Criteo SA (CRTO) 2013 Q4 法說會逐字稿

Good day and welcome to the Criteo fourth quarter full-year earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Edouard Lassalle, Head of IR. Please go ahead, sir.

Thank you, Leann. Good afternoon and good evening to all of you on the call and welcome to Criteo's financial results call for the fourth quarter and full-year ended December 31, 2013.

Before we begin discussing our earnings, I'd like to remind you that some of our discussions today will contain forward-looking statements, which may include projected financial results or operating metrics, business strategies, anticipated future products or services, anticipated investment and expansion, anticipated market demand or opportunities and other forward-looking statements. 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 predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance. Further information regarding the factors that could affect the Company's financial results is included in the filings that the Company makes with the Securities and Exchange Commission from time to time, including in the section entitled risk factors in the Company's prospectus filed with the SEC on October 30, 2013.

Also I'd like to remind you that during the course of this conference call we will discuss non-IFRS measures of our performance. Reconciliations to the most directly comparable IFRS financial measures are provided in the tables in the earnings press release that was published earlier today.

Now, with this in mind, let me turn the call over to JB Rudelle, Criteo's Co-Founder and Chief Executive Officer. JB, the line is all yours.

Thank you, Edouard. I am very pleased to share our fourth quarter and fiscal year 2013 results with you today. We closed a record fourth quarter and a record year, while exceeding the high end of our guidance, both on the revenue ex-TAC and EBITDA.

In the fourth quarter our revenue ex-TAC rose 66% at constant currencies to EUR54.9 million. Our adjusted EBITDA grew 240% at constant currencies to EUR14.5 million.

For the full 2013 year our revenue reached EUR444 million, our revenue ex-TAC increased 66% at constant currencies to EUR179 million. Our adjusted EBITDA grew 84% at constant currencies to EUR31.3 million.

We continued to strengthen our position as the global leader in digital performance advertising. We are particularly excited with the launch of our mobile offering in Q4. We are now in the process to actively rollout a mobile solution across a base of more than 5,000 clients.

In the quarter, we also started to activate mobile inventory supply across our network of RTB and direct publisher partners. For the first time, mobile is now an important growth vector of our business. Our mobile business increased globally from 2.5% of revenue ex-TAC in September to 10% in December 2013.

The rollout of our mobile solution started in September, except for Japan we started earlier as it was our initial beta market. In Japan mobile contribution grew to over 18% in December. Mobile already represents over 25% of our revenue ex-TAC from of our large clients, now live with our mobile solution. This is very consistent with the overall share of mobile in digital sales transactions of those clients. Moreover, mobile monetization is globally on par with what we see on desktop, so it's proving to be a very attractive product to upsell our clients.

Overall on mobile we are thrilled with the rapid takeoff and solid execution in the quarter and look forward to increasingly servicing our clients across all devices.

Overall in the quarter, our strong growth was fueled by one, the broadening of our client base, both through our growth in existing and new geographies and verticals. And two, the deepening of our client relationships through upselling of new products, especially mobile and mid-funnel companies. As a reminder, our mid-funnel product is Criteo's customer acquisition program.

Regarding our client base, this quarter we crossed the very symbolic milestone of 5,000 clients, ending the period with a total of exactly 5,072 clients, representing 50% growth from 3,379 in the fourth quarter of last year, of 2012. During the quarter and throughout the year we saw client growth across all segments and geographies.

Not only did our client base grow strongly, but our client retention rate remained above 90% in 2013, reflecting the stickiness of our solution with digital marketers.

As you know, one of the very attractive attributes of our CPC model is our ability to work directly with our clients. And in 2013 we have continued to strengthen our direct client relationships and close to 80% of our clients were direct with a 2 point increase compared to 2012.

Moving now to publishers, our direct relationships continue to a very important differentiation factor. By the end of Q4, in addition to public exchanges, we were working with over 6,600 direct publishers, which is a record number.

A good example is our strategic partnership with Yahoo! Japan, which continued to ramp up in the quarter. Throughout 2013 Yahoo! Japan gave us privileged access to increasingly large volumes of premium and mobile inventory from their vast real estate.

