TAC increased 72% year-over-year at constant currency to €67 million.
At the same time we grew adjusted EBITDA from €0.7 million in Q2 last year to €13.2 million in Q2 this year, an increase of more than 15x. Overall we continue to strengthen our position as the Performers Advertising Technology Company. Our solid performance in the second quarter was driven by three big trends.
First, we further improved the performance delivered by our technology. In particular, the performance of our engine and our mobile solutions. Second, we continue to grow our clients and significantly accelerated acquisition of mid-market clients. Third, we delivered strong execution across the board in all geos.
Our business rests on direct relationships with advertisers who pay us based on the measurable per-click performance we deliver. The big trends of better performance combined with broader and deeper relationships as well as focus on business execution drove our success in the quarter.
In parallel with the 72% growth in revenue ex-TAC compare to last year we grew per-clicks sales for our clients by 88%, illustrating the acceleration of value delivered to clients by our products during the period. As this quarter result indicates our recurring investments in improving our technology are paying off.
And we made significant progress on the rolling out our product sets. Earlier this year we announced a major breakthrough to our core underlying technology, the Criteo Engine. This is based on three years of extensive R&D in analyzing actual purchase behavior from billions of impressions, users and clicks.
The new technology enables Criteo to decide whether to buy each ad impression based on the likelihood that a user will purchase on the advertiser’s side. As a result this new version of our engine delivers a significantly increasing per-click sales at the same NOI target as before this improvement.
By the end of Q2, we had rolled out this new technology to approximately 60% of our clients. Optimizing on conversion is a very significant step and we believe there is still a lot of opportunity to further improve the performance of our engine.
Turning to Criteo products, in mobile we are very pleased with the continued momentum in our performance advertising solutions on all screens and leading browsers. We announced the full release of our complete mobile solution this April, including a full solution not only for Android but also Apple devices.
Mobile is now a very significant part of our business as evidenced by the impact of this momentum on our volumes and financial numbers. We are proud to announce that in the second quarter we served personalized mobile ads for 69% of our client base.
Our In-App advertising business remains in beta but continues to scale driven by our AD-X Tracking solution. In the second quarter of this year, AD-X tracked over 540 million app installs and 1.8 billion clicks with many of the largest In-App marketers globally.
There is a lot of work ongoing with the engine to take full advantage of the mobile data that we can now collect then on the launch again of our mobile solution. After the first quarter of operation for our Criteo e-mail solution we are pleased with the integration process within the Criteo platform and the rollout of themes is going as planned.
Overall we are excited about the potential email marketing to enhance our product set and add incremental business from existing as well as new clients. As a result of our focus on improving the performance of our technology and developing the revised product set our business from existing clients increasingly contributes to our growth.
More than 35% of our year-over-year growth in the quarter comes from increased spending by existing clients. This is true in all regions especially in the Americas. In addition, our clients that were already live in Q2 last year generated 24% more revenue ex-TAC for us in Q2 of this year.
We've maintained a very high share of revenue ex-TAC coming from [un-capped] budget to 75% despite our continuing growth in a number of our clients. As you know un-capped budgets represent a situation where our client's budget are either unconstrained or so large that the constraint doesn't restrict ability to buy inventory.
We believe this creates a strong demand elasticity that significantly contributes to the scalability of our model. Moving to our second growth driver, our continued client growth; we added 564 new clients in the second quarter ending the period with the record of 6,131 clients growing 43% year-over-year.
We also maintained our strong client retention rate above 90% and our proportion of direct client relationships about 80%. We are particularly excited by that strong success in mid-market this quarter where our growth accelerated as we continued to invest to capture this tremendous market opportunity.
As a reminder we define mid-market in a given territory as any account outside the top 100 to top 200 advertisers in our core verticals. We therefore see a truly massive potential in mid-market worldwide. In the second quarter our revenue ex-TAC growth in mid-market accelerated to approximately 100% year-over-year in the U.S. and Europe.
