Q4 2022 Taboola.com Ltd Earnings Call
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter 2022 earnings conference call. At this time all participants are in a listen only mode. After the speakers.
There will be a question and answer session to ask a question.
During the session you will need to Crestar one one on your telephone you will then hear an automatic message advising yohan. Its waste. Please note that today's conference is being recorded.
I will now hand, the conference over to your Speaker host Rick Hough head of Investor Relations. Please go ahead.
Thank you and good morning, everyone and welcome to <unk> fourth quarter 2022 earnings Conference call.
Im here with Adam <unk>, our founder and CEO and Steve Walker, Our CFO , we issued our earnings materials today before the market and they are available in the investors section of our 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.
With that I'll turn the call over to Adam.
Thanks, Rick Good morning, everyone and thank you all for joining us for our fourth quarter call. We delivered solid financial performance in Q4, we came in in the middle of our guidance on all metrics. While adjusted EBITDA was slightly ahead for the full year 2022, we achieved 569 $6 million of ex Tac $156 seven.
<unk> adjusted EBITDA and positive free cash flow overall transparent it was a challenging year, but also a year of significant accomplishments I am very proud of our team at <unk> and the way, we're able to manage through the macro environment keep our heads down and execute transferring to you was the second best year, we've had for setting new publisher partnerships with.
Over 90% higher new revenue per month in 2020 in 2021, we wanted a lot great new publisher partners joined us such as content as Baskin, Japan, Huffington Post Prisa Gulf of adult network 18, United Internet Media in Dumont, We won back publishers that had previously left us such as slate Keith.
Our west, France, and more with some key renewals such as Cvs side, taking a Fox sports and Buzzfeed, Brazil as you recall our strategy is twofold, one it be recommending anything users may like content commerce overtime apps TV shows and more we call that tabbouleh anything the second part of our strategy is comfortable anywhere which is.
<unk> taken our publisher content technology, and advertisers and where people spend their time on OEM devices like Samsung and Xiaomi as an example, but over time, we want to bring our content to automobiles home audio devices and more on.
On the tubular anywhere front 2022 was a year when will the news hour version of Apple news, but for Android devices exceeded $50 million in annual revenue and it's growing triple digits, we'd like that type of growth as well as the strategic value. It has to our overall core business as publishers are getting more and more traffic from cable news.
As part of our Triple anything strategy E Commerce gained meaningful momentum with dynamic creative optimization Desio rolling out which is the main advertisers' success stories for companies like snap and meta. Additionally, we recently announced the time dot com will be launching a new bullet turnkey commerce solution, which I will talk about later.
We finished the year with an incredible 30 year partnership with Yahoo. This is a three way partnership it includes Yao advertisers buying timberland network.
It includes building new contextual segments, and lastly, powering native advertising exclusively for nearly 900 million users. A month. This is really big 2023 is assumed to be pre Yahoo rollout. While 2024, it will have partial yahoo contribution and meaningful gains in 2023, we're guiding for 6%.
Lower ex Tac compared to 2022, adjusted EBITDA of $70 million and positive free cash flow for reasons for a weaker year over year results first Q1 in each one of 2022, we're uniquely strong as compared to how we ended 2022 due to the war in Europe in macroeconomics hitting the U S.
As part of that we're entering 2023 with $50 million less ex Tac on a run rate basis. In 2022, we expect to return to year over year growth in Q3, and Q4 as we lap hard comparable from 'twenty to 'twenty two H. One second we're investing in successful Yao transition, which will cost us roughly $30 million this year.
And it includes people with servers in infrastructure.
We're investing in performance advertising e-commerce in header bidding. We believe these three growth investment will help us double and triple its Ebola revenue when Yahoo launches.
And fourth winning market share over time includes a net publisher prepayment estimate of $50 million. This year like I mentioned last quarter. We've seen net prepayments a publisher has been insignificant to none over time as you continue to become even more and more strategic to the entire publisher organization. So you should assume this is on a permanent part of our.
Financial model.
Let me say that while it's hard to accept declines this year, it's very rare that management teams know what the future will look like and are willing to guide for 2024 will be a step change in revenue with Yahoo ramping we expect to generate at least $20 million and adjusted EBITDA and at least $100 million of free cash flow in 2024.
To be Conservative. This assumes Yao has only been live by June of 2024, and no revenue in 2023, obviously, we're working very hard to beat those assumptions, we're showing with you right now.
We will refer to 2023 at an investment here, we're putting meaningful resources. This year for games, we felt stronger coming next year and beyond they can step back, especially with Google and men are now being less than 50% of the AD market and privacy concerns on the rise advertisers will be looking for contextual advertising partners with scale with a yellow.
Partnership we're one step further towards our long term goal of becoming the largest open web advertising company in the world by revenue, we estimate that we would have roughly $2 $5 billion of revenue in 2022, if <unk> had been live on our network throughout the year and were fully integrated that's where they've put us side by side to companies that fit our snap.
Interest and the trade desk with mainly Google in meta in Amazon much bigger than us.
<unk> is the only company to my knowledge at our size that is fully dedicated to the open web service, both publishers and advertisers directly.