In parallel we also continued to grow our work with Facebook, the number of markets on which we are live on the Facebook Exchange continued to increase in the quarter and expanded into Asia. We're also making good progress in the News Feed, where we're serving ads on 15 markets in the quarter and continue working on deploying in additional markets.

Now let me update you on our performance by region. Starting with the Americas, we advanced very nicely our position. Q4 revenue ex-TAC in the Americas grew 62% at constant currencies from Q4 of last year. For 2013 revenue ex-TAC in the region grew 82% at constant currencies. Our growth in the Americas in the quarter was primarily driven by the strong contribution from large accounts in the holiday season, including some top 10 multi-channel US retailers, upselling our clients with new products, including mid-funnel and mobile, and a strong ramp up in our small and mid size clients. In the quarter we also signed some large new clients, including American Eagle Outfitters.

In terms of US direct publishers, we made some great progress in our real-time audience unique proprietary technology. In particular, we integrated with the Weather Company's group of websites and have seen very positive results from this relationship.

We are very bullish about the US market and our ability to realize our great potential there. In Q4 we strengthened our US team with the appointment of Rob Deichert, in charge of driving our operations in North America. Rob brings strong operations management and industry expertise from his experience at the Weather Channel and advertising.com.

The US is by far, as you know, the most sophisticated digital advertising market and a thought leader in many areas of our industry. In our existing large accounts, we're seeing good traction of our new products, including mobile in mid-funnel and native ad formats. In particular, US has been leading the roll-out of a mid-funnel product and has the highest adoption rate among all of our regions, reflecting our strong ability to upsell multiple products.

Upselling is a strong source of leverage in our business model and a central element of our growth strategy worldwide. We believe our ability to upsell is replicable across all regions.

Speaking of which, in EMEA, the region where we have the largest historical footprint, we saw the following. Overall for 2013, EMEA revenue ex-TAC grew 37% at constant currencies. In Q4, we even managed to accelerate revenue ex-TAC growth to 46% at constant currencies. We had a particular strong and healthy quarter in Germany where we grew our revenue ex-TAC 64% over Q4 of last year.

Our growth in EMEA for the quarter was the result of three main factors. One, upselling new products to existing clients in mid-funnel and mobile. Two, the significant expansion of our mid-market client base. And three, the expansion of our client base beyond retail. In the quarter, we served an increasing number of clients in automotive, telecoms and consumer goods, including clients like Deutsche Telekom, T-Mobile, L'Oreal and Qatar Airlines.

Moving now to APAC, Asia-Pacific, we continue to enjoy very rapid growth in this fast moving strategic region of ours. Q4 revenue ex-TAC in the region increased 149% at constant currencies. Our growth in APAC was driven primarily by adding new clients and publishers and our continued progress on mobile in the quarter.

Our mobile live accounts grew in each of Japan and Korea by more than 50% in Q4 compared to the previous quarter. Some of our new clients signed in APAC in the quarter included NTT Plala, Inc. and YAHUOKU mobile. For 2013 APAC has proven to be a major growth driver for us with revenue ex-TAC growth of 183% at constant currencies.

Committing ourselves to long-term growth in APAC, we are very excited about setting the foundations of our business in China. During the quarter, we set up a subsidiary in the country, opened an office in Beijing and started building the infrastructure to operate locally. To lead our local team there, we hired Ann Wang, a seasoned executive from Google as Managing Director for Criteo China. Ann brings a wealth of experience from the Internet and technology sectors in Greater China and we are truly excited to get started in a market with such a huge potential for Criteo.

Overall in APAC we are excited about the opportunity to continue to capture the tremendous growth in this very dynamic region.

Now before I discuss our 2014 priorities, I'd like to highlight two key appointments we made in the quarter to further strengthen our leadership team. Eric Eichmann, who had joined us in March 2013 as Chief Revenue Officer, has now been promoted to Chief Operating Officer in charge of all sales, operations, product and marketing. Eric's successful track record and industry experience from AOL, Rosetta Stone and Living Social brings a very valuable asset to Criteo.

