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

And does that play into predictive audiences, which is some of the technological components behind Realize? Just how does that work? And what's differentiated about those predictive audiences?

The predictive audiences is kind of -- if you remember when Meta launched Lookalike, which was they told you, here's a seat of people and like we can get to more of those people, like more of a demographics point of view, that was social Meta. With us, Taboola as a conversion machine, we're able to now with predictive audiences, which is a pillar of Realize to say, we were able to get to 100 accounts. Let's say, we sold you 100 pizza ovens. We're now able to tell you we can get you 100 more clients and here's how much it's going to cost you. So we predict the next 100 clients. And as an advertiser, it's great. It's so soothing to be able to say yes and know that you are likely to double the business with us and you're also going to know how much it's going to cost you. You can imagine advertisers living anxiety of how much it's going to cost them? Is it going to work? Is it not going to work? CMO -- change your jobs every 2, 3 years. So to be able to give that level of certainty to a CMO, that level of certainty to a business is incredible, like I said, especially as now growth is everything. So we'd realize, we're taking one more fear away from you and telling you, just so you know, here's how much it's going to cost you to essentially grow your business with Taboola.

And with Realize, is some of the strategy to gain higher wallet share within advertisers? Just how do you -- what kind of wallet share do you think you can ultimately get? And also, does this allow you to target larger advertisers and agencies?

Yes. So 2 upside opportunities here. One, 15,000 to 20,000 advertisers work with Taboola now. I mentioned that about 600-plus are experimenting with Realize and are seeing good early signs of growth. I mentioned some case studies of advertisers that are growing their spend with us tens of percent. So if we can do that times 15,000 clients, advertisers, that would be incredible growth for us. And we're not there yet, and that is that tipping point, that inflection point where we're going to be able to tell the market, Realize crossed the tipping point. And by the way, that's how much is going to impact our guidance moving forward. So that's how important Realize is for us as a company, for the growth rates of the company and for shareholders. So that's essentially kind of the first step, which is growing tens of percent or more, every advertiser that currently work with us on native advertising. And then there's the second thing which you mentioned, people that may have -- advertisers that may have never bought native, they bought social, they bought Google, obviously. So they have display, they have social, but they may not have a team that was buying native, too niche for them. Now we can grow our advertiser base, tapping into those larger advertisers, offering them to just give us what they already have and see if we can drive value. So it's very exciting because, again, if you're a CMO running a big book of business, you may not have the time to get to know native advertising, which is a niche part of the market. But you obviously have display and social going. You have search, display and social. So now first time, you can easily try it out with Taboola.

Interesting. Okay. We'll jump into some AI questions as we're required to add all these firesides.

Of course.

Just maybe at a high level, how are you leveraging AI and Gen AI into the products and to Realize?