I am convinced that the open web will have a walled garden strong company that is going after our estimated $70 billion Tam and I believe we're making meaningful steps towards becoming that vision with Yahoo, launching as well as our growth engines materializing.
Now let me provide a brief update on those growth engines performance advertising E Commerce and head of it in these are where we have the most again as a company to further drive growth in years to come.
Our goal with our investment in performance advertising is collectible at the first and best choice for any performance Advertiser. It's wanted to reach consumers in the open web. We're currently focusing our investments in four key areas first we are working on our bidding strategies that will help advertisers with different goals to be successful on our network previously.
We had shared her smart bid automates the bidding process for our advertising partners now we're working on enhancement to smart data, which will allow advertisers to do things like set of target CPA and algorithms driven set of initial bid rather than just adjust debate across the network as smart bid did previously.
Or to maximize conversions, even at the expense of CPA targets. Now secondly, we're working on a new way of finding high intent Nuggets are very specific audiences in our supply.
Third we are investing in new ways to help advertisers to drive clicks and conversions such as with new creative formats and enhanced landing pages. For instance, we're currently working on generating artificial intelligence that will help advertisers rights more creative and appealing headlines and even generate new images from scratch.
If you can please come to see a demo of this amazing generate of AI technology at our Yahoo deal information session on March 1st it's really cool stuff.
Fourth we are investing in technologies that will be smarter about how to match AD with users and especially how we ensure that advertisers see results as quickly as possible I just came back from a trip to Israel during which I spent time with our R&D teams working on this and I have to tell you I was blown away about how passionate our 200 person texting strong.
And about the future of tubular advertising platform, we have so much more that we can do.
We continue to see good progress with our investments in E Commerce as well I mentioned the momentum we're seeing with desio, essentially connexity retailers' automatically place the products libraries on our network. It has allowed us to significantly grow the amount of E. Commerce demand that shows up in our traditional to bullet placements such as in the bottom of article feeds we recently.
Launched e-commerce circulation widgets to help to drive users to commerce pages, which helps our publishers drive traffic from a general news pages to high intent Commerce pages. We also just announced an exciting new initiative in e-commerce that we called tubular turnkey commerce.
This was the missing link to take our e-commerce business to the next level every publisher that's wants to get into e-commerce, but has little or no content attractive to retailers can now do that with the book to Bill. It is all of the work for the publisher from using our data to know its content makes sense for us to write on behalf of the publisher, we write the content to drive traffic.
As we monetize it with the relationships, we have with the merchants and service providers and I got to tell you. We're very very excited to have announced our two publisher partners with this initiative time and advanced applications through their NGA Dot com site.
I don't know if any other full stack e-commerce solution that can do any of what I just talked about now while it's all new for US I can tell you publishers are calling us about this left and right because everyone wants a new York times wire cutter service on their website and we will enable it.
Last but not least we're investing heavily in header bidding just as important to our future. Because this is one of the ways that will expand beyond our traditional bundled vertical placement and continue to grow our share of the open web which is still dominated by display ads.
Elevating allows us to compete.
For new supply using our first party data are unique CPC demand and our proprietary technology that is able to predict which ads are likely to perform well generate a profitable CPM based bid we launched the technology with our first partner Microsoft in April of 2022, and we're generating hundreds of millions of dollars of <unk>.
Revenue from this partnership since then we have started better testing this technology with an additional 50 plus publisher partners and we're starting to see traction for the first time, we're starting to see few publishers generating a few millions of dollars a year from it on top of our core tubular partnership which increases our share of wallet and our remote as we look to win.
New partnerships and expand existing partnerships.
2023 will be the year of investments in our 30 year partnership to get exclusive native advertising partner for Yahoo. This is big for us Big for Yahoo, and I think big for the advertising community. It will be very accretive for our financials as I shared publicly if this was live in 2022, it's sort of multiply their free cash flow.
Five times to north of a $100 million of free cash flow and add $150 million of adjusted EBITDA. We are full on in planning mode and 'twenty to 'twenty three will require a lot of work and investment to make it a successful transition to thinking about thousands of advertisers transitioning many page types infrastructure and more we expect the transition.
To occur in three phases currently phase zero, we are designing the technology migration plan. If you think of this phase of designing the plumbing system between the two platforms. Some uncompleted advertisers and yelp platform consented to bullet supply and advertisers on <unk> platform can spend on Yao supply.
Soon we will move to phase one of the migration and which we will build the plumbing system and test the pipes by starting to flow small amounts of demand between the platforms move some of supply and transition a small number of advertisers to test the experience. We expect phase one to be completed in the second half of 2023.
Once we validate the pipe and our transition plans phase II will begin and will involve transitioning the advertisers and supply from Yahoo. <unk> at that point, the immigration will mostly be blocking and tackling but you will need to be thoughtful in the process. Because we want every advertiser, making a transition so have a great experience and to thrive and grow under.
<unk> platform, we do not want to trade long term gains for short term revenue.
