Q3 2024 Taboola.com Ltd Earnings Call

Jessica Kourakos: Thank you. Good morning, everyone, and welcome to Taboola's Q3 2024 Earnings Conference Call. I'm here with Adam Singolda, Taboola's Founder and CEO, and Stephen Walker, Taboola's CFO. The company issued earnings materials today before the market, and they are available in the investors section of Taboola's website. Now, I'll quickly cover the safe harbor. Certain statements today, including our expectations for future periods, are forward-looking statements. They are not facts and are subject to material risks and uncertainties described in our SEC filings. These statements are based on currently available information, and we undertake no duty to update them except as required by law. Today's discussion is also subject to the forward-looking statements, limitations, and 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.

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.

Jessica Kourakos: For definitions and reconciliations to GAAP, please refer to the non-GAAP tables in the earnings press release posted on our website. With that, I'll turn the call over to Adam.

non-GAAP financial measures definitions and reconciliations to GAAP. Please refer to the non-GAAP tables in the earnings press release posted on our website with that I'll turn the call over to Adam.

Adam Singolda: Good morning, everyone, thank you all for joining us. Q3 was another strong quarter beating our guidance midpoint for revenues, ex-TAC gross profit, and Adjusted EBITDA. With this strong quarter and the momentum we've seen for our run rate heading into Q4, we are reiterating our 2024 guidance for all metrics and raising our free cash flow target to more than $105 million, which represents more than 2x level what we generated in 2023. 2024 continues to be a big year for us. As you can see in our financial performance and our return to positive yield growth in Q3. As we look towards the future, our aim is to continue executing and building out our offering to delight both our advertiser and publisher partners.

Adam: Good morning, everyone and thank you all for joining US Q3 was another strong quarter, beating our guidance midpoint for revenue ex Tac gross profit and adjusted EBITDA.

With this strong quarter and the momentum we've seen for a run rate heading into Q4, we are reiterating our 2024 guidance for all metrics and raising our free cash flow target to more than $105 million, which represents more than two X level, what we generated in 2023.

Adam: 'twenty 'twenty four continues to be a big year for us as you can see in our financial performance and I'll return to positive yield growth in Q3.

Adam: As we look towards the future. Our aim is to continue executing and building out our offering to delight, both our advertiser and publisher partners.

Adam Singolda: Given the strength of our supply, much of our focus will continue to be on growing the number of advertisers and their spend with us. This includes making sure our technology is meeting advertisers' needs throughout the entire journey with Taboola. As a reminder, Taboola's core business is helping advertisers reach consumers on publisher sites and driving performance while also helping publishers grow their audience engagement and revenue. As I look into the growth potential of our core business, there are three exciting opportunities that are worth noting. First, the growth in publisher adoption of AI. Most publishers have yet to fully adopt AI in a meaningful way. Today, the average user reads about one to two pages per visit, which is way too little. With AI personalizing homepages and article pages, that number should grow and help drive engagement.

Adam: Given the strength of our supply much of our focus will continue to be on growing the number of advertisers and their spend with us.

Adam: This includes making sure our technology is many advertisers need.

Speaker Change: The entire journey with Ebola.

Adam: As a reminder, <unk> core business is helping advertisers reach consumers on publisher sites and driving performance, while also helping publishers brother audience engagement and revenue.

Adam: I look into the growth potential of our core business. There are three exciting opportunities that are worth noting.

Adam: First the growth in publisher adoption of AI most.

Adam: Most publishers have yet to fully adopt AI in a meaningful way.

Adam: The average user reads about one to two pages per visit which is way too literal with AI personalizing Homepages and article pages that number should grow and helped drive engagement.

Adam Singolda: This is a great opportunity and a differentiation for us as more and more publishers use our publisher platform to go beyond just generating revenue and drive personalization and engagement. Second, we see growth in users visiting our publisher sites through the adoption of new distribution channels. Today, most traffic to publishers come from search and social. We are seeing OEMs and utility apps integrating new feeds to increase the engagement they have with their user base, and that leads to a rise in traffic to publishers driven from those new sources of traffic like Taboola News and others. Third, we see growth in our ability to drive more revenue per user. Publishers are looking to diversify their revenue streams and take advantage of the editorial clout and trust they have, which social networks don't. This includes things like e-commerce, subscription, and more.