We also welcomed Jean-Louis Constanza as our Chief Innovation Officer. Jean-Louis brings more than 25 years of international experience in technology and mobile industries. He's in charge of leading culture, people and innovation across the Company and bringing disruptive new ideas to life. Overall, we are very proud of the exception talent we were able to attract to Criteo.

Moving now to our 2014 plan, we believe that the overall trends of the two large and dynamic markets in which we operate, ecommerce and digital advertising, will continue to be positive for us. Our top priority is obviously mobile and the broader impact it is having on our clients. The ability to offer the Criteo cost per click model and related performance seamlessly across multiple screens is becoming a central element in our value proposition to our clients.

CMOs are indeed increasingly looking for holistic performance marketing solutions with the ability to target, deliver and measure ROI across all devices and channels. Leveraging this growing trend, we'll continue to broaden our multi-channel solution, but as always in the way that we believe makes Criteo so unique and special. That is, end to end, fully automated with an easy to measure ROI directly linked to revenues and combined with positive consumer experience.

In 2013 we also closed our first acquisition ever, AD-X. The integration of the technology and team went very smoothly and we feel confident in our ability to further integrate additional technologies in the future onto our platform as we continue strengthening and broadening our client offering.

Before closing, I'd like to reinforce the five key reasons why we believe we are positioned to win. First, through a deep technical integration with our clients, we access very large volumes of granular and actionable shopping data at massive scale. Second, our predictive and recommendation technology platform is highly powerful, automated and extremely scalable. Third, our cost per click pricing model creates a truly disruptive business model in advertising.

Fourth, our direct relationship with both clients and publishers illustrates how differentiated our approach is and how sticky our solution is to our partners.

And last, the combination of super ROI and large volumes delivered at scale on all devices and screens drive our high client retention rate. We believe these five key differentiators continue to drive the network efforts of our business and position Criteo to wing the industry.

In closing, we are very pleased by our record results for the quarter and the year. Moreover, the takeoff of our mobile business in the last quarter is really very exciting. We have an enormous market opportunity ahead of us, we are focused on executing on all of our growth strategies and look forward to updating you on our progress and activities in the coming quarters.

With that, let me turn the call over to Benoit, our CFO.

Thank you, JB. I'm also very pleased to report another strong quarter on our very solid full-year results today. I will walk you through our financial performance in detail, as well as our guidance for the first quarter and fiscal year 2014. And I will then open the call to your questions.

Let me start with our revenue for the quarter and the year. Our Q4 revenue increased 57% or 68% at constant currencies to EUR135.9 million compared to EUR86.6 million in the fourth quarter 2012. For the fiscal year 2013, revenue increased 63% or 74% at constant currencies to EUR444 million compared with EUR272 million for the fiscal year 2012. These numbers reflect our continued focus on expanding our business across all geographies as we leverage our scale.

In the Americas, our Q4 revenue grew by 50% or 60% at constant currencies to EUR39 million, while revenue for fiscal year 2013 grew by 81% or 92% at constant currencies to EUR123 million.

In EMEA, revenue increased by 44% or 45% at constant currencies to EUR70 million in Q4 and by 38% or 39% at constant currencies for fiscal year 2013 to EUR238 million.

In Asia-Pacific, our Q4 revenue increased 124% year over year or 180% at constant currencies to EUR27 million. And our 2013 revenue grew by 163% year on year or 223% at constant currencies to EUR83 million.

As you know, whilst revenue is a useful indicator of our actual client spend, we consider revenue, excluding the traffic acquisition costs paid to our publishers, or revenue ex-TAC, as the key financial measure to evaluate and monitor our business performance.

Our global revenue ex-TAC grew 55% or 66% at constant currencies to EUR55 million in the fourth quarter compared with EUR35 million in the fourth quarter 2012, primarily driven by our continued rapid geographic expansion. For fiscal year 2013, revenue ex-TAC grew 57% to EUR179 million or 66% at constant currencies.

In the Americas, Q4 revenue ex-TAC grew by 52% or 62% at constant currencies to EUR15 million over the comparable quarter in the prior year.

In the US, we increased our business with existing clients by upselling new products during the quarter. We also continued to see good traction in Brazil and in other parts of Latin America.

