Taboola.com Ltd. (TBLA) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Taboola's Q4 2024 Earnings Call. [Operator Instructions] Please be advised that today's session is being recorded. I would now like to turn it over to Jessica Kourakos, Head of Investor Relations.

Thank you, and good morning, everyone, and welcome to Taboola's Fourth Quarter and Full Year 2024 Earnings Conference Call. I'm here with Adam Singolda, Taboola's Founder and CEO; and Steve Walker, Taboola's CFO. The company issued earnings materials today before the market, and they are available in the Investors section of Taboola's website. Now I'll quickly cover the safe harbor. Certain statements today, including our expectations for future periods, are forward-looking statements. They are not facts and are subject to material risks and uncertainties described in our SEC filings. These statements are based on currently available information, and we undertake no duty to update them, except as required by law. Today's discussion is also subject to the forward-looking statement limitations in the earnings press release. Future events could differ materially and adversely from those anticipated. During this call, we will use terms defined in the earnings release and refer to non-GAAP financial measures. For definitions and reconciliations to GAAP, please refer to the non-GAAP tables in the earnings release posted on our website. Before I turn the call over to Adam, in an effort to avoid duplicative material and cut down time for those reviewing our quarterly results, we are no longer issuing a shareholder letter and are providing all relevant quarterly updates in our SEC filings, earnings press releases, prepared remarks and investor presentations. This step was taken in response to feedback we received and we hope is helpful as we continue to make improvements to our materials and disclosures. With that, I'll turn the call over to Adam.