Adam: This is a great opportunity and a differentiation for us as more and more publishers used our publisher platform to go beyond just generally in revenue and drive personalization and engagement.

Adam: Second we see growth in users visiting our publisher sites.

Adam: The adoption of new distribution channels today, most traffic to publishers come from search and social.

Adam: We're seeing Oems and utility apps integrating news feed to increase the engagement they have with their user base and that leads to a rise in traffic to publishers driven from those new sources of traffic flexible our news and other.

Adam: And third we see growth in our ability to drive more revenue per user public.

Adam: Publishers are looking to diversify the revenue stream and take advantage of the editorial clouds and trust. They have with social networks don't this includes things like e-commerce subscription and more.

Adam Singolda: Our long-term exclusive agreements are a significant competitive advantage for Taboola and provide a predictable base of high-quality inventory for our advertisers. As our publisher network increasingly adopts AI like Homepage For You, Newsroom, and Commerce Widgets, our supply base becomes bigger and stronger. This is great for advertisers and great for Taboola. As you know, we're laser-focused on making advertisers successful and growing our yields as a result. We believe Taboola's greatest opportunity for growth is by growing our advertiser base and getting more budgets from advertisers, given our huge access to users. It is very encouraging to see yields returning to growth this quarter. A lot of it is driven by investment in AI and advertiser spend growing globally. We are continuing to make strides growing ad spend in important international markets like China, where we saw advertisers grow their global spend with us by 2x versus last year.

Adam: Our long term explicit agreements are significant competitive advantage for tubular and provide a predictable base of high quality inventory for our advertisers.

Adam: It's all a publisher network increasingly adopt AI like conference for you newsroom and commerce widgets, our supply base becomes bigger and stronger.

Adam: This is great for advertisers and grateful tabbouleh.

Adam: As you know, we're laser focused on making advertisers successful and growing our yield as a result.

Adam: We believe triple its greatest opportunity for growth is by growing our advertiser base and getting more budget from advertisers given our huge access to users.

Adam: It is very encouraging to see yields returning to growth this quarter a lot of it is driven by investment in AI and advertisers spend growing globally.

Adam: We are continuing to make strides growing AD spend in important international markets like China, where we saw advertisers broader global spend with us by two X versus last year.

Adam Singolda: This is the Q2 in a row where we're seeing this trend. You can see a great example in our shareholder letter of how spending is ramping with a major Chinese e-commerce company as we prove how we can deliver strong performance for them at scale. One thing that is unique this year is the learnings we've had about the opportunity to attract tier 1 advertisers to drive performance. It started with Microsoft years ago, it ramped meaningfully this year as we rolled out Yahoo and Apple. One of our initiatives to attract these tier 1 advertisers is called Taboola Select. It is where tier 1 advertisers can work with us to not only be on premium publishers like CNBC, ESPN, USA Today, and others, but also buy an experience that is even more premium, where they have 100% share of voice. A nice example of that is on Yahoo.

Adam: This is the second quarter in a row, where we're seeing this trend.

Adam: You can see a great example, in our shareholder letter of how spending is ramping with a major Chinese E Commerce company as we through how we can deliver strong performance for them at scale.

Adam: One thing that is unique this year is the learnings we've had about the opportunity to attract tier one advertisers to drive performance.

Adam: It started with Microsoft years ago, and you ramped meaningfully this year as we rolled out Yahoo and Apple.

Adam: One of our initiatives to attract these tier one advertisers is called tabbouleh select it as our tier one advertisers can work with us to not only be on premium publishers X gene B C. ESPN USA today and others, but also by an experience that is even more premium where they have 100% sure.

Adam: Voice and that's an example of that is in yellow on page, where you can see us rendering beautiful ads that are on their own surrounded by the tall recommendations.

Adam Singolda: homepage, where you can see us rendering beautiful ads that are on their own, surrounded by editorial recommendations. Tier 1 advertisers love that. It is premium, and it performs. We're seeing good traction with major car manufacturers, health insurance carriers, and food chains. We also partnered with Jounce Media to certify that Taboola Select is free of made-for-advertising, also known as MFA, sites, reinforcing our commitment to creating brand-safe environments for advertisers. I mentioned Microsoft, Yahoo, and Apple being big contributors to our learning to attract tier 1 advertisers. Let me share a bit more about how we're doing with those. We've been working with Microsoft for nearly a decade now, and we feel good about how our extended partnership is progressing this year.