We expect phase two to begin in the second half of 2023 and be completed mid 2024 at which point, we will be fully ramped and we will be able to focus on additional growth opportunities from our partnership with Yahoo. We are building a rocket this year in 2024, where we have lift off will become bigger and more competitive and I was never as excited about where we are.
The company and our future.
Ill pass it over to Steve our CFO to talk more about our financials.
Thanks, Adam and good morning, everyone as Adam noted, our Q4 and full year 2022 results were within our guidance ranges all metrics were above the midpoint of our guidance, except ex Tac gross profit, which came in just below our midpoint.
For the full year, we finished 2022 with approximately $1 $4 billion in revenue $570 million in ex Tac gross profit and a $157 million and adjusted EBITDA, We had a net loss of $12 million and not non-GAAP net income of $91 4 million.
We also generated positive free cash flow for the year generating $18 $6 million of cash despite the challenging macroeconomic conditions.
I would note that 2022 was a banner year for us on the supply side of our business on average in 2022, we brought in over 90% more new digital property partner revenue per month than we averaged in 2020 in 2021.
Our churn rates for our digital property partners were also at historically low levels.
In addition, we gained valuable new supply from two Boland news as we grew that business to over $50 million in revenue in 2022.
For the quarter, our Q4 revenues were approximately $371 million.
Our ex Tac gross profit of $159 million or net income $15 $2 million and our non-GAAP net income $43 $3 million.
Ex Tac gross profit declined approximately 6% year over year, which included a drag of almost 5% from foreign currency exchange rate headwinds.
Revenues were aided by the addition of approximately $35 million of new digital property partners.
But were decreased by approximately $71 million decline in our existing digital property partners.
The decline in our existing digital property partners, which is a very unusual occurrence for us was caused by the global macroeconomic weakness and the result in reductions in advertising budgets by many of our advertising partners.
Operating expenses were down around $17 million year over year. This decrease was primarily the result of our focus on cost reductions that started with decreased discretionary spending around mid year and continue with our cost restructuring program announced in Q3.
We generated adjusted EBITDA of $63 $5 million in the quarter and approximately $157 million for the full year, both of which were in line with our expectations.
GAAP net income for the quarter of $15 2 million for Q4, and our GAAP net loss of $12 million for the full year included intangibles of $16 million for the quarter and $64 million for the year.
Share based compensation expenses, excluding the hold back related to the connectivity acquisition were $13 million for the quarter and $64 million for the full year and restructuring charges of $3 million for the full year, which were excluded from non-GAAP net income.
Our non-GAAP net income of approximately $43 million for the quarter and approximately $91 million for the full year were both above the high end of our guidance ranges.
In terms of cash generation, we had approximately $20 million in operating cash flow in Q4, and approximately $53 million for the full year with free cash flow of around $14 million for the quarter and $19 million for the full year.
That free cash flow was after net publisher prepayments of $3 million in Q4, and $15 million for the full year as well as $6 million of interest payments on our long term debt in the quarter and $21 million for the full year.
I would also note that the combined balance of our cash and cash equivalents plus our short term investments declined from approximately $319 million at the end of 2021 to approximately $263 million at the end of 2022.
The decline is more than fully explained by our decision to repay approximately $61 million of our long term debt.
We decided to do this in Q4 because of rising interest rates, we have historically kept a relatively large amount of cash on our balance sheet in order to maintain operating flexibility in case certain opportunities came along that required large amounts of cash on short notice for instance, the acquisition of a distressed asset.
Or a large publisher win that would necessitate a large upfront prepayments.
You could think of the upside of this policy is maintaining option value. However, as the cost of maintaining this option has risen with rising interest rates and given the fact that we now have a revolving credit facility to draw upon as well, we decided to pay down some of our long term debt, we expect to retire 30 to 40 million.
More of the debt in 2024.
Now, let me shift to our forward looking guidance I should note that our guidance assumes continued weakness in the macro environment at current levels for the rest of 2023, but not a significant worsening of the macro environment as I mentioned earlier the decline in our year over year revenues and ex Tac was the result.
A macroeconomic softness that started in Europe at the end of Q1 and spread to the U S and most of the rest of the world at the end of Q2, we had relatively normal seasonality in Q4, so that softness did not worsen.
But it does mean that we entered 2023 at a much lower run rate than we had starting in 2022 the way to see this is to look at our Q3 2022 numbers historically Q3 contributes almost exactly 25% of our ex Tac in a given calendar year. So if you multiply our Q3 ex Tac.
By four Thats, a good estimate of our run rate entering the subsequent year in Q3, 2022, we had $129 $3 million of ex Tac, which means we entered 2023 with a run rate of around $517 million over $50 million lower than our 2020.
<unk> full year numbers.
This lower run rate of $517 million was the starting point for our 2023 projections.
After applying our expected growth we are guiding to full year revenues of 142 billion to $1 $4 7 billion and ex Tac of $526 million to $546 million.
This guidance does not currently include revenues or ex Tac from Yahoo. We have chosen not to include Yahoo revenues ex Tac in our guidance because we have not finalized our planning process and therefore it is too early to accurately forecast when we should start seeing the revenue from that partnership we will update us.