Thanks, Jessica. Good morning, everyone, and thank you all for joining us today. Before we dive into the details, here's what I'm going to cover on today's call. 2024 was a record year. We exceeded expectations, generating nearly 50% more free cash flow than planned, and we're launching a $200 million expansion to our buyback as a result. Our 2025 guidance reflects a single-digit growth, which is below both our historical rates and long-term ambitions. We've always spoken about owning the entire performance advertising market beyond search and social, and we're making a major announcement today, one that is great for our business and which we believe will bring us back to double-digit growth. Most importantly, as you know, Taboola is an execution machine, and as usual, we plan to deliver. A quick refresher on us. Taboola helps businesses grow by placing ads across the open web on publisher sites, mobile apps and device makers, also known as OEMs, delivering exceptional returns. This is referred to as performance advertising. Advertisers like Babbel, eToro trust us to drive sales, while nearly 11,000 publishers, including NBC News, Disney, Yahoo and Apple rely on us for monetization and audience growth. Our scale is significant. We reach 600 million people every single day, gaining real-time insights into what people read and buy. This gives us unique pulse-of-the-internet data, which alongside our AI is our competitive advantage and helps our advertiser clients achieve exceptional returns on their advertising spend. With 650 engineers refining our AI and 700 global salespeople connecting with advertisers and publishers, our scale and impact are unmatched. Turning now to our results. 2024 was a record year for Taboola. For the full year, we achieved ex-TAC gross profit of $667 million, representing 25% growth versus the prior year, and adjusted EBITDA of $201 million, which is more than double our results from last year. In addition, we delivered $149 million in free cash flow, which significantly exceeded our original free cash flow minimum target of $100 million by 49% and represented growth of nearly 3x our free cash flow as compared to the prior year. These accomplishments are driven by our highly differentiated performance technology and first-party data that allows us to drive value for both advertisers and publishers. 2024 was a busy, busy year. We integrated partners such as Yahoo and Apple and onboarded enterprise advertisers such as Samsung, Citi, Verizon and others. To reflect our confidence in our future, we're adding $200 million to our buyback authorization on top of the approximately $40 million remaining from prior authorization. This reinforces our commitment to balancing growth and cash generation, ensuring long-term shareholder value, while continuing to invest in our product expansion. For 2025, we're guiding for 2% ex-TAC gross profit and 2% adjusted EBITDA growth, maintaining a 30% EBITDA margin. While I'm incredibly proud of our team and our 2024 performance, I recognize that our projected single-digit growth is below both our historical rates and long-term ambitions. This year is about laying the groundwork for accelerated growth ahead. We will be laser-focused on scaling our demand, further investing in our AI efforts and strengthening our partnerships. Now the reason we're growing ex-TAC slower than usual is unrelated to us attracting supply partners such as publishers, mobile apps or OEMs. Nobody does that better than us. The main gating factor to our near-term growth is scaling native advertising demand quickly enough to best utilize the supply we have. While we always spoke about our vision to be the leader in performance advertising for the open web and not just bottom-of-article native advertising, it became clear to us towards the end of 2024 that the native market alone just isn't big enough for us to fuel our ambitious growth plan. This realization was reinforced by the behavior of advertisers we absorbed from our Yahoo partnership. While advertisers such as Verizon, Samsung, Citi and many others use our technology to spend hundreds of millions of dollars on homepage and mail on Yahoo and get exceptional returns, they spent less than $15 million on bottom-of-article native ads across the rest of our network. This is not what we expected. While most advertisers indeed want to get outcomes through performance advertising, and this is where the market is going, most prefer using standard display ads and display placements and not something they refer to as niche, like native advertising. You see, I once believed native would overtake display, given banners often provide a poor experience. But as we scaled revenue 9x, from $200 million in 2014 to $1.8 billion in 2024, I realized now that I was wrong. The issue isn't the banner format. In fact, with the right data and technology, display ads can perform just as well as native or meta. I can also tell you, after interviewing nearly 100 advertisers in Q4, it is clear to me now that most advertisers see native as too niche. They're not looking to learn a different format. They want to use their existing social creative and their existing display creative to drive results at scale. As I look at our journey, not only did we build the largest business in native advertising market, with this insight we're able to shape our next phase of our growth, which involves meeting advertisers where they are and expanding beyond native to capture the full performance market opportunity. And it's a big one. Let's expand about our evolution from native to being the leader in everything performance beyond search and social. Taking a step back, advertisers want and need a dedicated solution for performance advertising, very much separate from the solution they need to drive top-of-the-funnel branding objectives. The idea of a full funnel solution that is really great at everything, both top-of-the-funnel branding as well as performance advertising, is just a myth. No one can be the best at all parts of the funnel. Even excelling in one part is not that easy. This is our opportunity. In 2025, we're making a deliberate investment to leverage our existing first-party data, AI and publisher relationships to expand our market opportunity and establish ourselves as the leading performance ad specialist. We see a $55 billion opportunity for us to go after, improving the value advertisers currently get from performance advertising on DSPs, AdTech and some social campaigns. This is our TAM. The opportunity for us exists for 3 main reasons. First, many DSPs have pivoted to connected TV, also known as CTV, prioritizing branding over performance. Advertisers do not use DSPs the same way they use performance advertising channels like Meta because they serve different goals. Now let's be real, no one is scanning a QR code from a TV ad to open a bank account. Advertisers need performance advertising partners to accomplish this goal, not DSPs, which are great for top of the funnel. Second, the AdTech landscape is crowded and complex. Advertisers want scale and results without the headache of navigating a fragmented ecosystem. And third, social platforms have limitations. While social companies deliver strong early performance, as advertisers spend more, audience fatigue sets in, costs go up and effectiveness declines. While social channels are good for performance advertising for the most part, there's a big opportunity here to help advertisers shift budgets from social and get better return on investment. These challenges, DSP becoming CTV, which is less relevant for performance advertising, AdTech being fragmented and social having diminishing returns, creates a massive opportunity, one that we're uniquely positioned to solve. Looking at the supply side, publishers are feeling the pressure, too. Native advertising is strong, but it's just not strong enough to drive the revenue growth publishers deserve. At the same time, programmatic revenue is in fast decline as DSPs have shifted to become CTV companies, which is just less relevant for most publishers, and walled gardens platforms have shifted budgets to their own owned and operated properties. As a result, there is less performance advertising spend flowing to publishers as there used to be, and we think we can fix this. Now this is where it gets exciting. Taking advantage of our unique assets as a company, our first-party data, our AI, such as Max Conversions or Abby, and unmatched supply partnerships, we can go beyond bottom of article, beyond native and win a much, much larger share of wallet from new and existing customers. Starting today, we're focused on one thing: delivering performance outcomes regardless of format, regardless of placement or supply type. We call our new advertising platform Realize, our new performance advertising platform built to drive results beyond search and social, beyond native, no limitation. Realize is a major step forward for Taboola and a key pillar of our growth strategy. It expands our market opportunity, unlocks new revenue streams, brings a lot more advertisers into our ecosystem and drives long-term growth. Today's announcement reminds me in many ways of Amazon's transition in 2000 when they expanded beyond books into the broader e-commerce ecosystem. Selling books was a great business, but Amazon saw a bigger opportunity. Their users and retailers wanted more. For us, native advertising is our books, a strong market we've proven we can lead. But just like Amazon, we can do more. By expanding beyond native, we're unlocking new opportunities for our advertisers, for our publishers, harnessing the full power of our data, supply and technology. In summary, there are 3 reasons why we can win this market that you should take from this call. First, this is an adjacent expansion for us. We're expanding beyond native into the entire performance advertising space, which is a natural step for us. Thousands of advertisers already buy from Taboola, with the goal of getting performance outcomes. We have 700 salespeople all over the world trained on selling performance to advertisers, and our publishers are used to relying on us to bring performance budgets. With Realize, we'll provide a similar value, but a lot more of it. The second reason why we can win this market is our unique assets and scale. At Taboola, data is everything. Our President and COO has a sign on his wall, "In God we trust. All others must bring data." Now with the richest first-party data in the market and with our global distribution, we are uniquely positioned to build the first-ever performance-focused advertising company outside of search and social. I strongly believe that with the AI revolution already happening, those who own data and distribution will prevail. And we have both. Third, and perhaps the most important, is our culture. I just returned from APAC and EMEA, and now I'm with our sales team here in the U.S., and the energy is unstoppable. It is incredible for me to be part of this team where our people are eager to get out there, call advertisers, call publishers and grow. You see, you can copy anything, but you can never copy the way a group of passionate people work together and execute towards a vision. We were not first in nearly anything we did, but we became the biggest. And now we're ready to win again. We're not just making news with this announcement today, we're making history in our industry. In closing, I'm so proud of our team and our Q4 and full year 2024 results. Two years ago, we set ambitious targets, and we delivered. Now we have everything we need to take on an even bigger step forward: unique first-party data, unmatched distribution and cutting-edge AI. Looking ahead, we've set our guidance in a conservative way, ensuring the flexibility to invest, grow and outperform. We look forward to sharing more at our Investor Day on March 26 in New York City. This is our moment. Thank you for the trust and support. With that, I'll pass it to Steve to walk you through our results and outlook.