We are very pleased with this continued strong performance and plan on continuing to invest in this promising market segment. In particular our cost to serve model in the mid-market using an office-base inside the steel, industrial processors and tools and an automated on-boarding platform for clients make it very effective and scalable model.
On the supply side of our business publishers are increasingly willing to work directly with us. In the second quarter we added over 513 new publishers, driving a record total of more than 7,700 direct relationships with publishers at the end of June.
This is driven by a combination of continued growth of our marketplace from mid-market publishers as well as partnering with new premium publishers. Our third growth drivers this quarter was our strong execution across the board in all geographies. We have built a strong leadership team in all active regions with a big focus on execution.
This drive and discipline on commercial targets has led all regions to grow between 60% and 100% at constant currency this quarter compared to Q2 last year. So now let me present specific performance by geography. Starting with Americas, we continued to build momentum in the quarter.
As a matter of fact for the second consecutive quarter our year-over-year growth in revenue ex-TAC accelerated in this region from 62% in Q4 last year and 66% in Q1 2014 and growth accelerated to 78% at constant currency in Q2.
Our performance in the Americas was driven by the continued strong traction in new product adoption by clients as well as the continued strong ramp up of mid-market clients. We also signed some new large clients in the quarter including Orvis and PartyCity. Moving now to EMEA, we continued to see strong contraction across all markets.
During the quarter we maintained a very robust revenue of ex-TAC growth of 60% year-over-year at constant currency. Our performance was driven by a combination of one, new large clients; two, a continued growth in mid-market. And three, increasing spend by existing clients.
New client additions in the region were diversified across all verticals including some big brands such as ING the Bank, PayPal or Samsung. In parallel, our mid-market client base continued to ramp up very nicely during the period.
Along with the new Criteo engine new products like mobile and [inaudible] continued to drive incremental spend from existing clients. Moving to Asia Pacific, we continued to enjoy very fast best of growth in this region with revenue ex-TAC 100% year-over-year.
Our very strong growth in the region was driven by continued contribution from new clients in every market including Japan as well as new products, in particular mobile. Some of our clients’ additions in this region include AB Road and music.jp.
Overall in APAC we remain very excited by the opportunity to capture incremental growth throughout this spot market region. Before turning to our priorities for the second half of the year, I would like also to cover some update related news to our senior leadership.
Greg Coleman who has been our President we now focused on his non-executive role on the Criteo Advisory Board where the company will continue to benefit from his deep industry insights. In his advisory role Greg will continue to contribute to the strategic direction of the company and help build client relationships based on his expensive experience.
Eric Eichmann, our Chief Operating Officer will take on expanded duties and become President and COO. His great experience in the industry combined with deep understanding of the business will help Criteo navigate a rapidly moving market while also driving growth and innovation.
As we think about the future we're trying to focus on four priorities in the second half of the year. One, continuing driving performance for clients through enhanced technology and products Two, further expand beyond this platform in particular email marketing. Three, accelerate our mid-market growth and continue growing large clients in all regions.
And four, continue to invest in hiring capacity, hosting infrastructures and facilities. Before closing, I'd like to reinforce the five key reasons why we believe we're in a position to win. First, our cost-to-click pricing creates a truly disruptive model in performance advertising.
Second, deep technical integration with our clients give us privileged access to very large volumes of [inaudible] and actionable shopping data at massive scale. Third, our fully automated end-to-end technology platform is proving to be truly powerful and highly scalable.
Fourth, our direct relationships both with clients and publishers demonstrate the strength of our model and stickiness of our solution as you have seen in our numbers. Finally our superb performance combined with large volumes delivered on all devices and screens drive a high client retention and expansion of our revenues with existing clients.
We believe these five key differentiators create network effects for our business allowing us to steadily improve performance. Given our clients have un-capped budgets this automatically generates increased sales for our clients and more revenues ex-TAC for Criteo and more leverage for our business.
In closing I’d like to restate we are pleased with our record quarter of profitable growth driven by focused execution across all aspects of our business. We are very satisfied with the progress we are making on that strategy to build the global music channel performance marketing platform.