2013 revenue ex-TAC for the Americas grew 72% to EUR48 million or 82% at constant currencies compared with EUR28 million in 2012. Our growth in Q4 revenue ex-TAC in EMEA accelerated to 45% over the same period last year or 46% at constant currencies to reach EUR29 million. In the region we delivered solid growth both in our large Western European market and in our more recent emerging markets. Growth has been driven by the increased client spend through mid-funnel on mobile, as well as the expansion beyond our core verticals.

2013 revenue ex-TAC in EMEA increased 36% to EUR97 million or 37% at constant currencies compared to EUR72 million in 2012.

Q4 revenue ex-TAC in Asia-Pacific increased by 100% or 149% at constant currencies to EUR11 million. Our increased inventory access allowed us to serve increasing demand, including on mobile and premium inventory. 2013 revenue ex-TAC in Asia-Pacific increased 132% to EUR34 million or 183% at constant currencies compared to EUR15 million in 2012.

Before I move on to discuss our profitability in the quarter and the year, let me do a brief pause on the impact of foreign currencies on revenue ex-TAC.

Overall in the fourth quarter foreign exchange headwinds had an 11 point negative impact on both revenue and revenue ex-TAC growth. In terms of currencies, all our main currencies negatively contributed to this headwind in the quarter. The Japanese yen contributed to 65% of the headwind while the US dollar and the Brazilian real each contributed to 13% of the headwind and the British pound contributed to 5% of this negative impact.

On a full-year view, foreign exchange headwinds had a 10 point impact on revenue ex-TAC growth. In 2013, our main currencies also all negatively contributed to this headwind. The Japanese yen contributed to 65% of the full-year headwind while the Brazilian real contributed to 15%, the US dollar to 11% and the British pound to 8%.

Moving on to profitability of our operations, we increased Q4 adjusted EBITDA by 227% year over year or 240% at constant currencies to EUR14.5 million in the fourth quarter compared with EUR4.4 million in the fourth quarter last year. This strong increase is due to our particular focus on growing revenue ex-TAC in our biggest quarter of the year and to a lesser extent, to an increase in operating leverage in the quarter.

Fiscal year 2013 adjusted EBITDA increased by 80% or 84% at constant currencies to EUR31 million compared to EUR17 million in 2012. We achieved a strong growth in our full-year adjusted EBITDA despite our continued investment in our growth priorities, in particular in technologies.

Q4 hosting and data costs increased modestly by 2.6% to EUR3.6 million compared with the fourth quarter of 2012 excluding depreciation and amortization. For fiscal year 2013, hosting and data costs increased 57% to EUR14 million compared with EUR9 million in the prior year.

We are starting to capture some incremental economies of scale from the investment in our own infrastructure and equipment. We will continue to invest in our infrastructure to support our current and future growth.

Q4 OpEx increased by 43% to EUR41.6 million compared with the fourth quarter 2012. For 2013, operating expenses increased 58% to EUR146.4 million compared with EUR92.5 million in 2012.

Excluding the impact of stock based compensation, pension costs, depreciation and amortization and acquisition related deferred price consideration, which I refer to as a non-IFRS basis, our operating expenses were at EUR36.7 million in the fourth quarter, an increase of 34% compared with the same period in 2012.

For 2013, our non-IFRS operating expenses increased 52% to EUR134 million compared with EUR88 million in 2012. Increase in operating expenses over both periods was mostly related to research and development as we continued our investment to further develop our technology platform enrich our product portfolio and support future growth.

Research and development employee headcount increased 45% year over year to 192 at the end of the fourth quarter. On a non-IFRS basis, R&D expenses increased by 89% to EUR7.6 million in the fourth quarter 2013 compared with EUR4 million in the fourth quarter 2012. For the year 2013, R&D expenses on a non-IFRS basis increased 95% to EUR26.7 million compared with EUR13.7 million in 2012.

Headcount in sales and operations increased 22% year over year to 491 employees at the end of 2013. On a non-IFRS basis, sales and operation expenses increased by 23% to EUR20.5 million in the fourth quarter 2013 as we grew sales headcount in all regions to capture our market opportunities.