So 2 areas that are very different. In the core AI with deep learning and machine learning, Taboola is all in on that. We have 400-plus engineers that are primarily working on matchmaking and making advertisers successful and generate high value to publishers. And that is something we've been doing for the last decade. If you think about it, it's a very hard problem to solve. Someone is landing on a page and you have to predict in less than a second, what would they like to read next, which ad would they like to interact with, so it's relevant for them and they may buy the product. That is a very hard mathematical problem to solve. And that's most of what we've done and always do. And then you have the generative AI universe, which is a fairly newer thing. The first thing we've done was we've integrated Gen AI across our Realize platform to offer things like generate -- auto-generated thumbnails, titles, things of that based on our data. So if you're an advertiser and you have an insurance business and you're not sure which title you should use, we can do it for you. We can look at other advertisers like you and generate through the creative, so you don't have to do it as an example. So that's been live for about a year or so. On our self-service 1 in 4 advertisers are using it. And so that's the first thing we've done. A bigger step we've taken over the last few months is called DeeperDive, and then essentially Taboola going after being the LLM market at large. So if you think of ChatGPT and Gemini, big consumer LLM engines. That's for people that have a search intent. But the open web, which is where Taboola lives across 11,000 publishers, this is where people spend time to get conviction and learn about things. And as an example, if you want to book a trip with your family, you might go to ChatGPT and ask about, hey, it's the summer, I want to take my newborn, my wife for vacation in Cancún, give me ideas. And ChatGPT might give you some ideas in less than a minute. But you will never ever, for the life of you, make a decision based on that. You might get divorced because of that. You're going to go to YouTube to look at some videos of that resort. Then you're going to go to the travel section of USA Today and see if they may have reviewed that resort that you're considering. Then you're going to go to other travel sites and maybe even go to TikTok and see if some influencer went there and review that place. And after 20, 30, 40, 50 minutes of conviction, you may make a decision. Same for a product. I just bought a toothbrush for me and the kids. I started on ChatGPT, but then I went to Wirecutter of the New York Times, and it was awesome. I got some up-and-coming things and different points of view. And after 20, 30 minutes, I bought it on Amazon. I can afford the toothbrush, but I will never make the decision after 30 seconds of ChatGPT. And that's where the open web has a huge opportunity because they can take a piece of the open LLM market, which is the most interesting one, decisions that matter. So a deeper dive, we're going after that ChatGPT outside of ChatGPT, ChatGPT for the rest of the world. We started with the Independent and USA Today. Mike Reed, the Chairman and CEO of USA Today, spoke about it on earnings, but how excited they are and we are about bringing AI to any user that is interacting locally and nationally across USA Today and Gannett. Imagine you can go and have a 2-, 3-day conversation with a travel section of USA Today that have been reviewing content for the last 20, 30 years that now you can query all of that and have a conversation and eventually make a decision. So we're at early stages of that, but we're going after becoming a top 5 LLM company in the world. I already mentioned that we reached 600 million people every single day in our core business. Perplexity reaches 1.5 million people a day and they're worth $20 billion. So can we be bigger than them is what we're going after, and I think we can. But that's exciting early days. No financial impact whatsoever, but a lot of excitement in the marketplace.

Yes, it's definitely an interesting development. And then since you brought up ChatGPT, obviously, search is a big topic with Gen AI and the LLMs. Just how has this shift impacted your publishers and Taboola? What impacts have you seen?

So for us, and we spoke about that on earnings, we're fairly fortunate because most of our publishers are either humongous platforms like MSN, Microsoft, Yahoo!, Apple, Samsung and the likes, who have between no search traffic to a little bit of search traffic, but tiny. And then we work with publishers who are incredible brands that people love, like ESPN, CNBC, NBC, USA Today, CBS and so many great brands that we go just because we love them and they tend to get most of their traffic direct. So for those 2 reasons, our revenue coming from search traffic in the U.S., which is about half of Taboola's revenue, is about 5%. So we're not that exposed to search traffic as of now. And of course, I do expect that to go down over time. I think whether ChatGPT competes with Google Search or Google competes with Google Search, Search will change. Fortunately, for us, most of our business was built on trusted brands people love for leisure time and their relationship with those publishers, and that's -- we're very lucky. We don't have barely anything -- barely any long tail or things of that nature, which is -- I think carries a higher risk from search traffic going away. Saying that, I think it's an opportunity, again, while our downside is mitigated, I think it will change culturally how publishers are thinking about AI in a much bigger way. Mike Reed from USA Today first, but we'll see many CEOs and boards and management taking this opportunity now to say, what are we doing about AI that we've never thought we would be doing. And I think that's going to happen because of the AI revolution we're seeing around us. So culturally, I expect a big change.

Yes. And you mentioned some news publishers. Can you just talk about what you're doing with Taboola News and how that ties into your broader ecosystem?

Yes, I love it. I mean, Taboola News, for those who may not know, it's where we aggregate our publishers. Like I mentioned, we have so many around the world. We create a feed of content, and we integrate that on OEM devices such as Samsung in Europe and other OEMs around the world. It's a great business, primarily because a lot of companies want to get into the advertising space, but they don't have something to show before someone interacts with an ad and news is a great way to engage consumers first. And then through that engagement, monetize with ads. So I think we're going to see a lot of different utility apps and companies presenting you content that's relevant for you. So if I'm a health care app, I may show you a news feed of just health care stuff and monetize with ad. If I'm a travel app, I may show you travel content and monetize with ads. So Taboola News potentially could become a the glue between a lot of utility apps and OEMs that would like to be making money from ads, but they need that experience that can lure consumers in so they can eventually make money from ads. It's -- I think we mentioned it's over $100 million revenue business growing faster than other things at the company, and we like it a lot. It's also very synergetic to our core business because in a world where search traffic is at risk, Taboola News is sending traffic to publishers. So when you think about a publisher point of view, if I get to choose who do I work with, Taboola monetizes the best. It offers me a lot of AI technologies for my entire site, like homepage personalization, circulation, like a deeper dive that others don't. And on top of that, they're going to give me traffic for free from Taboola News. So it just becomes this very special offering for publishers globally that we think matters.

