Executive Summary / Key Takeaways

• Taboola is strategically evolving beyond its core native advertising strength to target the broader $55 billion performance advertising market outside of search and social, driven by the launch of its Realize platform.
• The company's AI-powered technology, unique first-party data, and extensive publisher partnerships (including Yahoo, Apple (AAPL), OEMs, and LINE) provide a differentiated foundation to compete effectively in this expanded market.
• Recent financial performance shows solid execution, with Q1 2025 results exceeding guidance and strong FY 2024 growth in ex-TAC gross profit (+25%) and Adjusted EBITDA (+104%), demonstrating operational efficiency and cost discipline.
• Despite a near-term 2025 guidance reflecting single-digit growth as Realize gains traction, management is confident in the long-term potential to return to double-digit growth rates, supported by investments in AI (Max Conversion, Abby) and expanding supply partnerships.
• Robust free cash flow generation (>$105M target for FY 2024) and an expanded share buyback program underscore management's commitment to shareholder returns and confidence in the business outlook, even while investing for future growth.

The Open Web's Performance Frontier

Taboola.com Ltd. (NASDAQ: TBLA), founded in 2006, has established itself as a leader in the open web, operating outside the dominant search and social "walled gardens" like Google , Meta , and Amazon (AMZN). Its core business revolves around an AI-based algorithmic engine that powers recommendations for editorial content and advertisements across a vast network of digital properties, including websites, devices, and mobile apps. This business model is fundamentally B2B, aligning Taboola's interests with its partners by helping publishers monetize their content and grow audiences, while enabling advertisers to reach targeted consumers.

Taboola's journey began with a focus on native advertising, particularly recommendations placed at the bottom of articles. This niche proved successful, driving significant revenue growth over the years, from $200 million in 2014 to $1.8 billion in 2024. Key milestones like the acquisition of Connexity in 2021 expanded its capabilities into e-commerce, a segment now showing impressive growth, including innovative channels like "ShopYourLikes" for social commerce creators.

A pivotal moment arrived with the 30-year exclusive commercial agreement with Yahoo, finalized in January 2023. This partnership, which involved issuing shares to Yahoo making them a principal shareholder, aimed to leverage Yahoo's extensive digital properties to expand Taboola's native advertising footprint. However, the experience with migrating Yahoo's large advertisers, completed in Q2 2024, revealed a critical insight: while these advertisers performed well on Yahoo's premium placements, they spent less than anticipated on bottom-of-article native ads elsewhere on the network. The feedback was clear – many advertisers perceive native advertising as too niche and prefer using their existing social and display creative formats and placements to drive performance at scale.

This realization catalyzed a strategic evolution. Recognizing that the native market alone, despite its growth, is not large enough to fuel Taboola's ambitious double-digit growth aspirations, the company is expanding its focus. The new strategic imperative is to capture the full performance advertising market opportunity across the open web, estimated by Taboola to be $55 billion, by delivering outcomes regardless of ad format or placement. This ambition is embodied in the newly launched Realize platform.

The AI Engine and Data Advantage

At the heart of Taboola's strategy lies its differentiated AI-powered technology. Unlike search platforms that rely on explicit user queries or social platforms with rich personal profiles, Taboola's engine is built to predict user interest by analyzing reading habits and genuine interests across the open web. This capability, honed since 2007, generates unique "pulse of the internet" data.

The AI platform offers tangible benefits for advertisers and publishers. The core algorithmic engine drives recommendations that aim for high engagement. Recent AI initiatives further enhance this:

• Maximize Conversions: This AI-powered bidding technology is designed to optimize campaigns for advertiser outcomes. Adoption is approaching 70% of revenue, and management reports seeing double-digit Net Dollar Retention (NDR) growth for advertisers who have adopted it compared to those who haven't. This indicates the technology is effectively driving advertiser success and increasing their spend over time.
• Abby: A generative AI offering introduced in Q3 2024, Abby is focused on simplifying the advertiser journey and addressing friction points in campaign creation and management. While early, the goal is to use AI to make onboarding and campaign optimization easier, potentially increasing advertiser count and engagement, particularly among mid-size advertisers.
• Max Revenue (Planned): This future tool aims to allow advertisers to maximize revenue across various products by optimizing based on multiple conversion pixels.