We continue to see enormous market opportunity ahead us and our larger focus on execution on our growth initiatives and investing smartly to realize our full potential. I look forward to updating you on our many developments as we continue to progress through the year.
This said, with that let me the turn the call over to Benoit our Chief Financial Officer..
Thank you JB. I am also very pleased to report another strong quarter today. I will walk you through our quarterly financial performance in detail as well as our guidance for the third quarter and full year 2014. I will then open up the call to your questions.
We delivered another record quarter of profitable growth, which exceed our revenue ex-TAC and adjusted EBIDTA expectation. Let start with our revenue for the quarter, which increased 66% or 72% at constant currency to €165.3 million compared with €99.4 million second quarter 2013.
In the Americas our Q2 revenue grew 63% or 73% at constant currency to €46.9 million. In EMEA, Q2 revenue increased 58% or 57% at constant currency to €84.2 million. In Asia Pacific Q2 revenue increased 99% year-over-year or 114% at constant currency to €34.2 million.
As we have repeated in the past while we view revenue as a useful indicator of our actual client spend we consider revenue ex-TAC excluding the traffic acquisition paid to our publisher as a key financial measure to evaluate and monitor our business performance.
As JB highlighted, our strong performance in the second quarter reflects our continued technology improvement, our success in growing our client base and our focused execution across all geographies. Our global revenue ex-TAC grew 67% or 72% at constant currency to €67 million in the second quarter, compared to €40 million in the second quarter 2013.
Our revenue ex-TAC margin in the quarter was 40.5% consistent with recent quarters and increasing 0.2 percentage points over Q2 last year. Looking at our revenue ex-TAC performance from a geo standpoint, in the Americas our revenue ex-TAC growth accelerated from 66% in Q1 to 78% in Q2 at constant currency to €18.6 million.
In EMEA our revenue ex-TAC grew 61% or 60% at constant currency to reach €35.1 million. In Asia Pacific Q2 revenue ex-TAC increased 88% or 100% at constant currency to EUR13.3 million. Before I discuss our profitability, I'll just say a few words on the impact of foreign currency in the quarter.
Overall, foreign exchange in the second quarter had a negative impact of approximately five percentage points on our revenue ex-TAC. The main currency contributing to this net headwind included the Japanese Yen for 44% of the total impact, the U.S. dollars for 38% of the total impact and the Brazilian real for 24% of the total impact.
While the British pound continue to have a positive tailwind impact in the quarter. Foreign currency had no impact on our total adjusted EBITDA in the quarter.
Moving onto the profitability of our operations, we grew Q2 adjusted EBITDA by EUR12.6 million year-over-year to EUR12.6 million or at constant currency to EUR13.2 million in the second quarter compared with an adjusted EBITDA of EUR0.7 million in Q2 last year.
This strong increase in adjusted EBITDA is primarily the result of our strong revenue ex-TAC performance in the quarter.
In addition, some favorable exceptional items amounting to a total of approximately EUR1.7 million also contributed to this growth including primarily an increase in R&D tax credit to be recognized in 2014, partially offset by our continued investments in the quarter.
As a reminder we had significant exceptional items that negatively impacted our adjusted EBITDA in Q2 last year. Adjusting for the exceptional items in both periods, our adjusted EBITDA grew 264% or EUR8.3 million year-over-year from EUR3.2 million in Q2 last year to EUR11.5 million in Q2 this year.
Looking now at our expense in greater detail for the quarter hosting and data cost increased by 19.3% to EUR4.7 million in Q2 excluding depreciation and amortization. As we noted in previous quarters we continue to see some economies of scale from investing in our own equipment.
We plan to continue to investing in our own servers and hosting equipment to support our current unanticipated future growth. Our Q2 operating expense increased 44% to EUR53.7 million as we continue to scale the old Criteo organization to support our growing business.
Excluding the impact of share based compensation function cost, depreciation and amortization and acquisition related the sale price consideration which we've referenced as operating expenses on a non-IFRS basis. Our operating expenses increased 39% to EUR49.1 million in the second quarter.