Thanks, Adam, and good morning, everyone. As Adam mentioned, we are pleased to close out the year with a strong fourth quarter, while meeting our expectations for the full year. 2024 was a year of accelerated growth and a record year financially. I will start by reviewing our results for the fourth quarter and full year 2024 and then move on to guidance for the first quarter and full year 2025. Revenues in the fourth quarter reached $491 million and for the full year increased to $1.77 billion. Ex-TAC gross profit in the fourth quarter was $212.7 million, growing 26% year-over-year. Q4 ex-TAC gross margin of approximately 43% reflects the marginal benefit from the testing on certain Yahoo supply that we referenced earlier this year and is currently winding down as expected as well as typical Q4 seasonality. For the full year, ex-TAC gross profit increased 25% to $667.5 million. This strong growth was broad-based and was driven by a number of factors, including strong growth in our enterprise advertising business, onboarding of Yahoo, strong growth in e-commerce and, of course, our investment in AI. Excluding the impact of the Yahoo deal, we estimate Taboola grew over 10% on an ex-TAC gross profit basis in 2024. Fourth quarter adjusted EBITDA was $92.3 million, growing 84% year-over-year. For the full year, adjusted EBITDA grew 104% to $200.9 million. I would note that this reflects a 30.1% adjusted EBITDA margin, which is back above our target margin of over 30%. This improvement reflects both the benefit of our 25% year-over-year growth in ex-TAC, along with strong cost discipline that we maintained in 2024. As we had said previously, a majority of the investments that were necessary to onboard Yahoo and support the growth in 2024 were made in 2023, and those investments are now paying off. In the fourth quarter, net income was $33.1 million, with non-GAAP net income coming in positive, at $73.3 million. For the full year, net loss was $3.8 million, with non-GAAP net income coming in positive, at $122.4 million. Note that income before income taxes was positive, at approximately $13.9 million. Regarding cash generation, operating cash flow for Q4 amounted to $61.9 million, with free cash flow reaching $51.9 million. This includes net publisher prepayments, which contributed $6.8 million to cash flow, and interest payments on long-term debt of $3.3 million. For the full year, operating cash flow amounted to $184.3 million, and free cash flow was $149.2 million, eclipsing our original target of $100 million-plus for the full year by a good margin. For the full year 2024, we are pleased that our free cash flow conversion from adjusted EBITDA was 74.2%. If you look back at the last 8 quarters, which is the way we tend to look at free cash flow conversion rates, it was 67.2%. In 2024, our free cash flow benefited significantly from a couple of factors. First and foremost was improved profitability. Our net losses decreased from $82 million in 2023 to $3.8 million in 2024. Second, we managed working capital effectively, which contributed approximately $12 million to free cash flow. While we are encouraged with what we are seeing in our free cash flow conversion, we think it's prudent for now to continue to expect us to convert free cash flow from adjusted EBITDA at a 50% to 60% rate over any typical trailing 8-quarter period. As we gain scale, I would hope to remain at the higher end of that range. Turning to the balance sheet. We remain in a strong financial position, ending 2024 with a robust net cash balance of $103.9 million. Cash and cash equivalents totaled $226.6 million, exceeding our long-term loan balance of $122.7 million. Note that we voluntarily prepaid another $30 million of our long-term debt in Q4 2024. As Adam highlighted, we are pleased to announce the board has approved incremental authority of up to $200 million for our share repurchase program, bringing our total current authorization to approximately $240 million. During the course of the fourth quarter, we purchased approximately 2.8 million shares, at an average share price of $3.57. As I've mentioned before, our buybacks are temporarily constrained by Israeli regulations, which prevent Yahoo from exceeding 25% ownership without an exemption or regulatory approval. We continue to work diligently on resolving that restriction. In the meantime, I'm pleased to share that while Yahoo prefers not to sell at current share prices, they've agreed to sell pro rata as we buy in the market. Conceptually, this means that for every 100 shares we buy back, we will buy 75 shares from the open market and 25 shares from Yahoo. In any case, all 100 shares reduce the overall share count. This allows Taboola to move forward with a more aggressive share buyback strategy while keeping Yahoo's ownership just under 25%. Given our ability to generate cash and our current share price, we believe that deploying additional capital towards share repurchases is the best use of our cash at this time. This move underscores our commitment to returning value to shareholders and supporting long-term growth. Looking forward, I recognize that the guidance we have given falls short of our long-term growth ambitions. But at the same time, we recognize that we need to give our new product direction time to gain traction. I believe the guidance we lay out today gives us the flexibility to invest in our growth initiatives and sets us up for success in the future. As Adam mentioned, our goal is to work to exceed these targets throughout the year. For the first quarter of 2025, we expect revenues to be between $407 million to $427 million, gross profit from $109 million to $115 million, ex-TAC gross profit from $142 million to $148 million, adjusted EBITDA from $22 million to $26 million and non-GAAP net income from $2 million to $6 million. For the full year 2025, we expect revenues to be between $1.84 billion to $1.89 billion, gross profit from $536 million to $552 million, ex-TAC gross profit from $674 million to $690 million, adjusted EBITDA from $201 million to $209 million and non-GAAP net income from $122 million to $128 million. I also want to talk about a new metric that you will see in our financial reporting. As we have discussed previously, the key to our growth from this point forward is growing advertiser demand on our platform. The introduction of Realize is a key initiative in this regard. In order to help investors track our progress, we will be disclosing 2 new metrics: scaled advertisers and average revenue per scaled advertiser. A scaled advertiser is defined as any advertiser that spent over $100,000 on our network in the trailing year period. Obviously, average revenue per scaled advertiser is the average spent across all of those scaled advertisers. We believe these metrics help track the progress of our initiatives to drive more spend on our network because these scaled advertisers make up approximately 85% of the revenue of our company, and growing both the number of scaled advertisers and the average revenue per scaled advertiser will grow our overall business. As we go forward, you will hear us referencing these figures to help you understand where growth is coming from. We plan to share additional information around our long-term growth as well as those new KPIs during our Investor Day on March 26 in New York City. In summary, we're pleased with our fourth quarter and our full year 2024 results. We are confident in our broadened strategy, our team's ability to execute and the guidance we laid out today. I'm excited about the launch of Realize and believe that it can help us grow faster as this initiative gains traction. With that, let's move to Q&A. Operator, can you please open the line for questions?

