Q1 2023 Taboola.com Ltd Earnings Call
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Okay.
Good day, and thank you for standing by and welcome to the taboo like quarter. One 2023 earnings call. At this time all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one one on your telephone.
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Your question. Please press Star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today recall head of Investor Relations. Please go ahead.
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Thank you and good morning, everyone and welcome to <unk> first quarter 2023 earnings Conference call.
I'm here with Adam singled, 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.
I'll quickly cover the safe harbor certain statements today, including our expectations for future periods are forward looking statements 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.
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 first quarter call. We had a strong performance in Q1, beating the high end of our guidance across all metrics, we achieved $160 million in ex Tac gross profit $10 million and adjusted EBITDA and $11 million in free cash flow. We're also excited to raise the midpoint of our <unk>.
Full year 2023 guidance now.
Well, we're not fully guiding for 2024, and we do expect a step change in our financial performance with over $200 million and adjusted EBITDA and over $100 million in free cash flow.
It started in the past that it's so rare for a company to have this level of clarity and confidence are fully earned adverse.
We have such confidence in those numbers yesterday, we announced the share buyback program of up to $40 million in 2023, and also our intention to continue paying down debt up to $50 million this year.
Our strong performance in Q1 was driven by a few things.
<unk> business, we keep seeing meaningful publisher wins, such as content as you envision the blaze and kicker in Germany and.
I'm spending a lot of time with publishers existing and those who are yet to be working with us and its incredible for me to see the quality of the conversation around how to blow that can empower the editorial teams and how we can help publishers diversified our revenue and how we can help publishers drive new audience is attributable in use.
Additional drivers for our Q1 strong performance was e-commerce business and stable and use both of which performed better than expected in the first quarter.
While we don't plan on reporting this quarterly when looking at 2022, you can see our revenues diverse about 15% of our ex Tac as ecommerce about 10% is video and roughly 5% is stable and use the rest call. It 70% of our business is coordinated advertising.
<unk> vision is to be the recommendation engine for the open web think Amazon Instagram Tictoc. There are AI driven huge recommendation engines, making money from native advertising. These are add that look and feel native to the platform.
<unk> mission is to bring the best of the walled garden things such as user experience data AI and advertisers to a brand safe environment of the open web or business is predictable because 90% of our revenues coming from advertisers working with us directly rather than through AD exchanges.
Our partnerships with publishers are exclusive and long term and most others were signing three to 10 year partnerships with Ebola and Yao recently signed a 30 year partnership we have significant scale, reaching now about 600 million active users per day.
As a reminder, we measure our business on ex Tac gross profit adjusted EBITDA and free cash flow over the last three years, our business has grown more than 20% year over year on an exit basis has generated about 30% adjusted EBITDA margin and has converted about 50% of adjusted EBITDA to free cash flow after adjusting for interest.
And prepayments to publishers, which we consider to be an investment over time, we expect these two payments to go to zero.
Our core business is strong we're a partner of choice for over 8000 publishers with developed a unique technology optimizing for lifetime value empowering publishers to diversify their revenue streams, such as e-commerce subscription native header bidding and video publishers deploy our AI on the homepage the usual editorial tools to make decisions.
They build e-commerce sections dynamically match content and ads that are relevant and often cabo as a top three revenue source to our publishers Becky.
Back in the day people as to say nobody gets fired for buying IBM and the same can be said about <unk>. These days is a safe bet to choose to rollout more than 8000 publishers grow revenue engagement and audience and around 18000 advertisers used Ebola to grow their business before.
Before updating you about our core business and our four priorities I wanted to share a recent experience I am a strong believer in making things personnel, we encourage everyone to vote or to get closer to our clients and to each other zero distance is our theme this year in that spirit once a year at slightly Israel and spend an entire month with our engine.
My team and product management teams.
I get direct access to our teams I joined Tech working sessions every day and eager to make and they get my global view of the business, Let me tell which was incredible the culture. The energy the hard work and focus on our top four priorities was never so high we are in a rare position as a company where the future is in our hands, we do not need to enter new markets. We don't know.
Need to make any big move we mainly need to execute and we have the best talented people in the world to do that.
One of the things that came up again and again in that visit is how our engineering teams and product managers are no longer thinking about development just in terms of how good the coded but mainly in terms of client adoption and impact we have 600 people in Israel and Theres, a growing obsession to know how things would build and deliver our affecting our clients.
Switching gears, let's talk about our core business, which had been operating for more than a decade, we have publishers working with us globally exclusively in for three to 10 years as their native advertising partner using our lifetime value platform to help them reach their broad objectives.