Our global head count grew by 187 since the end of March to a total of 1112 employees at the end of June, including the addition of the [inaudible] team.
Looking at our operating expenses by function, research and development expenses increased 38% year-over-year on a non-IFRS basis to EUR9 million in Q2 largely driven by head count increase to 226 employees at the end of the quarter.
Adjusting for the EUR1 million increase in R&D tax credit that favorably impacted our expenses this quarter, our non-IFRS operating expenses in R&D increased 53% year-over-year in the second quarter.
As we further enhance our technology platform and enrich our product portfolio we plan on continuing to invest in additional R&D talent during the year particularly around our engine performance on our full mobile offering including In-App.
Non-IFRS operating expenses in sales on operations increased 32% to EUR29.1 million in Q2 2014, also largely driven by the head count increase to 701 employees at the end of the quarter.
As in the previous quarter we continued to grow sales on the cost management teams in all of our regions in particular in our mean market organization we intend to further accelerate our investment in the current year particularly in our mid-market teams on sales related headcount in new geographies.
We also plan to continue investing in new facilities to accommodate our growing team globally. Finally, our non-IFRS operating expenses in general and administrative in the second quarter increased by 60% to €11 million while our G&A headcount grew to 185 at the end of June 2014.
This was primarily driven by an increase in operating expenses associated with our public company life the ramp-up in our HR teams to fulfill our ambitious recruitment plan the continuous tightening of our IT infrastructure.
Adjusting for exceptional items that favorably impacted adjusted EBITDA in the quarter over 86% of our revenue ex-TAC over achievement this quarter flowed through to adjusted EBITDA. We reiterate our plan to continue investing in 2014 to see both our trend on future growth.
Moving on to our cash generation for the quarter, our cash flow from operating activities increased by 170% to €11.2 million compared with €4.1 million in Q2 last year despite the negative challenging in working capital during the quarter.
Our CapEx increased 59% year-over-year to €10.5 million in the second quarter primarily as a result of our continued investment in datacenter equipment, internal IT and on facilities.
In line with our plan our CapEx program accelerated in Q2 compared with a prior quarter in particular in facilities and we continue to expect our total spend on CapEx for the full year to remain at around 5% of revenues. Our free cash flow was €0.7 million in Q2 growing by €3.2 million year-over-year.
In the first-half of 2014, our free cash flow generation reached €8.4 million or 30% of our adjusted EBITDA for the period further demonstrating the robustness on scalability of our financial model.
Total cash, cash equivalent and short-term investment were at €242.9 million at the end of June representing an increase of €8.6 million compared with December 31, 2013.
This is primarily the result of our free cash flow generation in the first-half of the year as well as €18.8 million in profits from capital increases, including the €16.4 million and net proceed for the primary portion of the follow-on equity offering we did in March offset by €18.8 million in cash consideration paid for our acquisition in the first-half of the year.
I will now wrap up with our thoughts regarding our guidance. I’ll remind you that the following forward-looking statements reflect our expectation as of today August 5, 2014. For the third quarter 2014 revenue ex-TAC is expected to be between €71 million and €73 million.
Also for the third quarter of 2014 adjusted EBITDA is expected to be between €10.5 million and €12.5 million. For the fiscal year 2014 revenue ex-TAC is expected to be between €280 million and €284 million. At the midpoint this represents a €14 million increased when compare with our prior guidance.
This also represents a 58% year-over-year growth at the midpoint of the range compared as a reference with a 57% year-over-year growth reported in the full fiscal year 2014 -- 2013 Also for the fiscal year 2014 adjusted EBITDA is expected to be between EUR55.5 million and EUR59.5 million.
This represents an upgrade of EUR8.5 million compared with our prior guidance. This guidance assumes the following estimated foreign currency exchange rates. A euro-USD exchange rate of 1.35, a euro-Japanese yen exchange rate of 140.1, a euro-British pound exchange rate of 0.81 and the euro-Brazilian exchange real rate of 3.18.