[Operator Instructions] Our first question comes from Laura Martin, with Needham & Company.

Adam, I'm curious as to Amazon announced yesterday they're going to start paying media companies to send them traffic, even if people who arrive, consumers who arrive, don't actually buy anything on Amazon. I'm wondering if you think that's a threat to your Connexity business and your e-commerce tie-in? Do you have thoughts about that new Amazon threat?

Laura, I mean, I think, in general, Connexity and the way we think about commerce, there's always the similar dynamics of kind of walled gardens, where you have companies like Amazon and Google and Meta that are very good at what they do, and they mainly take care of their own kind of direct-to-consumer business. And then you have everyone else. And we always wanted to be, like, open web or kind of providing the tools and growth engines to everyone else. So in that regard -- and I think retailers are constantly looking for more ways to grow revenue and diversify their reach to consumers. And that's a significant opportunity. And we mentioned in the last quarter that we're seeing good growth in social, as an example, social commerce. We're seeing that influencers and creators are now able to create authentic content, and they send traffic direct to the retailers, and they like it. So my belief is that we'll continue to see this growth beyond kind of the big platforms as it relates to commerce, as it relates to direct-to-consumer advertisers and different types of advertisers. So from our perspective, I think whatever we see that Amazon and other good companies are doing that works is mainly an opportunity for us and others to do the same, but outside of those walled gardens.

Super helpful. And then I know you're talking about expanding beyond native. But I guess my question strategically is, do you feel like you're in a box with the mobile device only? Because I do think there's a consensus, at least on Wall Street, and we might be wrong, for sure, is that CTV is going full funnel, that its growth will be driven this year by SMBs, and SMBs require performance. So I think that we think that CTV is about to become full funnel, and lots of companies like Mediaocean are trying to do the entire, like, all parts of -- all devices, let me put it that way. So is Taboola not only limited by its native presence today, but also by the fact that it's predominantly a mobile device ecosystem?

So taking a step back, here's how I think about the industry and where we play, especially with today's announcement. So when I think about the competitive landscape in the advertising market, I think companies like The Trade Desk and others have done a really great job kind of like in the open web for top of the funnel. So I think if you want to buy TV, which today, I would argue, is mainly for branding purposes, I think there's an aspiration to get TV to do more, but I've never met a performance advertiser that is willing to pay minimum fees to be on TV, plus think that someone is going to scan a barcode and open a bank account a minute after. I think that doesn't happen. There's an opportunity to maybe create some attribution and other things that go beyond TV to make it work, but I think TV is primarily very helpful and very important for advertisers as it relates to top of the funnel. And we have some great companies that kind of really did a good job in that. Then you have companies like AppLovin who have done a great job for performance advertising in-app, in games and things of that nature. But no one has done a great job yet kind of owning the performance advertising outside of search and social, outside of The Trade Desk and outside of AppLovin. So if you want to buy performance today, you either have, like, a lot of AdTech companies, which I think is complex and fragmented, God help us, there's just too much, or you're kind of forced to work with search and social. So I think the opportunity for us is -- I call it, like, the trinity. If The Trade Desk has done a great job for top of the funnel and AppLovin has done a great job for in-app, we can be what's missing in the industry, which is performance for everything else outside of search and social.