As a percentage of revenue, our sales and operation expenses decreased by 4.2 percentage points over the period to 15.1% in the fourth quarter. For the fiscal year, sales and operation expenses on a non-IFRS basis increased 41% to EUR78 million compared with EUR55 million in 2012. As a percentage of revenue, sales and operation expenses decreased by 2.8 percentage points over the period to 17.6% in 2013.

Following the establishment of a Chief Product Officer role in the first quarter 2013, our product team was transferred from the sales and operation organization to our R&D organization. Adjusting for this internal transfer, sales and operation expenses as a percentage of revenue decreased by 3 points in the quarter and 2 points in the full-year 2013. Whilst this incremental operating leverage is a positive achievement, we intend to continue investing significantly in sales and operations in the current year.

Finally, our employee headcount in general and administrative function increased 32% year over year to 127 at the end of December 2013. This is primarily the result of the ramp up of our finance, legal, HR and IT organizations to support growth and prepare the Company to become and operate as a public company.

On a non-IFRS basis, G&A expenses in the fourth quarter 2013 increased by 29% to EUR8.6 million compared with EUR6.7 million in the same period in 2012. For 2013, G&A expenses on a non-IFRS basis increased 54% to EUR28.7 million compared with EUR18.7 million in the same period last year.

As a percent of revenue, our G&A expenses decreased by 1.4 percentage points year over year in Q4 and 0.4 percentage points year over year in the full-year 2013.

Moving on to cash, our cash flow from operating activities increased by 62% to EUR12.3 million in the fourth quarter compared with EUR7.6 million in the fourth quarter last year. Our CapEx decreased 0.9% year over year to EUR7.2 million in the fourth quarter compared with EUR7.3 million in the fourth quarter 2012, keeping in mind that our quarterly spend had represented last year 53% of our CapEx program for the year.

On a full-year basis, our operating cash flow increased by 109% to EUR24.7 million. We truly believe this is a strong achievement as reflected in our EBITDA to operating cash flow conversion rate, which progressed by 11 percentage points year over year to over 79% in 2013.

Our free cash flow was EUR5.1 million in Q4 and reached a positive EUR2.8 million in the full-year. This is the first time in the history of Criteo that we are free cash flow positive on a full-year basis. This marks a key milestone and we believe demonstrates how solid and scalable our model is.

Total cash, cash equivalents and short-term investments were at EUR234 million as of December 31, 2013, representing an increase of EUR194 million compared with September 30, 2013, primarily the result of the EUR192 million net proceeds from our initial public offering on NASDAQ global market on October 30, 2013.

I will now wrap up with our thoughts regarding our guidance. I'll remind you that the following forward-looking statements reflect our expectations as of today, February 11, 2014.

For the first quarter 2014, revenue ex-TAC is expected to be between EUR55 million and EUR57 million.

Also for the first quarter 2014, adjusted EBITDA is expected to be between EUR10.5 million and EUR12.5 million.

For the fiscal year 2014, revenue ex-TAC is expected to grow approximately 41% at constant currency to a range of EUR246 million and EUR251 million including a EUR4.6 million negative impact from foreign currency. To be more precise, we expect year over year growth of approximately 40% to 42% at constant currency, or 41% at the midpoint of the range. Foreign exchange is expected to have a negative impact of approximately 2.5 points of year over year growth.

Also for the fiscal year 2014, adjusted EBITDA is expected to between EUR47 million and EUR51 million.

This guidance assumes the following estimated foreign currency exchange rates. The euro/dollar exchange rate of 1.34; a euro/Japanese yen exchange rate of 140; a euro/British pound exchange rate of 0.82 and a euro/Brazilian real exchange rate of 3.15. This guidance also assumes no business acquisition during the quarter ending March 31, 2014 and during the fiscal year ending December 31, 2014.

Before closing, I want to highlight that 2014 is an exciting year for Criteo, a year of further investment in our growth initiatives, particularly in our geographic expansion into China and Russia, the strengthening of our full mobile offering, including In-App and a particular focus on expanding our mid-market client base.