We generate revenues from advertisers working with us to drive sales by appearing on our publisher sites, you've all centers before if you visited sites you love like CNBC time Dot com. The BBC, if all discovered newest products and paid offerings by advertisers from the open web. This market is estimated to be about $70 billion and we think that.
A meaningful competitive advantage in it.
I started to about 15 years ago, and though we were not first to this market. We became the partner of choice across the board our growth has been driven by our client obsession execution at technological advantage.
In our core we monitor our momentum based on new and renewed publisher partnerships and usage of our technology optimizing for lifetime value. This includes offerings such as newsroom, which is now used by 3500 editors and writers homepage personalization, which we call <unk> for you and more we look at <unk> margin as a prop.
C. Four advantage over other advertising companies in the open web or publisher momentum remains uniquely strong in the past quarter. We won publisher partnerships all around the world. Some key new wins include some of the world's largest names acuity vision Camden National Express kicker swanky in Dumont renewed relationships with well known publisher.
Including Sinclair advanced local seven West media and more and now let's move into our key priorities as a company. We're laser focused on our four growth engines and key priorities each representing a 1 billion dollar opportunity for tubular Im now going to spend some time discussing each one of them starting with performance advertising.
As a reminder, the vast majority of <unk> revenue is coming from advertisers, who buy from people directly using our own AI about 10% of our revenue comes from programmatic partners, such as Google The trade desk, Amazon and others.
Our two objectives are to get new advertisers to be successful when they tried to do with them and to get existing advertisers to stay with us and spend more measured by net dollar retention or MTR.
The market is massive millions of advertisers are buying Google and meta and how does have thousands of them are buying companies like snap to boil that has around 18000 advertisers. So we have a lot of room to grow our main focus is on improving AI and workflows to make it easier for advertisers to work and be successful with Ebola.
Earlier this year, we launched target CPA for advertisers and I'm excited about rolling out maximize conversions. Later. This year. These are all part of our smart grid technology, given our advertisers a variety of bidding strategies that can used to be successful with the Buda.
It should be as easy to work with us and to find success as it is with meta or Google when advertisers succeed with us our yield on publishers get higher which is not only improving our financial metrics. It also bolsters. Our note as we become even more competitive as a company about two quarters ago, we grow engineering resources working on performance adverse.
<unk> from 50 to 200 engineers given the upside we think there is here for tabbouleh.
Part of our investment here is also on the creative front, we're investing and generate of AI focusing on helping advertisers to easily get titles. Some notes and landing pages that can work for them being bigger gives us an advantage because we can use our historic data to produce exceptional results hundreds of advertisers are adopting are generally they are a better offering.
Which lives in tubular ads, we just completed a hackathon focus on generative AI and are working on more things. We can offer advertisers so stay tune for more to come.
Moving on to our second growth engine bidding we estimate that about 8000 publishers, we work with in our core business generate display revenue of roughly $20 billion. A year. We think if we can access our publishers display inventory with our header bidding solution and we and about 5% to 10% of the option given our advantage in AI first.
As part of data and direct advertisers relationship.
This will make us even more valuable partners for our publishers, increasing our payments to them as well as our share of wallet, while providing our advertisers with even more scale we.
We have three areas, where we're already bidding. The first is Microsoft This launched in April of last year.
Second one our publisher partners, where we have first party advantage and just stared with publishers not yet using our solutions, we believe that as the OE launches will be able to also partner with Yahoo on bidding under display inventory as well.
Today, we generate hundreds of millions of dollars from bidding, but it's still very much a startup within <unk> and we think we can grow that meaningfully.
Isn't to get excited here is many because as the world moves to a much more privacy driven environment with no cookies and IV Fe, we had meaningful advantage been hardcoded on the page as we know people when they come back to a publisher sites, while <unk> and DSP is done with.
We're laser focused on about 50, plus publishers, we're testing with before rolling that out to the rest of our network I'm optimistic about what we're seeing here.
E Commerce is our third growth engine I'm happy to share that E. Commerce is beating our expectations this quarter and it's impressive to see the strength of it as a reminder, E. Commerce is where we offer retailers the opportunity to find clients on the open web on publisher sites. This represents a big upside to both retailers and publishers as users' trust or <unk>.
Local and national sites, a lot and if those review of products to offer financial services travel Education People's Trust of there is an opportunity to make a positive impact for people as they make decisions they truly care about.
The three pillars through e-commerce, we focus on content creation driving traffic and monetization over the last six months, we've launched e-commerce in a box with the launch of Ebola turnkey Commerce every publisher that wants to get into E. Commerce, but has little to no content, that's attractive to retailers cannot do that with tubular.