Our next question comes from Andrew Boone, of Citizens.

Adam, I wanted to talk about Realize and what you guys need to do on the product side to really extend performance. I understood that's going to focus on the engineering side. So what changes with this announcement in terms of more demand-side tools that you're going to provide for advertisers? And then, Steve, I'd love to understand the step-down in terms of 1Q25 growth. Like, what's driving that? Is that conservatism? How do we think about that?

Thanks for the question. So Realize, first of all, it's a very exciting thing for us. It's an adjacent expansion from native, which is a great performance advertising kind of part of the industry, but just not enough. And again, to recap the opportunity here and then what's new about it is that the thing about native advertising, which provides performance to advertisers, is that the vast majority of advertisers who want performance, and I strongly think this is where the industry is going, it is very hard for CMOs and advertisers these days to justify spending money without a very good attribution that this money was well spent. So that's where the industry is going. And then the challenge that native advertising has is that it's just not big enough to absorb what a lot of advertisers are willing to do. They have social creative; that's great because they all buy Meta. They have display creative because they all buy PMax of Google. But then a lot of them are just not willing to be educated on what they consider as niche. So with Realize, what we're doing today, a lot is new. On the supply side, we're going to get access to all the supply that we have access to on our publisher sites. So think of thousands of publishers. Of course, the big ones, Yahoo and Apple and others. Now we're going to have access to all the different ad placements advertisers like. So that's on the supply side. Way more than native, native plus more. On the creative front, on the advertising side, no longer do we ask you to do something special just for us. If you go to Realize right now, and just to make sure you understand, all of our advertisers as of 30 minutes ago, when they go and spend money on Taboola, they see Realize. So all of them now face this new platform, which is beautiful and we spent a lot of work on, and they can now upload their display creatives. They can connect with a click of a button to their Facebook account and automatically upload their creative. So very easy to use. Then we've spent the last year as we built Realize kind of training AI on this new demand and new supply with our first -- with a huge amount of first-party data. And that is new for us, kind of training our machine learnings on new creatives, new supply using our first-party data. And then last, but not least, we're introducing a whole new way of targeting, like, predictive audiences, which is very exciting to advertisers, I can tell you, that they can now use Realize to kind of get these suggestions for what type of audiences they should go after to find conversions. So it's all in the spirit of performance advertising. Like I said on my earnings, I do not believe that one technology company can do both branding and performance. So I think specialization is the key here, and we're going after kind of building that third Trinity pillar in the market.

And then in terms of our guidance for 2025, Andrew, so I think the way to think about that is, first of all, we did derisk the guidance as best we can. We wanted to give Realize and our team some time to gain traction with that. I think we've talked over the last 6 months to a year about the fact that we've added a ton of really high quality supply, between Yahoo and Apple and all of our other traditional publishers, that we think we can use to double Taboola over time. But the key to growing from here is growing advertiser budgets. And what we've learned is that native is growing slowly. And in fact, in interviews with hundreds of advertisers as we were developing Realize and trying to understand what they needed, what we came to realize, no pun intended, is that they basically were saying to us that they don't want to spend on traditional native. Especially the big advertisers, the biggest spenders, those that came over from Yahoo, they said, "We want ad placements where we kind of have 100% share of voice. We don't necessarily want those traditional native ad placements." So that was one of the things that we were hearing. But the good news is we were ahead of it a bit because Realize does solve that. So it gives them an opportunity to buy formats and placements that are more what they want, what those big advertisers want. And we think that will unlock the growth. But for now, we tried to derisk the guidance and basically give our teams time to gain that traction. And we'll obviously update as we go forward as we see that traction, but that was our philosophy behind the guidance.

Our next question comes from Jason, of Oppenheimer.

So I guess kind of, like, 2 questions and just to clarify. So Steve, I think you said revenue ex-Yahoo grew 10%, I just want to clarify that's what you said in the prepared remarks, for the year?

That's correct. So actually, think of it this way. What we said is if we hadn't had Yahoo last year, our estimates are that our business would have grown at over 10% last year.

Right. Got it. So basically, like, I mean, everyone will do, like, their own version of the math, but it seems like, broadly, Yahoo is tracking something like 75%, 70% below what kind of the bull case was. I think when you gave up 25% of the company, it was supposed to be for $1 billion of gross revenue, whatever, call it, plus or minus, and it seems that's probably tracking in the $200 million, $250 million, something like that. And so I mean, that would seem like -- so basically, where we're at is if you do not -- if you're not successful with this pivot, your cost base is basically way too big for the mission. So I guess, how long are you willing to kind of go down this road? And if you don't see the success, you basically should be cutting your expense base dramatically. And then second, like, I guess I'm trying to understand what the pitch is. Because you're basically now going to go head-to-head with The Trade Desk, with Amazon, basically with these big advertisers who all have established DSP relationships, probably really like those companies, et cetera. Like, what are you prepared to do that's different for them than those companies? So again, how long are you willing to go with this before you realize you need to cut the cost base dramatically? And then second, why can you beat The Trade Desk and Amazon with these Fortune 1000 advertisers?