In closing, we enter 2014 with strong positive momentum and I am very pleased with the strength of our business and our growth prospects. We have a very large market opportunity ahead of us and we are only just beginning to rollout our new products on new screens and devices. I look forward to continue building long-term trust with our public investors and to sharing our growth story every quarter as we continue to realize our full potential.

With that, I'll turn the call back to the operator now to take your questions.

(Operator instructions) Jordan Rohan, Stifel Nicolaus.

Hi, this is Alex Chavdaroff on for Jordan Rohan. Thanks for taking our questions and congrats on the quarter. So obviously you saw some strength in mobile. Can you provide a little more color, how many markets you're in there and how many clients you're offering mobile solutions for?

And then also, can you provide an update on your In-App solution? Thank you.

Sure. Mobile indeed is very exciting and as you've seen from the number we shared that in Q4 it was the first quarter with -- where mobile is now a real good vector. We have to -- it's a new product, so we have to install the (inaudible) product client by client. As you know, we have a client base which starts to become very significant now with more than 5,000 clients, so it's going to take several additional quarters to fully rollout the mobile solution across all of our clients.

So as of today, there is only a fraction of our clients that we've been doing this. But the sales and operations team is on the ground to keep on pushing in all markets and we see very good traction and very good takeoff of our mobile offer in all our regions.

Mobile In-Apps is even newer on the agenda. As you know, it requires a very special technology, so it took us a little longer to develop the right technology to be live. We recently made a press release a couple of weeks ago that now we have our first few beta clients that are live with our In-Apps mobile solution and we are very proud of that because we believe we are one of the first, if not the first Company in the world, who is capable to offer deep linking In-Apps where not only you can retarget the user on the specific product, but when he clicks In-Apps he's going not only to the right app, but directly to the right product base. And so we've been able to fully replicate the Criteo experience into In-Apps with a very consistent and actually very good click-through rate and very good conversion rate.

As I'm sure you know, conversion rates In-Apps are very, very strong and it's one of the reasons why it makes In-Apps as a very attractive channel for our clients. And we're actively working with them to grow In-Apps as a key growing channel for them in the future.

Ralph Schackart, William Blair.

Two questions, please. First, can you just clarify the metric you provided, the strong metric that is on mobile, the 2.5%, 10%? Is that sort of an exit rate or run rate ending each Q3 and Q4?

And then the second question, JB, you had talked about mobile monetization on par with desktop. Is this a net basis or are you sort of speaking more specifically to monetization on a conversion basis? Thank you.

So the first question, I mean we talked specifically about September. Look, September was the very month where we launched our mobile offer. Before it was purely a beta product that was available only in Japan. So September was the first month where the offer started to get a rollout across all our geographies.

So when we're talking about 2.5% of our revenue ex-TAC, it's of our revenue ex-TAC for the month of September and not for the quarter. Same thing for December. So it's for you to have a better sense of the growth. So in the month of December it was 2.5% and in the month of December, so you can consider this as a run rate indeed, in the month of December it was 10%.

Can you repeat the second question?

Sure. Just specifically on mobile monetization. In the prepared remarks you had said that it was on par with desktop, I believe. I'm just curious if you're looking at that on a net basis when you combine number of clicks and conversion rates. Or are you speaking more specifically to just overall monetization rate?

Well, the two key drivers in our business that are at the very core of the Criteo model are the click through rate and the post-click conversion rate. So how many people are clicking on the targeted ad and engaging with our clients? And how many of them following the click and landing on the website are actually buying something? And these two key metrics are the ones that are driving our whole business model.

And the very good surprise we had, and it's been very consistent across all of our clients that not only the click through rate is very strong and even stronger than what we see on the desktop, but I know there have been a lot of claims in the industry that okay, there is high click through rate on mobile, but people tend to click by accident and these are not re-clicks. So what's probably even more important is that the post-click conversion rate is very similar to what we see on desktop, showing that those clicks are real clicks or real customers and then they happen into real sales.

This is what net-net we are going to offer the same (inaudible) to our clients. So same (inaudible) means that they're willing to pay the same CPC on mobile as on desktop. And we've been able to fully replicate our economics in the mobile space from the ones we have on desktop. And once more, I mean we were not that surprised with the click through rates, because it's something we were expecting. And the good surprise really is that the conversion rate is surprisingly high. I mean people in mobile are really engaged and it goes all the way to the transaction, which is very good news for our clients. And this is why you see that, for some of our clients now, mobile becomes a very significant channel. It's like 25% of the total sales. And this is a massive change compared to even 12 months ago, when it was only a fraction.