This guidance also assumes no additional acquisitions are completed during the quarter ending September 30, 2014 or during the fiscal year ending December 31, 2014. Before closing I want to reemphasize that we expect the second half of 2014 to continue to be an exciting time for Criteo.
We will continue to accelerate our investments across our many growth initiatives, particularly in further strengthening our technology and mobile product portfolio as well as growing mid-market clients across geographies to support our growth in H2 and prepare for 2015.
As our upgraded 2014 financial guidance illustrates we are pleased to reinvest a portion of our incremental revenue ex-TAC into the strategic initiatives to accelerate our growth. In closing I am very satisfied with our strong operating performance in the second quarter.
Driven by focus execution across the board we are enthusiastic about the progress we are making as we continue to successfully broaden our client base while expanding our robust product set, be on display on across multiple screens. We have a very large market opportunity ahead of us and see strong growth prospects for the remainder of the year.
I look forward to continue building long-term trust with our public investors on sharing our growth story every quarter as we continue to realize our full potential. With that I'll turn the call back to operator now to take your questions..
Thank you (Operator Instructions). We will now take our first question from Deb Schwartz from Goldman Sachs. Please go ahead..
Great thanks. So you saw an acceleration and growth in revenue per customer in the quarter. I was wondering if you could just help us understand the drivers of that, whether it moving little bit upper funnel from an old product perspective or it's new products.
And then second as it relates to mid-market opportunity, can you frame out for us a little bit from the standpoint of what are the verticals that you're seeing the most success with and how should we think about the size and online penetration of the advertisers that you're targeting with that product..
So thank very much.
So when it comes to the different products contributing to our growth it's really a combination of, I mean we've been announcing in the last six to 12 months lot of new products combining mid-funnel, combining mobile e-mail marketing and many others and also the improvements, major improvement of our engine with this commercial optimizer, which is huge boost because before we're optimizing mostly on clicks and now we optimizing on conversion, which ultimately which really matters for the client.
And it's really combination of all of this which creates a lot of leverage. So we still in the rolling phase of all of those products. We have enriched 100% penetration for all of them. As you know we've more than 6,000 times and up selling them with our full product suite is a long process.
But it creates also the stronger tailwind into our business into increasing the contribution of our existing client base and we think this is a big strength of our model.
Yeah, regarding verticals on mid-market it's very similar to Q1, It’s just that the size of the account is smaller and we realize that in each market, rather than targeting just 100 or 200 big clients which obviously are very strategic for us, there is also huge potential in the top, where you're talking more about thousands of potential clients.
So it's very different go-to-market because to address this segment you need to have a very different sales organization, very different processes with a lot of automation.
There are many things that have to be done automatically or with self-serve interface from the client side and this requires specifically technology investment that we've been doing in the past 18 months.
And now we have the platform in place we can high aggressively the sales team, the [inaudible] team and we have three big hubs, we are concentrating those teams; one in London for Europe, one in Boston for the U.S. which is now our biggest team in the U.S. is now at Boston office and one in Tokyo for APAC.
And we're very excited about this market opportunity, transforming our several or thousands of clients to potentially a much bigger number in the future..
Great, thank you..
We will now take our next question from Douglas Anmuth from JPMorgan. Please go ahead..
Thanks for taking the question. Two things, I just wanted to focus on, I know you may have hit on a little bit just now but JB.
can you provide some more color on the new engine and in particular what you think sort of a key enhancements are versus the previous technology? And also what makes up the 40% where the new engine is not rolled out yet? Is that based on specific geographies or type of clients or some other characterization? And then secondly on mobile, I may have missed it, but did you give the overall percentage of the business that is mobile now and also the percentage in Japan? And can you talk about the progress with AD-X and how you're doing in terms of moving into apps and when we can see that start to impact more? Thanks..
Sure. So, first to engine, so, we have a cost per click model so we're charging our clients per click and there is strong correlation with a click to rate and conversion rate. So as you improve the click-through you improve ultimately our revenue for our clients.
Now ultimately to make the best possible performance for our clients you want to optimize on conversions.