We do all of the work for publishers from using our data to know which content makes sense for us to write on behalf of the publisher to driving traffic to add and of course monetizing it with relationship with merchants and service providers.
Last quarter, we announced our first two publisher partners for this initiative time in advance local while early both launches are off to a good start traffic to tabulate turnkey commerce sections of bauxite is already growing fast and monetization has begun.
And finally to our fourth growth engine Yahoo. At our information session. We held in March. This year. We explained the process of integrating Yahoo interval network in four specific phases. Since the event, we've transitioned into phase one from phase zero, which means we're developing the technical infrastructure to allow Gemini ad spend through.
Cable edge platform and test in a single digit percentage of demand.
We expect to go into phase III, which is gradually transition ad spend and supply from Gemini and <unk> in the second half of this year.
The stability was interacting daily with Yahoo to migrate advertisers into developed platform focusing on advertisers performance and spend I can share that Yahoo, and double it teams are working on accelerating our rollout. So we can capture revenue faster in.
In closing I'm energized about our position in the market I think we have a unique opportunity to build the very first large scale must buy open web company publishers and advertisers can rely on Google for search manner for social and tubular for the open web we're focused wherever its four key company of priorities we are.
<unk> and executing on our plans will enable us among the largest in our space. We're still small as it relates to the $70 billion of open web market. So theres a lot of growth for us to capture.
What I tell myself antibody employees is that we have all we need to execute on our strategy and dreams. These are times to lay low and execute and that's all we care about thanks for joining us and I'll now pass it over to Steve our CFO to talk more about our financials.
Thanks, Adam and good morning, everyone as Adam noted our Q1 results beat the high end of our guidance on all metrics. We are also raising the midpoint of our full year 2023 guidance and reiterating our 2020 for expectations of over $200 million in adjusted EBITDA and over 100 million.
And free cash flow at.
As Adam explained we are very confident in those forecasts and therefore announced today both the share buyback program of up to $40 million in 2023, and also our intention to continue to pay down our long term debt.
We repaid $30 million of our long term debt in April which means that we have repaid a total of $91 million since Q4, 2022, and we intend to repay up to another $50 million this year likely in the third quarter after a certain cash balances become available.
Let me talk now about our Q1 results, which exceeded the high end of our guidance on all metrics.
For Q1 revenues were $327 $7 million versus the midpoint of our guidance of $312 million gross profit of $89 $6 million versus the midpoint of $82 million ex Tac gross profit of $115 $7 million.
Versus the mid point of $109 million.
<unk> EBITDA of $10 1 million versus the midpoint of zero or breakeven.
Breakeven and non-GAAP net income of negative $4 $1 million versus the midpoint of negative $17 million, we generated positive free cash flow of $11 $2 million I will note that Q1, and Q2 growth rates suffer from difficult Comparables in 2000.
22, before the digital advertising market weakness, we expect to return to positive growth in the second half of 2023.
Relative to our guidance, we saw over performance, particularly in the U S and Latam.
E Commerce continues to impress taking the momentum of the last several quarters of 2022 into this year, we're seeing strong spending from some of our key partners such as Walmart way fair and Macy's as advertisers increase the focus on immediate returns on their advertising spend this benefits bottom of funnel.
Channels, which for tool it means e-commerce offerings.
Our teams have achieved this revenue performance, while improving cost efficiency indicated by adjusted EBITDA and non-GAAP net income per over performance outpacing revenues ex Tac gross profit.
Operating expenses were $118 $4 million in the quarter down $1 $3 million year over year. This decrease was primarily the result of our focus on cost reductions that we announced in Q3 of last year, we expect to show lower expenses as a percentage of revenue on a full year over.
Year basis for 2023.
Our head count is down approximately 8% from its peak in July of 2022, and currently stands at approximately <unk> hundred 30 full time employees.
GAAP net loss for the quarter of $31 $3 million included amortization of intangibles of $16 million share based compensation expenses of $13 $5 million and hold back compensation expenses related to the connect to the acquisition of $2 6 million, which were <unk>.
Excluded from non-GAAP net income.
Our non-GAAP net loss of approximately 4.4 dollars 1 million was above the high end of our guidance range.
In terms of cash generation, we had approximately $17 5 million in operating cash flow in Q1 with free cash flow of around $11 $2 million. If you remove the impact of net publisher prepayments, which were a source of cash this quarter of $3 $9 million and intra.
Payments on our long term debt, which were a use of cash of $5 $1 million or cash flow would have been $12 $3 million. It is interesting to note that net publisher prepayments were a source of cash. This quarter. This was due to the fact that new prepayments were lower than the quarterly amortization of <unk>.