Ross Sandler, Deutsche Bank.

So JB, you mentioned that your largest customers are now at around 25% of spend in mobile. Do you think that that's coming in incremental as a new product or is there some shifting of the kind of legacy CPC business as you layer in mobile?

And then a follow-up on the deep linking. Can you talk about how big of an opportunity that market could be and specifically what differentiates Criteo's offerings from some of the other folks? And do you see plugging into various publishers for native ads easy or is it challenging still, given that a lot of these exchanges are not fully built out yet?

So starting with your native ads. Native ads today, it's mostly TextLink and Facebook. I would say these are the two main inventory of native ads. And this is growing very, very nicely.

Now that Facebook made native ads so cool and friendly, I think there's a lot of other publishers that are looking into this. And we are in discussion with a number of them to increase the efficiency of their inventory through native ads. So this is definitely something we are looking at clearly.

Regarding deep linking, in a way I mean you could have the same [energy] than with desktop. And desktop, I mean the retargeting technology was created in 1999, so almost 10 years before Criteo came into market. It was a very basic retargeting technology that didn't scale very well and that lasted in the market for 10 years. And Criteo disrupted completely the market with this ability to do product level retargeting based on the very rich Internet data.

And in a way we are replicating the same thing in doing apps, where there are existing offers that were in the market for at least, I would say 18 months, offering some crude basic retargeting. But doing this at the product level is a complete game changer, especially with our cost per click business model. And we are really excited that we are replicating exactly the same type of disruption into mobile than we've done into the desktop model.

So going back to your first question regarding incrementality of our mobile business. So it's difficult to make a precise calculation of what exactly would be cannibalization or a pure increment. What we see is that probably clients are spending significantly more with us when they activate mobile than when they have on a pure desktop campaign. So clearly mobile is coming on top and it's truly incremental. So net-net, when we have a client which is pure desktop and we plug into mobile, it's suddenly a big increase into their spending. So clearly we are seeing some very nice incremental functionality into that.

And on top of mobile, just to remind, we also are upselling our clients with our mid-funnel product and this is also a very exciting area of growth because as a reminder we started with a retargeting offer, which was I would say the core (inaudible) to enter the markets. And now we are capable to address the full marketing budget of our clients by -- with this mid-funnel product, which is about customer acquisition.

And if I can squeeze in one more. Is the -- you guys said Japan's 18% mobile right now exiting the quarter. Are those primarily your core customers in kind of retail and travel? Or are you able to manage spend for some of the folks selling digital products or things outside of your typical kind of physical transaction or service? Thanks.

Well, yes there are two questions. One, first mobile primarily we see this as an upselling product. So I would say we tend to go to market first to our existing client base and upsell them with mobile. And there is a lot of leverage and typically in Japan it's like in all our region is upselling our clients. Rather than going up to pure, I would say, mobile companies. This is probably something we'll do in a second step as we grow our mobile business to go after pure mobile companies. There are some, but most companies, most of our clients prefer the multi-channel approach.

The second question as I understand related to retail compared to other verticals. Retail is 60% of our business, which means that there is now a very significant piece of our business outside of retail, which includes classified, automotive, finance and we've done very good inroads in those different areas, including some of the clients that I've quoted during the beginning of the quarter.

(Operator instructions) Brian Pitz, Jefferies.

This is Tim O'Shea for Brian. Thanks for taking my question. Wanted to drill down a bit on what you're seeing in the Americas. Obviously net revenue growth still looking solid, 27% quarter over quarter and 52% year over year. But just wondering as you expanded your presence through the holidays, just wondering if you saw any differences between the Americas versus rest of world, just speaking broadly in terms of metrics, like return on ad spend, TAC, the amount of competition you saw and maybe client willingness to run performance based campaigns.

And then secondly, can you give us a sense for the percent of America's impressions that are coming out of exclusive inventory versus the exchanges and maybe where this can go over time?