Thanks, Jason. Very good questions. So I think, first of all, on the first part of your question, the way to think about Yahoo is that it has 3 parts, and we've talked about this. There's the kind of base revenue on the Yahoo supply and the advertisers that they brought to us. That's kind of the baseline. And then there's upsides that we expected from the revenue on our network from their advertisers and also our ability to grow the yield, make more on their supply based on our technology. On the basic portion, Yahoo is hundreds of millions of dollars, and growing. And then looking ahead at those other 2 components, I think I mentioned earlier and Adam talked about in his prepared remarks about how Yahoo advertisers are just not spending on the rest of our network. They're not growing the way we expected them to. And it's because -- they've told us, “We don't necessarily want those traditional native spots.” So that's what we're working on with Realize. By the way, I will say the deal is still a great one. I would do it again today. It did double our EBITDA. Our advertisers love the supply and love what they're getting from it. So frankly, it allows us to have conversations with those advertisers that we couldn't have a year ago or 1.5 years ago, because we didn't even have Hulu on the network. So it gives us an opportunity to talk to them, and we have some supply that they really like, which helped educate us on what we need to do with Realize. It also has other iconic companies talking to us. Like, that's, frankly, why we've got some of the new supply we do. So I like the deal, but we're realizing we're not going to get some of the growth from the deal that we expected. So then to your question about kind of cost levels and what do we do about that, I think, first of all, this year, we expect to maintain our 30% EBITDA margin. You can see that in our guide. So we're okay with where we're at on cost levels. We're not happy with our growth that we're guiding to. So that's a problem. And to your question about what do we do about cost and how do we think about the company going forward, we're investing in Realize because we do think it unlocks a lot of the kind of bottlenecks that we have now and will allow us to return to double-digit-plus growth, which is where we think we should be as a company. So that's why we're investing in it. If we didn't think we were going to get that, we wouldn't invest in it. And we'll evaluate as we go through this year. If at some point, we don't think that unlocks growth, then yes, we will look at our cost basis. But I think you heard in Adam's prepared remarks and, frankly, in mine as well, we're optimistic. We actually think this is a really good direction for the company. We think this is something that unlocks both the demand bottlenecks we've had because, from the conversations we've had with advertisers, it gives them something that they will buy and that they are very interested in. An interesting note, I was actually just reading from one of our people in APAC who -- they're ahead of us time zone-wise, so they're ahead of us in conversations. They just had a meeting with an agency in India, one of the Big 5 agencies, and the thing that most intrigued that agency was, “Oh, wow, you're telling me I can buy CPC into display now. I could never do that before.” And they're really excited about that. So I think we're giving performance advertisers something that they haven't had before. So we're optimistic this unlocks the growth. And we will, for sure, evaluate our cost structure always as we go forward, but we think this gets us back to double-digit growth.

And I'll get to the competition part. But I will say also just on top of that, on profitability, we're very excited about generating almost $150 million of free cash flow last year, which is almost 50% more than what we thought, which is 3x the year before. So there's -- the company -- the fact we can invest in Realize while maintaining a 30-plus percent EBITDA margin and generating good cash flow is liberating, which is also why we're able to announce $200 million authorization of buybacks. So all those things are, from my perspective, and I told this to Taboola yesterday, I'm proud of them, of Taboola, because we're able to invest, we're able to go bigger and stronger, while being a very healthy EBITDA and free cash flow-wise company and invest in supporting the stock. So all of those things from our perspective are great. Now as it relates to the competition, I don't think we're going to compete a lot with companies like The Trade Desk. I refer to it as the Trade Desk for performance. Like, The Trade Desk is our sister. Because, again, The Trade Desk has done an amazing job in the TV space, in the video space, which we don't care to participate in the way others do. I think that CTV and video is an amazing part of the funnel, for top of the funnel. And we want to own performance, which is why you're seeing us focusing on performance advertising. So I think most of the money we'll take will come either from social budgets that we see about $30 billion of diminishing returns. So advertisers spend a lot of money on social. But at some point, they get diminishing returns, and we think that money can come to us and then go to our publisher partners. The second thing is, I think with PMax, there's a lot of frustration on the display market, of lack of control and transparency. So over there, I think, again, we can drive a lot of value to advertisers and to our publishers. I'm spending a lot of time with advertisers and publishers. I think on the demand side, most of the money we'll take will be from social and Pmax. On the supply side, we're going to compete with anyone that cares to monetize publishers' business. They compete with us. So no longer do we compete with just bottom-of-article. If you're in the business of driving growth to publishers, you're in our line of sight. So from that perspective, we compete with anyone in that space.