Historical prepayments, while we expect net publisher prepayments to be a use of cash in 2023. It does show how they can become neutral to a source of cash in the future.
Let's turn to the balance sheet cash and cash equivalents plus our short term investments increased from $262 $8 million at the end of 2022 to $274 $4 million at the end of Q1 2023.
Historically Q1 tends to be a positive cash flow quarter for us as we collect on the higher revenues for Q4.
I would also like to note that with the current instability in the banking industry. We continue to evaluate our banking relationships and have minimized our exposure to regional banks in the U S and less stable banks internationally. This is obviously a developing situation that we will continue to monitor and adjust as necessary.
Now, let me shift to our forward looking guidance for the full year 2023, we are raising the midpoint of our guidance by increasing the lower bound but keeping the upper bound steady we expect revenues of one $4 billion to $7 billion to 146 9 billion.
Gross profit of $418 million to $436 million ex Tac gross profit of $529 million to $546 million adjusted EBITDA of $65 million to $80 million and non-GAAP net income of negative $5 million two.
Positive $10 million.
For the full year, we assume that we will invest in our Yahoo partnership but to be conservative we are still not factoring in the associated revenues that could be generated in 2023.
We will update this in future quarters. This guidance also assumes continued investment in our other key company priorities of performance advertising bidding and e-commerce.
Despite being a year of strategic investments, we expect to generate positive free cash flow in 2023 for the full year, we anticipate free cash flow to turn negative in Q2, and Q3 with significantly positive cash generation in Q4, all due to normal seasonality.
Finally, we are issuing Q2 guidance for Q2 2023, we expect revenues to be between $296 million and $322 million gross profit between $78 million and $88 million ex Tac gross profit of 105 million.
<unk> and.
$115 million and adjusted EBITDA between negative $4 million and positive $6 million.
non-GAAP net income of negative $26 million and negative $16 million.
Let me finish by saying that we're happy with our first quarter performance and to be able to raise the midpoint of our guidance for the full year. We are also excited about our adjusted EBITDA and free cash flow targets for 2020 for the future looks bright from our vantage point, which is why we are confident in announcing our intention to both buyback shares and.
We needed to pay down our debt if you want to hear more about our story, we will be attending the Oppenheimer Needham and TV Cowen Investor events. This quarter. So we hope to see many of you at those events with that let's open it up to questions.
Thank you.
At this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Okay.
Our first question comes from Jason <unk> of Oppenheimer. Your line is now open.
Hey, thanks.
Hi, everybody two questions first.
Has the pace of the Yahoo integration changed since the analyst day.
Any color there and then number two on the buybacks.
Just wanted to know kind of why now.
And is there a formula and investors should think about in terms of the purchasing a certain amount of free cash flow or EBITDA on a go forward basis or is this more just being opportunistic.
Hey, Justin good morning, so on the <unk> front since the event, we have transitioned into phase one. So back then it's what stage zero, which means that we're building.
Functionality to start moving revenue.
In into into our systems, we still expect phase two.
Just two and back half of this year and gradually starts growing revenue.
Sure. That's another piece of information that soon is that our teams wander having great momentum in spending a lot of time together, but we're also looking to have.
We have an accelerated plan of capturing revenue even faster. So that's why we will keep updating about overall good momentum.
And we're trying to see if we can get this even faster.
Hey, Jason So to your second question about the share buyback. So I think first of all in terms of why now so we feel very good about our Q1 numbers and especially about our 2020 for projections of $200 million plus of EBITDA and $100 million plus of free cash.
Hello, So that gives us good confidence to do a share or share buyback at this time.
Note that our core is strong we've got good publisher wins, our investment in performance advertising is looking promising.
And our growth engines are strong E. Commerce, we mentioned it is particularly strong right now to pull in news is beating our projections and as Adam just mentioned, we feel good about Yahoo, and where we're at with that so that's the why now in terms of kind of how to think about what we're doing and how investors should think about it so.
Want shareholders to be focused on free cash flow per share and in particular free cash flow per share in 2024, because that's what we're focused on.
So the goal of buying back shares to offset dilution from employee share. So that investors can hold the expectation of kind of maintaining current.
Shares outstanding.
Level. So that's the I think that's the expectation that it should be set is that we will maintain our current share levels.
I will say, obviously things happening you arent always able to to achieve that but thats the goal stable share counts.
And I'll also note that the other reason for why now is.
Given our share price right now and frankly the cost of debt. We just think it's a good ROI for our shareholders to both be buying back shares and paying back debt at this point.
Yes.
Okay.
Yes.
Okay.
I think we're ready for the next question.
Thank you one moment please.
Our next question comes from the line of James Kopelman of TD Cowen. Your line is now open.
Good morning, and thanks for taking the question.
First for Adam what do you view as the differentiating factors that are continuing to attract all these 8000 publishers and then can you remind us roughly what the prepayment trend is for the remainder of the year.
Relative to last year I think.
After having one of your best years for publisher wins, and then I have a quick follow up for Steve.
Sure I can start.
So why do I think we're our core is very strong and you can see that both in terms of publisher wins and as well as advertisers working with US directly 18000 advertisers and 8000 publishers on the publisher front and I mentioned that in the letter I am personally having really.
Incredible conversations with existing publishers and publishers are yet to be working with us and the quality of the conversation is so much about our full platform offering as it relates to homepage personalization, we call that topics for you our newsroom for editors, who have now 3500 writers and editors using our new.
Room product, which is it's a company on its own and Thats, so valuable because it management and publishers work, but <unk> think of the workflows and how many people on the organization is using tableau to make decision as to which content. They should write what helps them drive subscription how do they move traffic around from a journey perspective, then we have the e-commerce in turnkey.
Time Dot Com launched recently, NGA dot com or advanced.
Earlier this year.
Then as to the news, which we help them drive traffic to their site. So when you think of the publisher point of view, especially in today's world. They want to have less vendors and more partners and <unk> partners, who can do a lot of different things with them and for them and as part of that I think over time, we'll see more and more of kind of this trend of pub.
She is making decisions to work with less companies, but to have deeper integration longer term partnerships.
And honestly more quality conversations so when it comes to that I think it's I.
Made a joke that when I was younger people used to say nobody gets fired for not buying IBM and I feel more and more publishers, it's a safe bet for publishers at all levels to choose the Buda.
To your second part of that question about prepayment expectations.
Our expect so I mentioned in my prepared remarks that the U S.
First quarter publisher prepayments or actually a source of gas.
They pay a prepayment that we did in this quarter were lower than the the amortization.
<unk> of previous prepayments that we do expect them to be a use of cash for the full year, though probably on the order of sub $10 million. So we think that it will be.
Going down from last year and towards zero as Adam has said he thinks these go to zero over time. So this will be a lower year for that we think I'll only caveat that with the right publisher deals came along obviously, we would use that as a tool to win the right publishers, but our expectation right now is that there'll be sub $10 million.
In terms of a use of cash for the year.
Great and then a quick follow up for Steve How should we think about ex tax seasonality for the 2023 quarters I know, we sometimes take a <unk> and <unk> as being similar in terms of percentage.
The full year's ex Tac and then <unk> is higher is that how we should think about 2023 and are there any additional seasonality factors.
That you'd like to call out to help us with modeling this year. Thank you.
Sure. So so we expect.
Right now Q2 was actually going to be similar on an ex Tac basis to Q1.
So I'd say.
Is that the seasonality over the last several years has kind of shifted a bit and you kind of see an.
Upward trend as you go through the year, but we actually expect Q2 to be similar to Q1, and then we expect the second half to improve especially if youre looking on a year over year basis by the way I've mentioned this in my prepared remarks, Q1, and Q2 are particularly tough comps Q3, and Q4 become easier comps.
We also.
Our expectation is at some point, we will start seeing Yahoo revenue, which will help us in the back half as well. So I think that's our expectation is Q2 will be similar to Q1.
And then we will see an upward trend from there.
Great. Thank you very much.
Okay.
Thank you one moment please.
Okay.
Our next question comes from the line of Andrew Boone with JMP Securities. Your line is now open.
Good morning, and thanks for taking my questions.
I wanted to go to two or more product orange questions.
Adam can you talk a little bit about performance advertising and your learnings as you've spent more time in Israel with engineers talk about the product roadmap. There and then what are the key drivers for yield today.
Rest of 2023.
And then on header bidding your publisher display integrations.
Can you talk about what needs to happen to that Tibet come. The next billion dollar business, where are you guys testing and water publishers, how again, thanks, so much sure.
Sure.
Hey, thanks for joining so so.
This is Rob I spent a month, there and I joined and I joined itself fun for me to.
Join everyday to different tracks being with engineers and product managers.
See what they see in terms of my point of view and we met clients. We had we had all hands. It was it was really energizing I came back even more energized and enough for me that's not always that.
Easy, but I was and am we're laser focused on kind of two buckets. It's a simplified that our thinking on the engineering side. One is new advertisers who are coming to table them. What is their experience and how do we make them successful we're focusing on the time for first conversions.
How many conversions can they see so they get good momentum and a variety of different metrics that we believe are leading indicators to get new advertisers to want to stay and then grow so thats, one bucket and I'll speak to that in a second the second bucket is existing advertisers we have now 18000.
Which I'm proud of that as a growing number which is great and then here. The question is predictability how they can rely on us and how they can increase their spend while at least sustaining good performance or even improving performance. So think of those are like there's two buckets right new clients and existing clients.
And then the biggest track with multiple tracks that are focused on helping those two buckets to be successful.
The things I am most excited about are probably three fold. The first one is measurement and how we continue to improve the way we measure our business.
On the Advertiser journey the second is.
On the matching front. This is more of a more of an AI and how do we help match the right advertiser with the right content and the consumer.
And sorry, the monies Martin debating strategies, which is this is a fairly big so.
We launched target to PAA in beta about a quarter ago. It used by you know.
At the time I started as produced by a few hundreds of advertisers were going to move that to general availability. So that's going to be great and right. After that we're launching and I mentioned that in my letter next conversions and for those who are just not fully grasp those two bidding strategies and what they mean if today 18 successful.
Advertisers, who work with Ebola find success.
Work with us they give us the CPC.
And budgets and things of that nature, what they really care about is how what is the acquisition cost of trying to get to and how many are conversions could they get so if youre a flower shop and I tried to get someone to become your client and you know that a client is worth $50 really what you want to do it to realize total pillar here is $10000 I'm willing to pay $50.
Gets me as many as you can see if we can do it that's about to happen in the second half of the year.
<unk> seen early kind of like a test of these things with some of our early advertisers.
It's like back to the future it's really great.
Advertisers are used to work with Google and Facebook and soon as how theyre going to work with us. So all of those things are happening full.
Full force, we're shipping about five six times.
More features to the field and then we did a year ago and that's mainly because we now have 200 engineers working on performance advertisers versus 50.
And Thats My number one I dream about performance advertisers when I go to sleep. It has the biggest upside for our business.
Like I told the board yesterday, we had a board meeting I said, if we do nothing about performance advertising and we do this well typically that can be a $10 billion revenue company just by doing that so much better and we're pretty good at it already so.
So this is this is top of mind for us about.
About the header bidding.
Just a lot of good momentum and Thats, what Israel, Microsoft is doing well I think Steven mentioned that.
Yahoo, when that launches I think there is opportunity for another MSN just on the bidding front to bill on the display front on the Yahoo. <unk> that can be a big bucket and then we have our current $50 60 publishers that are were in progress phase of us kind of a move into the next level of rolling it out to more publishers.
So I don't want to.
Don't want to share too much at this point, but I will just say that I feel good about this becoming incremental hundreds of millions of dollars for <unk>.
In line of sight between now and more publishers and just Microsoft.
<unk> performed well.
So for Us Andrew.
What we need to do to get there is mainly keep executing testing that publishers that are currently working with US and then moving back to general availability. So that's 8000 publishers can use it.
Thank you.
One moment please.
Okay.
Our next call comes from the line of Laura Martin from Needham. Your line is now open.
Hey, there, let's just follow up on that answer right. There so Adam how do you allocate engineering resources.
Between like the hub.
Mr improving.
Performance advertising compared to Onboarding Yahoo.
Hi, Alex.
Any normal.
So so first of all I know we allocate.
Sources, mainly to the top four priorities right. So there are many things <unk> is doing but we spend in our management of energy and resources.
Just as a high level on our top four priorities performance advertising Yahoo E Commerce and bidding and then within those we do prioritize Yahoo and performance advertising at a higher level. Because we think there is a short term midterm and long term.
Big upside for us both in terms of making our business stronger and improving our moat and like I said increasing <unk>.
The yield which as you know increasing yield for Tabbouleh, Inc.
Improves not only revenue, but also ex Tac margin and EBITDA margin and things of that nature. So those two get more resources.
And then we believe that with model that correctly in terms of ROI. So you know how much we have we put together for this year I think it's peaked but that again for Yahoo.
We believe it is going to start ramping in the second half of the year and hopefully even faster as it relates to next year. We're working on that so I think we're it's the right thing to do to invest in that and obviously some of those resources.
Two other things one salaries line.
I would add in terms of how we allocate R&D resources. It is and we talked about this a little bit when we did our cost cutting back in Q3 of last year, we're very focused on things with sub two year payback periods right now so whereas previously we had some initiatives, which Adam had previously called them as speedboat Ines.
<unk>, they're further out in the future.
We've cut back on most of that and focus our priorities now on things that we have are our resources on things that we believe have sub two year paybacks. So that's why we have the list of the four priorities because we think those are all very short term payback and frankly can have the biggest leverage on our business.
Yeah.
Okay very helpful. And then my other question for you as you touched on generative AI and I'm interested in what used cases.
And over the next three years through January AI, I know, you've talked about content creation and specialization in the past, but could you talk about how you think generally that island sale Chunkier our models over the next three years, we used to pay out for it yes absolutely.
I'm not going to talk about productivity and other things because everyone is talking about that thats a bit boring I think at this point to talk about that context.
A case of the business, but I think is interesting is.
So right now we're testing.
It's already part of our tubular ads console and any I think you've seen us lower but for those who listen if you haven't seen it you should check it out it's fairly cool advertisers can now.
But until they can get suggested title and suggested some notes not only by <unk> <unk>.
Prompting generate value with what we think would be good for insurance advertisers, but rather using our historic data to prompt into general value titles and thumbnails, we already know from past experience and worked for advertisers in that vertical or in that type of segment and that gives us an edge because the suggested creative as we give back.
Two advertisers are based on <unk>.
Previous success in India in General and my belief is that when it when it comes to generative AI anyone can use that consumers can use are convinced can use it but that is a differentiation to be differentiation will be the data. It's a garbage in garbage out as they same computer science. So I think companies will have unique data. They can prompt into those engines will have an edge in an.
Vintage we have where we're fairly big we reached 600 million people every day.
Are probably among the biggest in our space. So we have a lot of performance advertisers that that are working with us and we're going to use we are using that data.
As an edge and an advantage. So that's happening now and it will be happening more and more I think the second thing that might be interesting.
Is on is on the more landing page creation opportunity, we had a hackathon that saw a glimpse of that obviously thats not ready yet, but you can imagine that one of the challenges advertisers have now is that they're not sure how to build the lending page and integrates pixels and how to create the workflows. So that they can be successful they might have real.
Really good products, but they're just not building the landing pages in a way that could be successful for different channels. So that is to work with Google or Facebook or <unk>.
It could be that you need different landing pages.
And I think that's going to be fascinating to see a whole universe. We're landing pages are being automatically generated an optimized by generative AI.
And that can be very accretive in my opinion that will take some time, but I think that can be the next step after creative optimization.
Yes.
Okay very helpful. Thank you very much sir.
Thanks.
Yeah.
Thank you one moment please.
Yeah.
Our next question comes from the line of Stephen Chow.
From Credit Suisse. Your line is now open.
Alright. Thank you so Adam I think you saw that e-commerce strength in the first quarter results.
Is this primarily a function of a ramp in Quebec city or on product.
And the advertisers decided here and previously are generally larger are pretty well resource so.
What can we do to broaden our client base here and also stepping back a little bit I'm. Just wondering if you can more broadly talk about what you are hearing from advertisers. It does seem like the budget cuts have stopped for the time being and overall seem stable but are there.
Rising sources of worry or concern youre hearing about where conversely, any sort of optimism.
Yeah. So first of all I know overall, what youre seeing and I think it's part of why ecommerce is doing.
So while it is that advertisers are looking to work with channels and partners that are very good at.
Attributions for performance and to showcase showcase that its working so tomorrow, you were able to show advertisers and Thats why were focusing on that so much.
You are a good place for them to spend their money and Cri youre going to get the budgets are going to get retention youre going to get happy clients. So we have 18000 of those as I mentioned on the E Commerce front, which as you know it starts with connectivity and skim links and I would just more typical of commerce holistically or as I mentioned e-commerce in the box.
Seeing even greater sixth advertisers' success over there so I will say that.
We're seeing that advertisers are coming in even stronger to work with us on the E. Commerce front, I think especially now theyre looking for great.
I don't know if were as good as Google search, but it's first time based on the momentum that advertisers really like working with our e-commerce.
Initiatives. So so again I don't know if thats because of the overall macro is because we're a great or both but we're doing a good job on E Commerce and I'm happy to see that momentum too I think since the acquisition, we're working more holistically as one company. So there's a lot of synergies between no data integrations.
Different.
Initiatives.
<unk> advertisers to build our core advertisers band connectivity connectivity core advertisers buying tabbouleh, we have more salespeople selling and cross selling so those things are contributing to E Commerce and I'll tell you. My my goal is to double that business I mean, it's a great business it should be.
15% of ex Tac last year, I want us to be 30%, it's such a great business, it's quality advertising for consumers.
So I think it's a combination of.
We're doing really good for advertisers and since the acquisition, we are working better together as one and we're enjoying the benefits of that so that was one part of the question feedback from advertisers is.
Basically.
Performance and I can tell you by the way and I wrote this in my letter I don't focus anymore on recession end market softness and things of that nature are focused on execution and product and does it work or does it not work I don't want to hear about anything else personally I come to work I think I know, what we need to do we know what we need to do we need to do the work and.
And I think we have a huge upside during that so we have everything we need at our disposal to execute on our plans and dreams and mainly as it relates to advertisers I think they want the same.
One of our work with companies that can showcase fast they are putting money into their channels. They can see conversions many of them fast. So they can stick around and increased spend. These are these are the two things advertisers want now more than ever.
Thank you.
Thanks, David.
Thank you one moment please.
Our next question comes from the line of Justin Patterson from Keybanc capital markets. Your line is now open.
Thank you. This is <unk> on for Justin We had two question just how should we think about the pipeline of publisher additions for the rest of the year and then a follow up on generated by AI, just how should we think about the cost implications.
Thank you.
Sorry can you repeat the question real quickly.
Audio break up here.
Sure. Yes. So you just saw on the publisher.
Additions how that pipeline is looking for the rest of the year and any.
Way, we should think about the cost implications from the investments in general that AI.
Yes, so on the pub additions and new publisher revenue. So we're ahead of our plan. So far this year. So we continue to see good momentum on signing up new publishers, Adam mentioned some of the names earlier, but generally speaking we're seeing good progress pipeline still looks very strong.
So we expect that this year it will be another very good year in terms of adding new publishers and I think.
We tend to always talk about the fact that when we add new publishers. They tend to be lower margin. Initially and then we're able to grow the margin overtime. So I think it's also very promising for the future because I think.
It will help us as we.
As we look forward it will help us to grow ex Tac over time as we improve the margin on those publishers.
In terms of generative AI and cost implications and things.
Again, I think Adam said, yes.
We do expect it to be a productivity boost so we do expect it to help our <unk>.
<unk> for instance, be more account managers on the advertising side be more productive because they don't they can they don't have to sit there and work to generate new headlines and things for the advertisers generative AI can help them with that but even more important than that our expectation is that it'll help us with our advertisers.
SaaS and performance advertising and initiatives that will help advertisers become more successful on our platform.
Because one of the things that's important when you're advertising on a platform like ours is to test things test new headlines test new images test different ways of getting your message out there testing new landing pages, even with different messaging and different ways of.
Converting people to what the advertiser wants them to do whether it's sign up for a newsletter or sign up for an email list by a product bias service.
Landing pages key and generative AI can help all of those things as Adam mentioned, we're already using it to generate headlines for our advertisers we're already using it to generate images for advertisers landing pages, probably coming soon so I think it's even more important than their productivity boost we think it'll have a pause.
The impact on the success of advertisers on our platform.
<unk> mentioned that one of the things that gives us a particular advantage in that area is that Jeff.
Generative AI the most important thing about generative AI and using it effectively is having the data to train it on what works and what doesn't so if you want to generate new headlines for your advertisers. While you need to do is you need to train the generative AI tools on what has worked historically so.
The tools can basically make good recommendations to your advertisers and the advantage that tabbouleh has on that front is that were much larger than most.
Most people in our space most people, who do what we do one of the largest companies on the open web and therefore, we have a lot more data to train these tools about what works and what doesn't and so we think we have a real advantage there and we think like I said that will translate into advertisers' success over time and help us expand our.
Advertiser base and just make them more successful.
Thank you Steve.
Okay.
Thank you at this time that concludes our Q&A session for today I will now turn it back to management for closing remarks.
Thank you everyone for joining us today.
And I think as you can tell from our remarks and the questions and in our recent communication we're.
We're excited to be where we are I am personally very energized about our position in the market I think we have an opportunity to build the very first large scale must buy open web company that both publishers and advertisers can rely on side by side to Google for search or side by side to meta and other social companies to where it can be.
The gateway to the open web.
Two sided marketplace that can optimize user experience.
AI and data and all of those things that advertisers and publishers need and want we're fully focused on our four key priorities performance advertising bidding E Commerce and Yahoo.
Leanne, we executed on our plans and once <unk> is launched we expect to be.
At $2 $5 billion run rate and this is out of our 70 plus billion dollar opened mid market. So.
We're bigger but still a small portion of this big market and so there's a lot of growth for us and we're excited to go there and what I would tell you know like I said earlier, what I tell myself and to boot.
Is that at our size.
We have everything we need to execute and reach our financial objectives and dreams. These are timed to lay low due to work execute and that's all we care about so we look forward to interacting with many of you. Thanks for joining today.
And May you all discover things you love and never knew existed.
Yes.
Thank you and thank you for your participation in today's conference. This does conclude the program and you may now disconnect.
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