And then finally, just if you can give us a sense for the progress you're making in signing up new clients. I know you added American Eagle Outfitters during the quarter, but just wondering if you could provide a little more color here. Thanks.

So yes, as we said, America, we are very excited and it's a key area of growth and future growth for the Company. When you compare the holiday season for the other region, probably there was something specific this year that the holiday season was a little shorter in the US than typically because Thanksgiving was later, so Cyber Monday was a little later also. So it was I would say more concentrated in terms of what it was, for instance, last year.

Now this said, it was concentrated but the metrics were very good. There is definitely a very strong appetite in the US for our CPC model. It's the region where there is the biggest, I would say, incumbent players, so in a way (inaudible) the US, it's both the most sophisticated market, but also the market which required the most education on our model because there is still a vast number of players who are buying CPM with low profitability in this play. And we're in the market to explain to them that now we have a game changer offer. And once they understand this, it's -- we have a lot of leverage and we see our retention rates in the US being super high. So once the clients get it, it's very, very strong.

But as there is a lot of noise in the market, it takes some time to educate them and probably as the average client in the US is bigger than in other regions, given the size of the market, it takes a little longer between signature and live client because it's one thing to sign a client, but we truly make revenues only when they are live. And it takes a little longer in the US than in other regions, just because we tend to face bigger organizations and there is more inertia to all their clients. So you know what, when you're in a small country, you can get a client live in a couple of weeks. It might take another few weeks to get it in the US.

So all in all the pipeline is very strong and with the number of very good new client signed. And we should see this coming into effect in the coming quarters as, one they get live and, two they start to ramp up and invest more.

The question regarding the inventory. It's not exclusive inventory, it's what we call preferred inventory where we have preferred access. Benoit, you want to --?

Yes, I think your question was more specifically on what portion of the business we do through public exchanges versus direct and how it could evolve over time. So today we are roughly one-third direct, two-thirds through the exchanges in the, but we see that the percentage of business that we do through the exchanges has as a tendency quarter over quarter to decrease and we see the share of direct business increasing.

I would say that as we mature in the regions and I mean as we entered the US later, if you compare to Europe, I mean Europe is closer to a 50-50 mix between RTB platforms and our direct relationships. So we should expect to see the US continuing to grow slightly in the direct relationships.

Douglas Anmuth, JPMorgan.

Just wanted to ask you about the Yahoo! Japan relationship in particular. If you can give us a sense, just sort of the magnitude of that now? And then also how you're doing with them in terms of moving up and getting more premium inventory there?

And then secondly, I may have missed this, but did you talk about what the revenue ex-TAC rate is that's implied in the 2014 guide? Thank you.

Yahoo! Japan, this is clearly an area where we're super excited. As I mentioned in the previous quarter and it keeps on building on this quarter that they are very, very pleased with the relationship. And they're opening more and more inventory, especially premium inventory and also mobile inventory. So these are the two areas of growth with Yahoo! Japan. And it's a very strong contribution to the growth of our Japanese business.

This said, we also opened a lot of other channels because we don't want to be too dependent on one partner. So we're also making big push into direct publisher relationships across the board in Japan also.

And Doug, I mean with respect to your second question, was it the implied growth in our guidance for revenue ex-TAC or was --?

Well, just if you can give us any color on how we should think about how the revenue ex-TAC rate trends in 2014.

Oh, you mean the margins, the revenue ex-TAC margins?

Exactly.

Okay. Well, we don't -- we guide just to revenue ex-TAC, not on revenues. But if you look at the stability that we had over the recent quarters, where I mean the oscillation has been between pretty much 40% and 41%. As you know, we had indicated in the past a 39% to 41% range. I would say that our expectation at this point is to see a revenue ex-TAC margin that should be consistent with what has been observed over the last [four] (corrected by company after the call) quarters.

(Operator instructions) And as it seems we have no further questions today, I would like to turn the call back over to you for any additional or closing remarks. Thank you.

Well, thanks very much. Thanks very much, everyone, for your time today and we are pleased to continue to update you with our numbers in the following quarters. Thanks very much, everyone.

And that will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.