Our next question will come from Mark, with The Benchmark Company.

Just curious on Realize sort of how long that's been in development. And when you talk about investment, further investment this year, like, what are the milestones we should be thinking about either on the R&D side of that or the sales side, sort of go-to-market, sort of where you are there? And then separately, in terms of Yahoo testing in 1Q, if you could just maybe refresh us again the intentions for those tests, sort of what you learned from those tests and implications for '25 monetization?

Thanks for the question. So in terms of time line, about a year ago we started working on Realize, and our goal was to actually be ready by sales kickoff, which we do once a year, which we met. It's just right now. We met our deadline. I just came back from Asia Pacific. Then I came back from EMEA. And today, I'm in New York, where dreams are made of. And so all of -- that was our deadline, and we met our deadline for about a year of work. And we wanted to take a bigger bite. We always kind of wanted to be the performance advertising company in the open web, and we spoke about it a lot over the years. But about a year ago, we did realize that the native advertising market is not going to be -- it's growing, but it's not growing at the double-digit kind of areas in which we like to be as a company. And we're doing such a great job with supply that we wanted just a bigger portion of the market from a demand perspective. So that's why we kind of started that a year ago. And like I said, we looked at good companies like The Trade Desk for video and TV. We looked at AppLovin for in-app. And we saw a huge opportunity to kind of be the third pillar for performance everywhere else. So that's about the time. Just as a reminder, we also spent about 1.5 years, kind of like we spoke about, header bidder. So we tested the ground on just kind of the connection to display ads and training our AI to see that we can be a successful bidder in that kind of placement. So we also have experience in that as well. So that's about the time. And of course, we have design partners and people that have been using Realize before the launch today. And I encourage everyone to come, or at least try to either be in person or participate in our Investor Day, where you're going to see some advertisers on stage speaking about their experience with Realize; some agencies, their experience with Realize; and some more surprise guests. So you'll see more how advertisers see the opportunity. And then as it relates to the rest of the year, obviously, today is Day 1. So we're going to track retention rates. We're going to track spend growth over time, which we really care about those 2 metrics. And then any other feedback that advertisers give us. But the goal is to grow the portion of beyond-native significantly starting today.

And then you were also asking, Mark, about cost structures and where we're investing in our business. So I think the way to think about that is I mentioned earlier that our goal is always 30%-plus EBITDA margin. So we use that as a kind of limiting factor on ourselves. So even this year, as we're investing in Realize, our goal is 30%-plus. And in terms of where we're investing, so most of our investments in the sales and marketing teams actually happened in Q3, Q4 of last year. So I would expect sales and marketing to be roughly in line with the previous year. Now by the way, if we see really good traction with Realize, there's a chance that we decide to invest more in sales and marketing, but we'd let you know if that was going to happen. And frankly, that would mean that there's revenue upside already happening. But I think, generally, I expect sales and marketing to be in line with last year. R&D is where we are investing. So we are -- I expect R&D to be up slightly year-over-year. G&A will be down year-over-year. So when you put it all together, our cost structure will be up slightly year-over-year, but not dramatically. And like I said, we still expect 30%-plus EBITDA margin. So you can kind of infer that from our guide. I'll also note that we're able to fund all of these out of our operating cash flow. So we still expect significant free cash flow this year. I mentioned in my prepared remarks that we expect still to be probably at the higher end of our 50% to 60% guide for conversion of free cash flow from adjusted EBITDA. So that's kind of how you can think about the investments. You also asked about the Yahoo test that we've been doing. That is unwound at this point. So there was some carryover into January and early February, but it's now unwound. So Q1 will still look a little bit unusual in terms of our ex-TAC margin because of that testing, but then Q2 forward should look normal.

And our next question comes from Zach Cummins, with B. Riley Securities.

With the Realize platform now live and really in front of many of your advertising partners, I'm sure you'll do a deeper dive at this at your Investor Day, but can you kind of give us a sense of the time line in terms of traction that you're hoping to see and getting that inflection back towards your double-digit growth rates over time?

Thanks for the question, Zach. So I think the way to think about it for right now is we're guiding for 2025. I mentioned already that we tried to derisk that guidance as much as possible to give ourselves time to see that traction. So I think we -- the way I would think about it is, for now, think about that growth rate, and we'll update you as we go through the year as we start to see traction. In terms of how much time that's going to take, it's hard for us to say at this point. We released it today. So Adam and I are watching the kind of emails and comms within the company talking about the first look with a lot of advertisers. We've had beta users on it, by the way, before this, but this is a first look for our entire advertiser base. So a bit too early to say yet how long it's going to take. What I can say is what I said earlier, which is I think both Adam and I are very excited about the potential here. Because from the conversations we've had with advertisers, we think we're giving them something really unique, something that they can't get elsewhere. And for performance advertisers, I think this really is something that they've wanted but never had access to. So I guess what I would say is it's exciting for the future, but we're just not -- we don't know the time line as to when that's going to really start showing up in our numbers yet.