We progress through the year and have better visibility into that.
To that point this year will be a significant investment year for us we did factor in almost $30 million of cost related to Yahoo into our guidance. These expenditures will be required to support the transition of the Yahoo supply and advertiser relationships onto our platform. In addition, we.
<unk> announced an initiative called to bullet turnkey commerce with time as our initial partner. We believe this initiative will generate significant returns over time and meaningfully increase the growth rate of our e-commerce initiatives.
We will invest $5 million to $10 million in this initiative in 2023.
These investments in Yahoo, and turnkey commerce are on top of the investments that we're making in our other top company priorities of performance advertising header bidding and other e-commerce initiatives.
After the impact of these investments we are guiding to $60 million to $80 million of adjusted EBITDA and a non-GAAP net income range of negative $10 million to a positive $10 million.
Let me finish by saying that we are very confident that all of these investments will begin to pay off in 2024, and we will continue to drive growth beyond next year. Adam has said many times internally that we are in a very unique position right now because it is rare for a company to have such a clear picture of what the future looks like.
And I agree with them. It is because of that confidence that we are comfortable guiding to adjusted EBITDA in 2024 of over $200 million and free cash flow over $100 million.
It is also important to note that 2024 will still only be a partial year for Yahoo. As that business will not be fully transitioned until mid 2024.
Please come to our Yahoo deal information session on March 1st to hear more about what you can expect from that partnership you can register on our Investor website under the events tab or by sending an E mail to investors at <unk> Dot com.
And with that let's open it up to questions.
Thank you, ladies and gentlemen to ask a question you will need to press star one on your telephone and wait for your name to be announced soon withdraw. Your question. Please press star one again please.
<unk> roster.
Okay.
And our first question coming from the line of Andrew Boone with JMP Securities. Your line is open.
Hi, guys. Good morning, Thanks, so much for taking my questions.
I wanted to touch on the 2023 guide Yahoo deal is closed and they've announced the closure of Gemini.
Can you help us understand what Yahoo is doing currently.
How we think about.
How do we think about the.
The guide for 2020.
Three and the incorporation of the Yahoo.
And then Adam what do you need to do to get advertising demand going again.
Are you most excited about that can push yield in 2023, and then just one last clarification question for Steve.
Can you talk about the timing of the Paydown of debt.
Anything else to highlight there thanks, so much.
Yes, So let me start with the 2023 guide.
So I think the way to think about our 2023 guidance is that we're entering the year with a lower run rate than we had even entering 2022 and that's basically the macroeconomic effect and the decreasing yield so our Q3 and Q4 were softer.
Then they were in 2022, we also had some supply shock and that we added so much supply this year that with the softness of demand on the macro that also affected our run rate entering the new year. So I think those things basically starts us off at a lower base, we do expect to grow.
Off of that base this year.
It's going to be it's going to be lower growth overall due to the lower starting point on the cost side I would say, it's an investment year for us. So we are going to invest in performance advertising e-commerce and header bidding, which we've been investing in up until this point, we decided to continue investing there because we think those are investment.
That will pay off in the short term.
And then obviously theres Yahoo, which for now what we've assumed in our guidance for Yahoo is that we will we've put the cost is so we've assumed that we'll have to hire the people that we need to support that to build the.
The pipes, the connector systems and everything else, but because we don't have good visibility yet into exactly when we will start migrating advertisers and bringing the supply over we chose to just exclude the revenue from our guide so it's about a $30 million cost hit but with no associated revenue.
Because we're trying to be conservative in trying to avoid.
Adding guidance for something that we don't have clear visibility to so that's how to think about our guidance for this year. What we will say is and it's obviously very unusual that accompany would guide for 2024, we're confident enough in these investments that we believe we were confident.
To guide to 2024 for $200 million plus of adjusted EBITDA and over $100 million of free cash flow. So we expect them to be we're not talking about investments that will pay off five years from now. These are things that we will see return starting in 2024, which is right around the corner.
And by the way. Thank you for the clarification question on the debt I realized as I was listening to that that I said 2020 that we would repay.
30% to $40 million of debt in 2024, I meant 2023 fee I'm already in 2024.
So, but yes, so it will actually be looking to repay $30 million to $40 million of debt. This year not next year.
And I can jump Andrew and thanks for the question about smart beta.
On the advertising front.
Just came back from Israel, and I spend a week with engineering team with about 200 people now working on advertisers' success, specifically on the performance side and I came back uniquely excited just to see and all the good work that our people are doing I would say if I was to summarize 2023 kind of a one theme that you should expect.
And just this last week, we launched something to Gi to about 80% of our advertisers. It's about bidding strategies. So up until now smart, which was more of we can.
Call it like autonomous car.
In the sense that advertisers could go to smart bid kind of put it.
Initial CPC and smart beta or change the CPC based on conversion.
As of now advertisers can go to and actually also lean in and say what is the objective to trying to achieve as an example, where the target CPA. So just this past week, we we brought it to market that advertisers can say, our CPA is $50 or $30 thats, how much to my product is cost and smart which will.
Optimize using AI that specific CPA.