These technological advancements contribute significantly to Taboola's competitive moat. The combination of proprietary AI trained on unique first-party data from its vast network enables more effective targeting and performance optimization than generic platforms. This efficiency translates into better ROI for advertisers, which in turn attracts more demand and allows Taboola to command better terms with publishers, creating a virtuous cycle. The investment in R&D, including these AI initiatives, is central to maintaining this edge and driving future growth. Operational efficiency is also benefiting from technology; an assessment led to increasing the estimated useful lives of servers and networking equipment from three to six years, effective January 1, 2025, resulting in a $2.793 million reduction in depreciation expense in Q1 2025, primarily impacting cost of revenue.

Competitive Positioning in a Fragmented Landscape

Taboola operates in a dynamic and competitive digital advertising landscape. While it avoids direct competition with the core business models of search (Google) and social (Meta), which dominate large portions of the market, it competes for advertiser budgets and publisher partnerships with a range of players.

Key competitors include:

• Outbrain (OB): A direct competitor in native advertising and content recommendation. Taboola generally demonstrates stronger growth rates and profitability metrics compared to Outbrain, leveraging its scale and AI investments for better efficiency and yield.
• Google (GOOGL) & Meta (META): While dominant in their respective domains, these "walled gardens" represent the primary alternative channels for advertisers seeking performance. Taboola positions itself as the leading independent alternative for performance advertising across the open web, offering access to premium, brand-safe environments that walled gardens may not fully provide or where advertisers experience diminishing returns. Taboola aims to capture budgets from social platforms ($30B estimated diminishing returns) and display markets (like Google's PMAX) where advertisers seek more control and transparency.
• Criteo (CRTO): A player in programmatic advertising with a strong focus on retail media. Taboola's e-commerce initiatives overlap with Criteo, but Taboola's broader platform encompassing content recommendations provides a wider reach.
• DSPs (like The Trade Desk (TTD)): Increasingly focused on CTV and branding, making them less directly competitive for the performance-focused, lower-funnel advertising that is Taboola's core strength. Taboola sees itself as a complementary "third pillar" alongside DSPs (for top-of-funnel) and in-app platforms (like Applovin (APP)) for performance everywhere else.
• Indirect Competitors: Amazon Advertising and TikTok offer alternative advertising avenues, particularly in e-commerce and short-form video, which could draw advertiser spend.

Taboola's competitive advantages stem from its unique assets:

1. First-Party Data & AI: Its AI, trained on vast reading and interest data, enables performance optimization.
2. Unmatched Supply & Distribution: Long-term, often exclusive, partnerships with thousands of premium digital properties globally, including iconic names like Yahoo, Apple, NBC News, and ESPN. Recent expansions include significant deals with OEMs like Xiaomi and a new top 10 global OEM for Taboola News, and an exclusive global partnership with utility app LINE. The renewed Microsoft (MSFT) partnership also expands its bidder technology to new supply areas like Outlook and Microsoft 365.
3. Performance Focus: A laser focus on driving measurable outcomes (CPA, conversions) for advertisers, differentiating it from platforms primarily focused on impressions or clicks without downstream results.

This positioning allows Taboola to attract advertisers seeking performance beyond the walled gardens and publishers looking to diversify revenue streams and drive engagement without competing consumer interests. While the AdTech landscape is fragmented, Taboola's scale, technology, and strategic partnerships aim to consolidate a significant portion of the open web performance market.

Financial Performance and Liquidity

Taboola has demonstrated strong financial performance, particularly in 2024, reflecting the benefits of scale, strategic partnerships, and cost discipline.

For the full year ended December 31, 2024:

• Ex-TAC Gross Profit reached $667.5 million, representing 25% year-over-year growth.
• Adjusted EBITDA was $200.9 million, more than doubling the prior year's result (+104% YoY), achieving a 30.1% margin, back above the long-term target of 30%.
• Free Cash Flow was $149.2 million, significantly exceeding the initial target and nearly tripling the prior year's figure.

The first quarter of 2025 continued this positive trend, exceeding the high end of guidance:

• Revenues were $427.5 million, a 3% increase year-over-year.
• Ex-TAC Gross Profit was $151.7 million, up 9% year-over-year.
• Adjusted EBITDA was $35.9 million, growing 53% year-over-year, with the margin expanding significantly to 23.7% of ex-TAC Gross Profit.
• Net Loss narrowed to $8.75 million from $26.16 million in Q1 2024.