And then last one on kind of the Gen AI topic. Just internally, how are you leveraging it to boost productivity or any other efficiencies and benefits?

Actually, we're going through this right now with the management team. It's almost now at this point at any part of the company we're using that. FP&A is using AI, engineers are using AI. They have 2 or 3 softwares at any given time that are used either copilot for coding or a variety of different things. Salespeople are using that for -- just to better manage accounts and what to -- what matters and all those things. Just -- it's clearly just such a boost for employees around the world. And to be honest, I think we're still early days in terms of how much we can do. We're open-minded to any company out there, if you're listening to this and they have a great company or a start-up reach out, tell us what you can do for us. We're open-minded to work with other great companies that can help us do more with AI. But in general, I think that's -- there's a huge opportunity for us internally and externally, and we're all in.

Awesome. We have a few minutes left. I just want to see if there's any questions. All right. I can keep going. Maybe shifting gears to capital allocation and just how you're thinking about that, whether it's debt repayment, M&A, share repurchases, reinvesting into growth?

Yes. So again, here, I feel so good about our ability to, as a company, beat and raise our guidance and prove that we do what we say we'll do and we do even better than that, invest in ourselves in things such as Realize, which is a huge incredible platform that has such a good growth opportunity for us in years to come in deeper dive, which is an LLM opportunity of the open web. And at the same time, right now, I would say any dollar we have beyond those investments, we purchase our own shares because we think that's the best investment we can make. We intend to continue to aggressively doing so. We've bought 12% of the company back in the first half of the year, which makes me very happy as a shareholder. And I intend to do it as much as I can as aggressively as possible, so that we think the market is yet waiting for us to show more of what we're doing, which is fine. And until we get that growth on the stock, we just want to be aggressively buying as much as we can back. And on the other side of it, be hopefully very happy.

Yes. And then just on the M&A, it sounds like you tend to build internally, but is there anything out in the market there?

Yes. I mean we're -- we have a good small M&A team that's looking and talking to many great companies out there. Overall, I will say that our sentiment is that we're buying shares. We're less into dilutive events of any kind. So overall, it's unlikely we'll have any dilutive event given where the stock is right now, we think that's not something we want to do. However, we do generate a lot of cash. So potentially, we'll always look for like a tuck-in or something that could be adding value. Never say never. But for the most part, if we were to do something, it would be a small one. And saying that, we don't think we need something material for us to double the company. So we think we have what we need to go from $2 billion to $4 billion in revenue. And we intend to continue to share with investors our scale advertisers number, their spend per advertiser. And until we get to that inflection point, that tipping point where Realize is just -- it's the time for Realize to be adopted by thousands and tens of thousands of advertisers and in reaction, change the guidance to double digit again.

Yes. And then in the last minute here, a couple of ones to wrap up with. Just what do you think Wall Street is missing the most about the Taboola story?

I tend to be humble about that type of question in the sense that I don't think -- I think the market is perfect over time. I don't think the market -- in the short-term, people may have gaps about stuff. But I think investors, some people obviously hold the stock because they know Taboola for a long time. They have tracked us for a long time. We tend to execute and beat our own expectation. Taboola is an execution machine. And if the market is big as we say it is, and we have the advantage in our advantage, we may -- there's a good chance we will go back to our usual self of double-digit growth. And then the stock price really doesn't represent anything that's close to reality. But I think for the most part, people are -- they want to see. They want to see they're following us and they want to see when is that moment that demand generation is unlocked at Realize it can work for thousands of advertisers, because they know when Realize works and when that can be applied to thousands and tens of thousands of advertisers, Taboola has double-digit digital growth, which means you can draw the path from $20 million to $0.5 billion of EBITDA and a lot of cash flow opportunities for us, and that's a very exciting day. So I think investors are -- many are waiting to see when is that moment and then they may choose to join. But I think that's the main thing that the market is looking to see, in my opinion. And until then, it's on us to execute and do the work.

All right. Well, I think we're out of time. So Adam, I appreciate you joining us today.

Thanks for having me.