And that's a big deal that's been a lot of hard work for US and later this year you should expect us to realize things like target throw us maximize revenue so.
Advertisers can really work with us much closely as it relates to their goals and we will use AI to do it for them. So that's going to be a lot of our efforts this year.
Yes.
Thank you thanks, Andrew.
Thank you one moment please.
Next question.
And our next question coming from the line of James Kopelman with Cowen. Your line is now open.
Yeah.
Hi, Good morning, guys. Thanks for taking the question could you provide some additional color on AD market trends into February .
And particularly what you are seeing on a region by region basis. Also can you talk about how much conservatism is baked into your outlook in case, we end up with any soft landing in the economy and finally, maybe any color you could provide on which adds verticals were weaker versus stronger in <unk> and into 2023, and then I have a.
Quick follow up for Adam.
Yeah.
So let me start with the advertising market trends and the conservatism in the guide so first of all in terms of the advertising market, what we saw and I heard a lot of companies talk about this so I think what we saw is similar we saw a relatively normal fourth quarter in terms of seasonality for us which is.
I think why we were kind of right in the middle of our guidance range, but with a bit of a soft December so the year.
<unk> seemed like.
Like advertisers kind of made their goals and then they started pairing things back in December .
Similar to what we saw last year interestingly for US connectivity was the exception to that so e-commerce.
Revenues continued to be strong through the end of the year.
So thats generally what we saw at the end of last year heading into this year, it's kind of again, it's been relatively normal seasonality as we've started so we haven't seen any acceleration of the softness or any sort of significant changes there regionally. It same thing like we haven't seen EMEA.
Or Europe , or the U S or any other particular region be particularly different than the others. Everything is looking kind of like normal seasonality to us, but again off of a lower base that was set up by cuts in budgets earlier last year. So that's kind of what we're seeing in terms of our.
Our guide in conservatism in the guide what we're assuming right. Now is that is that continued trend so things don't get significantly worse, but we also don't see a recovery.
The Bull case for US is definitely that a recovery happens and we believe that because of the great supply that we brought on in 2022 that in our recovery, we'll see an outsized period of growth as we're able to kind of overcome.
What I referenced earlier as supply shock, bringing on too much supply not having enough demand for it we should see a faster than normal growth rate as we as the demand catches up with the supply in a recovery.
Obviously, the bear case would be the cut in the macro economy gets significantly worse in advertising budgets are cut again, but.
But I think generally for now we've assumed.
That things stay ads ads is which is still soft, but not what what it's been and I apologize we kind of missed your third question can you repeat that.
Yeah sure I was just curious if you had any advertising verticals that you would call out as being either weaker versus stronger in <unk>.
And into 2023.
I think one of the vertical that was stronger was on E. Commerce, So things Steven mentioned that towards the end of the year and even December specifically with e-commerce being stronger than usual spin.
Specifically with connectivity Desio, which is which has been a good momentum throughout the year was retailers that we're able to find success on our court tubular supply that's means that their products were able to find good conversion on traditional publishers news and other types of content on a typical network. So that's been a source of.
Strength.
And then more recent with the launch of turnkey ecommerce as we're rolling out.
Hi, intense content and product review for publishers, we announced with time Dot Com and <unk> Dot Com, which was in my letter that.
That content actually increases quality supply that retailers want. So this is this has been another source of strength and I expect this to be a growing momentum.
Momentum for <unk> as we continue to grow the content publishers have that retailers want to be attached to.
Great and then just a follow up if that's all right I wondered if you could just talk about the progress at Tabbouleh news will there be any new partners to call out is it still growing at a 100% and how should we think about the size of the bid.
12 to 18 months are now thank you very much.
So we're very excited about it.
And I have been to some quarterly business reviews.
In Q4, where publishers publishers showed us that timberland use is becoming in a 5% to 10% of their traffic and in different regions, which is unbelievable. If you think about the power of ACO in social traffic and how much publishers rely on that so that was great.
Jay between tubular news to our core business. So that's great news, we have great partnership with Xiaomi and Samsung and others.
And you should stay tuned for some new formats that we're launching you can imagine video and commerce and other things that we do on our traditional publishers that we have yet to be doing with Oems. So I suspect there's a lot of vertical growth.
Our existing Oems that we can do more with them and increase the <unk> that we generate per consumer.
So I'm excited also it's still a small business overall right we announced it.
While it is a startup organic startup we started at <unk>, it's close to $50 million in revenue last year similar margins to our overall business.
Expect this to be a triple digit business, we haven't given specific numbers, but it is actually comfortable saying that this will become.
North of 100 million dollar business within the foreseeing future.
Thank you.
Next question coming from the line of Laura Martin with Needham <unk> Company. Your line is now open.
Hi, there a couple of things could you give us an update on what's going on with your video AD units and revenue and also <unk> been trying.
Can move upmarket the page because you're talking about high impact AD units and how that's going and then in terms of spending.
Adam I'm really struck by the fact that we just keep adding.
New Todd.
New customers E Commerce E Commerce, and we're doing is now, arguing Yahoo and now we're adding.
Just feel like we keep adding sort of engineers and car.