• Free Cash Flow was $36.1 million, a 35% increase year-over-year, benefiting from improved profitability and working capital management.

Liquidity remains robust. As of March 31, 2025, cash and cash equivalents totaled $216.2 million.

The company proactively refinanced its debt on March 18, 2025, entering into a new $270 million revolving credit facility maturing in March 2030. Proceeds were used to repay the prior long-term loan ($123.3 million principal).

This new facility is expected to reduce annual interest expense by $3 million to $5 million and provides flexibility for working capital management.

Capital allocation prioritizes share buybacks, considered the best use of capital at current valuations. The board authorized an additional $200 million in February 2025, bringing the total authorization to approximately $240 million (though $196.4 million remained as of March 31, 2025, before subsequent repurchases). The company repurchased 16.24 million shares for $49.5 million in Q1 2025 and an additional 15.1 million shares for $43 million since quarter-end through late April 2025. While constrained by Israeli regulations related to Yahoo's ownership percentage, Yahoo has agreed to sell pro rata to facilitate continued buybacks.

Outlook and Risks

For the second quarter of 2025, Taboola expects:

• Revenues between $438 million and $458 million.
• Ex-TAC Gross Profit between $156 million and $166 million.
• Adjusted EBITDA between $38 million and $44 million.

For the full year 2025, guidance was reiterated:

• Revenues between $1.84 billion and $1.89 billion.
• Ex-TAC Gross Profit between $674 million and $690 million (approximately 2% growth at the midpoint vs. FY 2024 actual).
• Adjusted EBITDA between $201 million and $209 million (approximately 2% growth at the midpoint vs. FY 2024 actual).
• Non-GAAP Net Income between $122 million and $128 million.
• Free Cash Flow target remains over $100 million.

Management acknowledges that the 2025 guidance reflects single-digit growth, below historical rates and long-term ambition. This is framed as a transition year, laying the groundwork for accelerated growth. The outlook factors in the time needed for the Realize platform to gain traction and macro uncertainty, despite limited material impact seen so far (e.g., ~1% revenue impact from tariffs, mainly China export business). Second-half 2025 revenue growth is expected to be stronger year-over-year due to the accounting impact of a Yahoo testing phase winding down, normalizing in Q1 2026.

The long-term growth ambition is to return to double-digit rates (15-20%+), driven by the core business growing at 10-15% and growth drivers (Realize, Taboola News, E-commerce, Bidder) adding to this. Key assumptions include continued success in ramping advertiser spend on expanded supply, improving advertiser success metrics via AI, and the successful adoption of the Realize platform.

Key risks include:

• Macroeconomic Volatility: Global conditions could impact advertising spend.
• Competition: Intense competition from large platforms and specialized players for both advertisers and publishers.
• Regulatory and Privacy Changes: Evolving laws and industry practices (like cookie deprecation) could affect data collection and targeting, although Taboola's first-party data position offers some resilience.
• Partnership Dependencies: Reliance on major partners like Yahoo and Apple for a significant portion of supply and revenue.
• Execution Risk: The success of the strategic shift to the broader performance market via the Realize platform is critical for future growth acceleration. If Realize does not gain sufficient traction, the company may need to re-evaluate its cost structure.

Conclusion

Taboola stands at a pivotal point, leveraging its established leadership in native advertising and its core AI technology to expand into the vast performance advertising market across the open web. The launch of the Realize platform represents a strategic response to market dynamics and advertiser needs, aiming to unlock significant new revenue streams beyond native formats. While the 2025 guidance reflects a period of investment and transition with single-digit growth, the company's strong financial health, robust free cash flow generation, and commitment to shareholder returns through buybacks provide a solid foundation. The success of the Realize platform, coupled with continued innovation in AI and expansion of unique supply partnerships, will be key determinants of Taboola's ability to capture the estimated $55 billion opportunity and return to its historical double-digit growth trajectory. Investors will be closely watching the adoption and performance metrics of Realize and the impact of new AI tools and partnerships on advertiser success and yield growth as indicators of the long-term investment thesis unfolding.