Conversion is a much harder problem than clicks because you have much less conversion than clicks so you need a much more complex predictive technology to predict conversation and per click and it took us probably two years of development to full year to have the full conversion optimizer into the model which is very important because it’s ultimately obviously what clients are looking for.
They are not buying clicks for clicks, they're buying clicks because only those clicks are conversing into revenues.
The reason why we are -- there is still so-called only 60% of our client that are with this conversation optimizer that it's requires some change in the technical settings of our clients and this is something we do client by client where we have also to expand this to each client that it's a different bidding strategy for them and we took to discuss with them about the – target.
So, it's an ongoing process. As I said we have a very large client base. So it takes time. But this is something we’re pushing aggressively across all our geographies. So we are pushing this conversation optimizer obviously in the U.S. and also in Europe and APAC at the same time.
And it's been a very strong contributor to the growth of this quarter and a big part of why we've been exceeding our guidance this second quarter. Moving to Mobile, it's obviously the second very big driver and that also an area where we are pleasantly surprised by the progress we made in the last six to eight months.
Where we started we were literally zero. Now, just to take a step back on how clients are looking at mobile versus desktop. They are not opposing mobile and desktop. At the end of the day, as I said our clients are trying to maximize the number of sales and they are really focused in making sure they can reach their clients across all screens.
Because now users are moving from the small smartphone to the next tablet and to a laptop and there is continuum of devices. So what pitching to our client that they need to make sure to be present and to the targeting across all screens. As a matter of fact they have the one global budget.
They don’t have the mobile budget and desktop budget which could be hard because it’s very difficult to really make clean cut between what is truly mobile and what is laptop.
So we think that’s why we have been giving the metric that what’s important is the number of our clients that across now all screens and offering this continuum of targeting and we are very proud to see that now 69% of our clients having converted to all screens.
This said just to answer precisely your question and I am sure you’ll remind that in March of this year, we communicated that 15% of our revenue ex-TAC were coming from mobile clicks, and now it’s more than 20% coming from mobile clicks. So it’s growing very nicely, growing faster than overall business.
So even if our business is growing 72% year-over-year we see the growth of mobile faster which is quite intuitive and reflecting to the overall shift of ecommerce from desktop devices to mobile devices.
Now this said we are really now focused with making sure all of our clients and that only 69% of our clients are present on all screens and having seamless marketing campaigns across all devices in one single bidding interface..
Just to add Doug, Benoit, speaking with respect to I think you asked about two geographies, I think Japan we are about 28% in Japan I mean it’s also worth noting that the UK very high during the quarter pretty much at the same levels in Japan. So we see a very strong momentum there..
Yeah, UK is pretty amazing how quickly e-commerce is shifting to mobile devices..
So now we are not planning to continue reporting that metric because we believe that it becomes less and less relevant as JB was explaining this is now a continuum. But we are happy to share the momentum with you today..
Okay. Thanks JB and Benoit..
We will now take our next question from Ross Sandler from Deutsche Bank. Please go ahead..
Thanks guys. I just had one question for Benoit on the numbers and then one for JB on product. So on the APAC growth rate, so ex-FX it was very strong, decelerated a little bit in the quarter.
Can you just give some additional color on what was driving the growth, deceleration in APAC? And did the increase of the Japan VAT have an impact on consumer purchases and potentially on your ecommerce business in that country? And then JB, the product question would be around social.
Facebook is now saying that they control about 25% of mobile traffic out of the China. And from what we understand they are acquiring a PMD token to buy this mobile inventory and website customer audiences are somewhat unique to them.
So how do you guys access that channel? Do you feel like you need to acquire PMD to have exposure in social? And how successful do you think mobile can become as a channel for Criteo if Facebook inventory isn’t available, thanks..
So with respect to Asia Pac we are very satisfied with the growth in Asia Pac. I mean we are 100%. Yes, it’s a small deceleration sequentially but it’s a very strong momentum. It’s true that the tax change in Japan at the very 1st of April had an impact, boosting retail during the last -- at the end of Q1 and that had some impact.