And Theres just a lot of complexity over the last 24 months that you have a complexity doubled or tripled in terms of all the things you are trying to accomplish could you talk about managing that all of those various initiatives.
And how you think about return on invested capital because it's sort of think sounds like some of these to be better.
Allocated more and maybe cutting off some of these so can you just talk about that.
Yeah, Hey, good morning, guys. These are two very good questions. So let me start with a video on what <unk> been doing over the last three to six months as part of it.
Kind of like lifetime value approach with publishers to help them drive the maximum amount of value from consumers coming to their site because some consumers love videos. Some don't some like E. Commerce. Some don't so more and more we're trying to think holistically about our publisher partnerships that can Amazon dot com, where by different people have different lifetime value and.
As for the long relationships publishers have with users and video plays a big part in that because some people really like it but what others don't.
None as we've kind of consolidated our recommendation units to sort of close recommendation real which could include videos in them. So many of our publishers now under Homepages and mid article, especially with the growth of the homepage for you, which gained a lot of momentum I mean, it's such an amazing product to put AI on your homepage. It comes with video recommendations.
So it has been a very good.
That's a strength for us I think obviously with brand advertising being soft and in performance advertising in 2022.
Supply opportunity into the future of where that's going to come back.
But we do see publishers integrate our video units more and more specifically on Homepages meet article and our traditional feeds sorry.
So I like it but what I like the most is how we are consolidating all of these formats into a single recommendation unit that could to some users appears as video and to other people that appears that e-commerce recommendation and Thats, what publishers buy from <unk>, they buy sort of a holistic lifetime value personalization engine versus a widget or a placement.
So video is becoming more and more sort of holistic part of our Ah recommendation vision and we have seen a lot of growth specifically with homepage for you which is.
It comes with high impact placements like you mentioned about the second question when it relates to adjust our investment policy. Let me, let me say a few things I wanted to think it's healthy for companies and for <unk> to be free cash flow positive free cash flow, which is very important to us so whether that's in a down market or up market, that's something we as a manager.
<unk> team and as a board pay a lot of attention to so that's as you can see in transferring three while investing significantly in Yahoo, and other things, which will pay huge dividends for the investor community and ourselves in 2024, where free cash flow positive with a healthy EBITDA now specifically the way we think about our investment this is a great up.
Fortuitously for US, we have amazing publisher network and.
A lot of momentum that has grown in 2022.
See an amazing upside I mean, I can't express what I think will happen, if we get performance advertising to be stronger or e-commerce to succeed even more our header bidding each one of them can turn into hundreds of millions of dollars or over $1 billion in revenue for <unk> and will make us stronger. So I think we're working on the right stuff.
Things that I mentioned again and again.
And obviously, Yahoo, which is very critical to investors and going to make us even stronger specifically about turnkey, which we're adding this year I feel that this was the.
The missing piece to make e-commerce everything we wish it is.
It will become because many publisher partners came to US and said, we love to become bigger in retail and e-commerce revenue, but they don't have the content. So they look at the New York Times was like cutter. They look at USA today with.
With reviewed dot com, but they don't have <unk> team. They don't have the data and they don't have the ability to get into the business. So theres. This chasm. They wanted cross but they can do it. So we've said we have the data let's build a team create the content for them enjoy the authority they have with SCO and consumers and make this a big big business I can tell you about it.
From what I've seen so far publishers I mentioned time dot com that are getting into turnkey commerce.
The model for that business in E Commerce overall for publishers, where it's relevant for them is five to 10 X our core to grow the business. So if I look at how I started to.
Bottom of vertical feeds into advertising and I compare that to publishers, who will get into the E. Commerce business. We can grow that relationship very very significantly and then it's a bigger share of wallet it will be much harder to fix the taboo.
Better margins over time, even better margins. So I think it's worth it.
Other side of between 24, you saw what we feel comfortable to guide and I think we're being fairly conservative so hopefully we'll be able to.
B this and grow it.
Thank you very much.
Sure. Thanks, Laura.
Thank you and our next question coming from the line of Stephen Ju with Credit Suisse. Your line is open.
Okay. Thank you so Adam.
On your prepared remarks, I think you've talked about what sounds like an improved matching algorithm.
To stick the right AD in front of the right user at the right time so.
It's early but is there any color you can share in terms of the greater accuracy, you may be driving some of the testing there. Thanks.
Yes.
So I mentioned, but for tracks in my letter that has been one of them I mentioned earlier on this call are bidding strategies. So so we're spending a lot of our time between creative bidding strategies matching AI to increase the advertisers' success and make it easier for advertisers to get the first conversion faster around the target.
They're trying to achieve specifically with with AI you may have seen also that we've announced generated via AI.
Our advertisers are now able it's in beta are not able to get creative that are driven by past performance of our advertisers and that can help us basically better match.
<unk> words with creative lending pages images and.
And things that can help consumers.
C. As it are predisposed to what they may try to achieve so that's what that is all about.
And like I mentioned, we have it's the biggest investments we have in the company if I could do one thing as to whether Thats. The one thing I would do performance advertising because I think.
