Taboola.com Ltd. (NASDAQ:TBLAW): Powering Recommendations Across the Open Web with AI-Driven Innovation

Published on September 24, 2024 | Ticker: TBLAW

Taboola.com Ltd. (NASDAQ:TBLAW) is a technology company that powers recommendations across the Open Web with an artificial intelligence-based, algorithmic engine. The company partners with websites, devices, and mobile apps to recommend editorial content and advertisements, generating revenue when users click on, purchase from, or view the ads that appear within its recommendation platform.

Business Overview

Taboola's powerful recommendation platform was built to address the complex challenge of predicting which recommendations users would be interested in, without explicit intent data or social media profiles. The company's extensive dataset of context and user behavior, derived from the intersection of thousands of digital properties and millions of recommended items, including ads and editorial content, enables its AI-powered algorithms to deliver effective, native ad-formats across digital properties.

Financials

In 2023, Taboola reported annual revenue of $1,439,685,000, a decrease of 3.4% from the prior year. The company's annual net income was -$82,040,000, and it generated annual operating cash flow of $84,373,000 and annual free cash flow of $52,240,000. For the first quarter of 2024, Taboola reported revenue of $414,008,000, a 26.3% increase compared to the same period in 2023. Gross profit for the quarter was $108,953,000, up 21.6% year-over-year, while ex-TAC Gross Profit, a non-GAAP measure, increased by 20.0% to $138,888,000.

Taboola's performance in the first quarter of 2024 exceeded the high end of its guidance range across all key metrics, with the company reporting accelerating growth rates compared to the prior year. The company's management team has reiterated its full-year 2024 guidance, which projects revenue growth of 33% to nearly $1.9 billion, ex-TAC Gross Profit growth of 25% to almost $670 million, Adjusted EBITDA of over $200 million (representing a doubling compared to 2023), and free cash flow of over $100 million (also a doubling compared to 2023).

Recent Developments

One of Taboola's key priorities for 2024 is to make its advertisers successful, with a focus on expanding its initiatives to drive premium experiences for users and publishers while attracting Tier 1 performance advertisers. The company has recently launched Taboola Select, which provides a premium, stand-alone ad experience for top-tier performance advertisers to reach Taboola's top 15% of publishers, including the likes of Yahoo, Apple, NBC, Disney, and more.

Taboola's MAX conversion product, which leverages AI to improve the performance of its advertising offerings, has seen strong adoption, with nearly 60% of the company's revenue now derived from advertisers using this technology. Advertisers who have migrated to MAX conversion are seeing double-digit growth in their marketing-driven revenue (MDR) compared to those who have not.

Another key priority for Taboola in 2024 is the ramp-up of its partnership with Yahoo. The company is on track to complete the migration of Yahoo's advertisers to its platform by mid-2024, and it has already exceeded $100 million in revenue from the Yahoo supply in the first quarter. Taboola's relationship with Apple has also expanded, with the company now serving as an authorized reseller for Apple News and Apple Stocks in the U.S. and U.K. markets, in addition to the existing coverage in Australia and Canada.

Taboola's growth engines, including its e-commerce and header bidding offerings, have also shown strong momentum. The company's e-commerce business grew at a solid double-digit pace in the first quarter, exceeding expectations, and it recently integrated with Amazon's DSP to allow Amazon sellers to extend their budgets into Taboola's Open Web network of publishers.

Geographically, Taboola's revenue is diversified, with the United States accounting for 46.7% of total revenue in the first quarter of 2024, followed by the "Rest of the world" at 32.3%, Germany at 8.6%, Israel at 7.6%, and the United Kingdom at 4.9%.

Liquidity

From a liquidity perspective, Taboola ended the first quarter of 2024 with a net cash position of $35.5 million, with cash and cash equivalents plus short-term investments of $181 million, exceeding the company's long-term loan balance of $145.5 million. The company has also been actively repurchasing its shares, having spent $28 million on buybacks in the first quarter, with $92 million remaining under its $100 million share repurchase authorization.

Outlook

Looking ahead, Taboola's management team is confident in the company's ability to execute on its growth strategy and create value for shareholders. The company's focus on making advertisers successful, ramping up its partnership with Yahoo, and leveraging its AI-powered technology and growth engines positions it well to capitalize on the opportunities in the Open Web advertising market.

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