So we’ve seen some softness at the beginning of the quarter in retail. But we see the momentum pretty much back now..
Yeah. It’s really one off event and I was in Japan, it’s JB, I was in Japan 10 days ago and all the times we were saying the two first week of April had been a very slow compared to end of March but by May and June it’s completely recover the normal trends yeah.
So moving to Facebook, I mean Facebook is very successful partner of us and we are working very nicely with them and we have been working with them for long-term. Their mobile inventory, as you know, they have a specific technical set-up.
As a matter of fact they also a very specific technical set up for desktop and took us a long time to build together with Facebook the right technical protocol.
It was not only -- I mean not only Facebook had a specific way to connect to the inventory but Criteo has have also a specific requirements because we have a very unique to connect to our publishers because we have liability to target each individual person with a specific bidding request and specific real time customized add-up.
So this is why and we have the some discussions with all our publishers, we need to have a specific step-up.
With Facebook it’s probably a little more complex than the average publisher so it’s taking a longer time on average, it took us a longer time on the desktop that we are confident as they recognize we are a very strategic partner for them and we are one of the biggest buyer on the buyer Facebook exchange that we are making progress with them on how to this do on the mobile piece that but as we explained in the previous quarters it’s taking time, it’s not entirely in our control.
There is technical road map on both sides where I think there is very good positive spirit on both sides to make it work and with the right way that both the Facebook constrain are taking into account and what is unique about the way Criteo is connecting to publishers is also into the picture..
Thanks guys. That’s very helpful and great quarter..
Thank you..
Thank you..
(Operator Instructions). We will now take our next question from Brian Fitzgerald from Jefferies. Please go ahead..
Thanks guys. Maybe a quick follow-up on Facebook. Did you see it -- you said it might take longer to implement the plug in to the mobile side of things.
Do you see it ramping on the same trajectory once it’s plugged in as desktop or FBX and then can you differentiate between what you are seeing in terms of preferred inventory in the Americas versus maybe compared to Europe or some of your older cohorts? Thanks..
So I mean clearly once we connected we should see the same pattern on mobile then on desktop meaning that it’s not going to be overnight, it should increase because once we are connected on Facebook as it happened on desktop you have to reach for each line one-by-one and what’s more we have more than 6,000 plus clients.
So it’s a good product to have but we have a very large, very long work to do with contact clients and when I look at the desktop piece we still have -- we don’t have -- we are not at 100% coverage we are above 80% but there is a lot of work to upgrade client by clients for the Facebook inventory bid.
Obviously the reward is very big once you have done this and now it’s a very significant piece of our business. In term of GOs I mean our two area, our key area of focus are U.S.
and Europe, in APAC as I’m you know Facebook has a lower penetration then you know the markets and we are in discussion with equivalent or Facebook in the local Asian market I have in mind in particular, Japan, China and Korea where you have very strong alterative to Facebook and an much more diversified landscape when it comes to social inventory..
And then quickly on the preferred inventory, do you see any real differentiation between the caliber of deferred inventory you are seeing in the Americas versus Europe or maybe versus some of your older publishers versus newer ones?.
Well at the end of the day the quality inventory for us is highly related to the price. Generally speaking, in the U.S. the inventory costs more, it’s more expensive. And at the same time the conversion rate of clients for ecommerce is higher in the U.S.
So there is a very good balance and it’s pretty normal in a very mature advanced market we would see much more sophisticated clients on one side, much more sophisticated publisher on the other side. So all numbers are higher.
While in more, I would say emerging geographies you would see a lower cost of inventory for the same quality but also lower conversion rate on the client side. So there is a very good balance in each market, which is very much related to the maturity of the market when it comes to ecommerce and that sophistication in general..
Great. Thanks guys..
As there are no more questions in the queue that will conclude today’s Q&A session. And I would now like to the turn the call back to Mr. Edouard Lassalle..
Thank you very much everyone. And we look forward to continue to update in the coming quarters. Thank you..
That will conclude today’s conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect..