Taboola.com (NASDAQ: TBLA) is rocketing higher after landing a three-decade agreement to power native advertising across all Yahoo digital properties.
The agreement will also see Yahoo receive 24.99% of Taboola’s total issued and outstanding shares on a combined post-transaction basis, as well as one representative on the Taboola Board of Directors.
The agreement, which is expected to be highly accretive to Taboola revenue, adjusted EBITDA and free cash flow, is expected to close in the first quarter of 2023.
Taboola founder and CEO, Adam Singolda, commented:
“This win-win partnership will meaningfully accelerate our growth flywheel, expanding our reach to more users on the open web with high-intent traffic to provide world-class solutions for advertisers, publishers, merchants and users in a cookie-less world.
“For publishers in the open web, we’ll be able to invest even more in driving revenue, engagement and audience growth moving forward, empowering performance, brand advertisers, merchants as well as agencies with an immense reach to users in a premium, trusted environment.
“This partnership is a big step toward achieving our goal of generating $1bn in ex-traffic acquisition cost by 2025.”
What is Taboola.com?
Taboola.com, together with its subsidiaries, operates an artificial intelligence-based algorithmic engine platform in Israel, the United Kingdom, the United States, Germany, France and internationally.
It offers Taboola, a platform that partners with websites, devices and mobile apps to recommend editorial content and advertisements on the open web to users.
The company is particularly know for using a form of advertising known as ‘chumbox advertising’. This format typically involves a grid of clickable thumbnail images and enticing headlines designed to attract a user’s attention.
This style of advertising is closely associated with clickbait titles. If you’ve ever seen an advertised article titled ‘You’ll Never Guess What These 80s Stars Look Like Now’, there’s a good chance Taboola was behind it.
Taboola.com Ltd. was incorporated in 2006 and is headquartered in New York.
TBLA Stock Financials
The company’s most recent earnings update showed revenue of $332.5m for the three months ended 30 September. This compares with $338.8m in the same period last year.
Gross profit was lower too, having declined by 4.6% to $102.7m. This was despite a slight decline in cost of revenues.
However, operating expenses were significantly higher, leading the business to swing from a net profit of $17.3m to a loss of $26.0m.
The company’s share price has dropped significantly this year. Prior to market open, the share price had declined by more than 75% since the start of 2022.
The business has a price to sales ratio of 0.32 and a price to book value of 0.57. These compare with respective averages of 1.43 and 1.57 in the communications services sector. This indicates that TBLA stock could be undervalued.
TBLA Investment Risks
The biggest problem for an ad-tech company like Taboola is that ad spend has been on the decline in 2022.
However, this could be turning. The Standard Media Index, which uses data from up to 95% of all US national brand ad spending, reported last week that October had seen the highest ad spend from any month this year so far.
This was expected, with brands gearing up for the festive period, but the 3% decline in ad spend compared to the same month in 2021 is among the smaller declines seen over recent months. However, continued falls in ad spending could spell trouble for a business like Taboola, which has already seen revenue stagnation and swung to a net loss.
Another significant risk for the business is the typical form of advertising it uses. So-called clickbait headlines are unpopular but, for the moment, still seem to attract clicks. However, this could be set to change.
According to Hootsuite, more than 42% of the planet’s internet users have some form of ad blocking extension.
This tech is most commonly utilized by younger internet users and uptake is increasing each year. This could spell serious trouble for businesses like Taboola, and means the business is under pressure to innovate.
Is TBLA Stock a Good Investment?
The current trajectory for advertising spend does not favour a company like Taboola. Additionally, there are questions about the long-term effectiveness of the company’s offering.
However, its stock looks exceptionally cheap at the moment. A return to form for the advertising market and some sustained growth for Taboola could do wonders for the company’s share price.
As such, the stock looks risky but like a real opportunity.
The seven analysts covering the stock listed by the Wall Street Journal have a consensus rating of Overweight for TBLA stock. Their average price target is $4.21, compared with pre-market open price of $1.84.