If I compared to below which has about 15000 advertisers or so too.
Bigger walled gardens that have hundreds of thousands or millions the upside here is just.
Massive so here, we're investing a lot in AI generally been and I to make sure that we have also the right landing pages and storytelling for advertisers and also there is a benefit to being the biggest threat Chipotle is now, especially with Yahoo, right when you're looking at around $2 $5 billion revenue company side by side companies in revenue Twitter snap.
Pinterest and others.
That size, we have so much data that we can really help our advertisers.
Leapfrogged the closed store they have with advertising companies specifically.
Even when you think about smaller companies. So I'm excited about the scale that we're about to have as we launched Yahoo, and make advertisers even more successful.
Thank you.
Thanks Steven.
Thank you one moment please for our next question now.
Our next question coming from the line of Jason <unk> with Oppenheimer. Your line is now open.
Okay.
Yeah.
If we lose Jason.
Please check your mute button.
One moment please for our next question.
And our next question coming from the line of <unk>.
Justin Patterson with Keybanc Your line is open.
Great. Thank you good morning.
Starting to see more stories of large publishers shutting down internal AD Tech division, so or at least materially cutting the head count there and leaning more on third parties.
Relationship. The Great example of that how would you characterize the opportunity set to add new publishers and expand with.
Existing ones versus what you've seen in the past and then secondarily, Adam you talked a bit about generative AI within the prepared remarks in the letter would love to hear how you think about that impacting the publisher landscape as there's more opportunity or threat and how do we think about that potentially rolling into that.
Business over the next few years. Thank you.
Sure. Good morning. Thanks for the question. So I can start so in terms of publisher shutting down internal.
I think that was a very unique because it's a very big company and they have a variety of different things that they can do.
From their perspective, I think as an industry. There is a huge opportunity for publishers to partner with.
I think fewer partners. So I think what we'll see over the next few years is that publishers want to have less vendors and more partners and maybe less partners right. So syndicate go deep with them the opportunity to AC is.
More about diversity of revenue I'm hearing that a lot from publishers publishers want to have some revenue in E. Commerce. Some revenue in video some revenue native advertising some header bidding to want to have diverse right with some subscription perhaps right. So they want to be less exposed in a single bucket of advertising revenue and I think thats also what.
Tabbouleh needs to and wants to provide rights. So we that's why we invest so much in e-commerce and AI to help drive subscription, which is the value we give at no cost to our publishers with homepage for you. So all of those things I think thats. The trend publishers will have less companies that work with they're going to sign longer term agreements or they can truly innovate and lean in on each other.
And companies that are more single kind of product I think will be over time, a challenge because it will be very hard for them to kind of fight with a bundle of different types of advertising mix. So thats the trend I am seeing.
I think we'll see more of that especially I know.
Right now.
Everyone is looking for growth right. So thats I'm excited about that and I think we are investing in the right stuff also going back to Lauren's question, that's why investing in my opinion right now.
In becoming that's partner for publishers. It is a good is a good thing the second thing on general <unk> and GPT and all of those things one I think it's going to be fantastic for advertisers because like I said, there is an interesting kind of CASM or a gap for advertisers a cold start if you will whereby they don't know how to begin if I'm an insurance advertiser what should be the right title.
How should I think about my lending pages, where should be my buttons all those questions.
Over time that becomes a huge actually kind of IP for advertisers as they know how to advertise but those are just starts they don't know how to begin.
Especially if you're a small advertiser if you sell service advertiser, So I think theres going to be really great for companies, who have scale and data to prompt that into a GPT type engine to then come up with new creative that can help advertiser be successful and so that's going to be interesting.
I think for the publisher side I suspect, we'll see growth in journalism and writers because now publishers will have a chance to see what's constant is missing that.
Users want to read.
That can create engagement and subscription and different different revenue mix.
In my opinion.
We will invest in high quality trusted content.
Driven by AI, so they'll use that kind of the insights of GPT type engines to know, what's missing and what's missing not only to engage consumers, but also to drive revenue. So thats I think we will see growth and of course as we all know we will see growth I think productivity and all of that stuff, but for advertisers and publishers I think this is a good thing.
Okay.
Okay.
Thank you one moment please for our next question.
And our final question coming from the lineup cataloging of Oppenheimer. Your line is now open.
Hey, guys. Its Jason can you hear me, yes, yes, yes, I had some technical issues with the NIH.
Don't know why so totally apologise, okay. So first I want to understand when you originally thinking Yahoo would have an impact in the second half and obviously that's been pushed a little forward. So maybe just talk about kind of why that is.
And then can you talk some more about Dr. How fast did it grow what percent of them.
It kind of mixes it maybe revenue post tax.
And then just lastly, the comments about moving away from publisher prepayments.
Obviously that doesn't affect the income statement the prepayment, but maybe just talk about what that says about the competitive environment.
So let me let me start by addressing the Yahoo, and the impact of Yahoo on guidance and I'll also talk about the publisher prepayments. So I think the Yahoo. We still expect Yahoo to start to show some revenue in the second half, but the problem is that I don't know.