Understood. And just my one follow-up question. Just nice to see the strong free cash flow generation and the expanded buyback program. So just curious how you're thinking about prioritizing share buybacks versus maybe continuing to pay down debt with excess free cash flow, going forward.

So I think on the share buybacks we've said, and I've said as clearly as I possibly can, that we think our #1 use of capital in terms of ROI right now is share buybacks. So we intend to be relatively aggressive on the share buybacks here as we go forward. That's our #1 plan. Nothing is disclosed or announced yet, but I think we'll work on the debt in other ways. Like, I think there's an opportunity to refinance or do something there that will lower our debt costs also. So look for news on that as we go forward. Hopefully, by Investor Day, you'll see something on that. So we'll work on that, but for now, use of capital is really we think share buybacks is the best use of capital.

Our next question comes from James Kopelman, with TD Cowen.

First one is for Adam. You mentioned that you see a $55 billion opportunity as a performance ad specialist and key in bringing new advertisers to the ecosystem. So I'm curious, what are you learning from your early conversations with advertisers about their interest in the new Realize platform? And then a follow-up for Adam as well.

We're getting -- I mean, I have quotes that Steve and Jessica asked me not to share today because we have an Investor Day coming up. But I can tell you, advertisers are very happy from already using it. So this is -- they're trying it, they're using it, they're liking what they're seeing. And they're telling us that there's a real frustration in the industry either because they see diminishing return on social, and that's a $30 billion problem, or they have lack of controls and transparency and they don't know if the money they give Google ends up on a publisher site or YouTube. And they don't know how they can affect it, and they don't know how they can have more data on that. And those are big buckets of spend. So I think there's a lot of frustration and kind of, like, need for someone to either improve the performance because of those diminishing returns or give transparency and control to advertisers. Beyond that, I think there is a humongous fragmentation and complexity in AdTech. In 5 years or 10 years, I do not expect this industry to have so many companies involved, because I don't think it's fair to advertisers to be educated on hundreds of companies. So there needs to be some sort of one big and easy way for advertisers to get performance beyond search and social. And I think that's the sentiment of the industry. It's the sentiment of advertisers and agencies. And if you follow the fantastic job that The Trade Desk and AppLovin did, in my opinion, an amazing job, for the TV space, one, and for the in-app market, second, you can imagine what if it happens again for the rest of the market: performance beyond search and social. So I think the sentiment is there, and it's on us to execute.

And then just as a follow-up, I mean, Realize is obviously a fairly significant pivot for the Taboola strategy. So as I think about AI, how do you view investments in AI heading into 2025? Is there a similar shift in your AI perspective or the scope of AI-related investments as part of the new Realize platform?

I just want to make sure -- I do not think at all this is a pivot, because it's completely the same value advertisers are getting from us today, which is performance advertising. They're all measuring us on CPA. They're all putting pixels on their pages. This is not us getting into the branding space or us getting into the video space or something like that. This is us doing more of what we're doing in an adjacent market, offering more value to either our existing advertisers or new advertisers who are just not willing to kind of, like, be educated on a niche market. So I don't see it as something that is different than our vision and identity and what we already do from that perspective. From an AI investment and kind of vision, first, Abby is much more center. When you go to Realize, it's there. So you're going to see a lot more kind of generative AI opportunities for advertisers on the onboarding phase. And we hope to see that's something that's been utilized more, because I think that can improve performance. You already know Max Conversions had a good adoption last year. And our goal is to continue to invest kind of in both generative AI initiatives on the onboarding phase, the account management phase and all the way the journey of the advertiser. And on the core kind of AI and the matchmaking, there's a lot of work for us to do. So I think using our first-party data and putting it to work is our advantage. Because, again, like I said in my earnings, I believe we're in a world now that generative AI and AI is available to anyone, and those who kind of are going to end up winning are those who have distribution and first-party data. Otherwise, everyone can pay $9 a month and get a subscription to GenAI. So the innovation and differentiation and competitive advantage, I think, comes from first-party data and distribution, which we have both. So we're going to use those to train our AI and hopefully drive results.

This concludes our question-and-answer session. I would now like to turn it back to Adam Singolda for closing remarks.

Thank you, everyone, for joining us this morning. You can probably feel our excitement. 2024 was a defining year for Taboola, and we exceeded our expectations, ones we set 2 years ago. We delivered record-breaking growth, we beat our free cash flow by nearly 50%, while taking major steps to expand our AI, our data initiatives and strategic partnerships. So it was a very busy year for us, and we did well. As we look ahead, 2025 is about laying the foundation for even greater growth for Taboola. And with the launch of Realize today, we're expanding beyond native into a $55 billion performance advertising market, leveraging our first-party data, our AI and unmatched global distribution to meet advertisers wherever they are. We're very confident in our vision, execution and the strength of our team. And with our conservative guidance approach, we have the flexibility to invest, outperform and create long-term value. I want to thank everyone again for their continued support, and we look forward to sharing more at our Investor Day on March 26 in New York City. Thanks.

Thank you for your participation in today's call. This does now conclude the program. Please disconnect. Thank you.