How to forecast that yet so I don't know the degree of the revenue I don't know exactly when to forecast that it will start because we were kind of deepen the planning stages right now so for conservative reasons, we just decided to exclude it from our guidance for now and we'll update on that as we get go through the year and we will obviously have a much better view of that.
By the next time, we have our next earnings call. So I think it was mostly just the.
The fact that we didn't know how to forecast that.
Isn't that we excluded it it's not so much that anything has changed on our timelines and in a shameless plug I would invite everyone to come to our Yahoo deal information session next Wednesday, where we will talk a little bit more about timing and why why were guiding the way we are and you'll get some ideas of what we have to do the work.
We have to do to get to the point, where we're generating the revenue so that will probably help.
On your question about publish our prepayments.
So I don't think publisher prepayments has been part of our business model for years, So it's not something that's new or different.
In fact, I would say if anything publisher prepayments are less important to us from a competitive perspective, like just straight up win rate and retention rate of employee.
<unk> than it was historically, but we do use it very specifically in two specific situations. One we do use it when it's a publisher that we.
Don't have a history with who we kind of need to put our money where our mouth is to make them believe that we can do what we tell them, we're going to do so we do use it in that situation to win new publishers.
And thats, becoming frankly rare and rare because not rare and rare in terms of using in general, but rare and rare to use that tool to prove anything to them because they can now talk to other publishers in their market and they they hear from those publishers, what we can do but we still do use it in that case, where it's a sign of confidence.
Vince I think where we are starting to use it more is also to get.
Longer duration deals or other things that we want like to get publishers to do more with us faster. So will sometimes split a upfront cash to get them to sign a five year deal instead of a three year deal or to sign a 10 year deal instead of a five year deal or to do full.
Feed and mid article from the outset, rather than do something more conservative initially and then look to expand later, so we use it and to get things, we want as well and it is an advantage that we do have the balance sheet to do that especially relative to some of our much smaller competitors. So I think thats the way, we think about public.
Prepayments.
Your last question was around I think you said, Dr and whether or not we're seeing progress on that can you give us a little bit more about what it is that youre wondering about there.
Yes, I'd just add imagine your Dr. Dr related adds are growing much faster than the brand.
So just if you can give us a sense of how much faster and then what percent of the mix. It is on a post <unk>.
Post tax basis today.
Yes, so Andrew.
Recently, I don't think the overall mix has changed that much.
Think generally speaking we're doing a good job of growing our brand advertising business, because a lot of our new supply, especially up sells with new publishers is placements that actually do well for brand advertisers. So our mid articles high impact placements homepage units that were now getting with with home.
<unk> for you. These things are actually driving a lot of supply a lot of inventory that works well for our brand.
So that's making that part of the business grow faster due to the supply side I think that our D. R. R. Direct response performance advertising business is definitely.
Performing well and growing but it's really at a more similar right I think as Adam said earlier, our optimism with VR and performance advertising is that.
If you asked us what inning, we're on right now in terms of.
That whole ballgame.
We are in the second inning.
So much more we can do in some of the things that Adam talked about in terms of the new features we are releasing new targeting technologies, we think thats going to accelerate that business going forward. So as of now they are growing at similar rates.
But I think we feel that performance advertising is still a big part of our future I would just add that in transferring you for as we as we are fully live with Yahoo.
The biggest thing that excites me is that advertisers right now find its very frustrating to work with smaller companies in the open web it's very fragmented.
Every company has a different technology different dashboard versus easily buy and Google is any buying Facebook. So there needs to be a company that generates billions of dollars in revenue to open web, which can make it easy for advertisers to rely on contextual safe not not cookie risk all of those things. So we're a year away from getting to the point that the scale is so significant.
Advertisers controllers that we have a Google strategy Facebook strategy to both our strategy and thats going to be in my opinion, the biggest needle mover for both performance advertisers as well as agencies as brand advertisers.
Thank you.
Thanks, Jason.
Thank you I will now turn the call back over to management for any closing remarks.
So thanks, everyone for joining us today, and we look forward to spending a lot of time with all of you.
I'm very excited about the momentum and the future of tabbouleh like I said I'm excited about winning incredible publishers, who choose stable then trust us even ones that have left us and came back.
You know I have this T shirt that you always come back and I'm proud of that to our growth engines that can double to bolt on the other side of it for now launches and we become $2 billion revenue that you mentioned on a full year basis like last year.
We have e-commerce performance advertising in header bidding each one of them. It can double the company because these are huge markets.
And it is going to make US also more competitive as we continue to win new supply and new advertising business I'm very very excited about Yahoo, and becoming a must buy for advertisers like I, just mentioned and working with Yahoo team for the next 30 years and like I said, it's uniquely rare debt management companies have seen the future.
We're investing this year and 2024 it feels like just one big care bear Shining light on our journey as I'm Super excited my team is excited.
And please join US if you can next Wednesday in New York for Yao information session, we're going to host Monika, our newborn membrane Yao CFO Jim Lanzone.
And our executive team, it's going to be great and thanks again.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
The conference will begin shortly to raise and lower Johan during Q&A you can dial one one.
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