Adam: You don't want advertisers love that it is premium and it performed.

Adam: We're seeing good traction with major car manufacturers health insurance carriers and food chains. We also partnered with <unk> media to certify the two bullets elect is free of made for advertising also known as NFC sites, reinforcing our commitment to creating brand safe environment for advertisers.

Adam: I mentioned, Microsoft Yahoo, and Apple being big contributors to our learning to attract tier one advertisers now let me share a bit more about how we're doing without.

Adam: We've been working with Microsoft for nearly a decade now and we feel good about how our expanded partnership is progressing this year, our technical integration with Xander is underway and we expect to onboard additional premium inventory by the end of Q4 growing Microsoft even a further from where it is.

Adam Singolda: Our technical integration with Xandr is underway, and we expect to onboard additional premium inventory by the end of Q4, growing Microsoft even further from where it is now. We are particularly excited about onboarding Outlook Mail inventory, as we'll now provide our advertisers with access to two of the largest email providers in the world, Yahoo Mail and Outlook Mail. This has the potential to drive more adoption with performance advertisers specifically focused on email marketing. Now, speaking about Yahoo, our sales focus to expand ad budgets on Yahoo with tier-one advertisers is progressing well. The test of new formats is progressing as expected and showing good results for both Yahoo and Taboola. We continue to expect the test to be concluded in Q1 and are currently working with Yahoo on growing omni advertiser spend on the rest of the Taboola network.

Adam: Now.

Adam: We are particularly excited about on boarding outlook mail inventory as we will not provide our advertisers with access to two of the largest email providers in the world Yahoo Mail and outlook now.

Adam Singolda: This is very small now, as we were very focused on Yahoo first, but it does represent an area of opportunity longer term for Taboola. Finally, for Apple, our focus on sales enablement is seeing significant traction, with over 2x growth in the numbers of advertisers spending on Apple inventory in Q3 when comparing July to September. These are all some reasons why we're excited about our core business and the growth potential. Next, I want to move to growth drivers beyond our core, focusing on Taboola News and e-commerce. For Taboola News in Q3, we announced the expansion of our partnership with Xiaomi, one of the world's leading smartphone brands, for an additional four years. This renewed agreement goes beyond our original collaboration, allowing us to enhance our presence in new markets and with more touchpoints on each device.

Adam Singolda: In addition, last quarter, we mentioned that we signed a new partnership with a top 10 global OEM, and while we have not shared yet their name, I'm happy to say we started rolling out in October. I really like Taboola News, and it's a special access to users for our advertisers, but also creates a meaningful driver of traffic to our publishers. It is still small now, where we send about more than a million people a day to our publishers, but Taboola News as a new distribution channel to publishers can grow a lot. Turning to e-commerce. E-commerce is a great place to be. We continue to witness impressive growth in new channels, especially in social commerce, accessed through our Shop Your Likes creator offering.

Adam Singolda: This is where people with social influence can come to us, pick up a product they like and are passionate about, and create content. This content is authentic. Retailers love it, and they get paid when they drive conversion. A good amount of the strong growth we are seeing in China ad spend this quarter is coming from big e-commerce companies seeing a lot of value in working with Taboola to drive higher customer acquisition and purchasing activity side by side to their spend in search and social today. To wrap things up, I'm happy with our Q3 performance, beating our revenue, ex-TAC, and Adjusted EBITDA guidance, reiterating our guides for the year and raising our 2024 free cash flow targets. We remain laser-focused on driving demand and improving advertiser success.

Adam Singolda: Our investment in AI with technologies like Abby, Maximize Conversions, and Ad Maker are central to our efforts. We're excited to announce even more innovations in the near future. We're going to have an investor day early next year, which is where we intend to show many new developments alongside our partners. Stay tuned for more. Now, before I turn the call over to Stephen Walker, I do want to take a moment to express my pride in our global team. With everything that is going on in the world, it is inspirational for me to witness Taboola employees' resilience, hard work, and spirit. All of these efforts are showing up in our numbers and in industry recognition, including a win at the Digiday Technology Awards for Best Native Advertising Platform, highlighting a Maximize Conversions case study with Hyundai and Innocean.

Adam Singolda: We were also named a finalist for the AdExchanger Awards in the category of Best Use of Technology by a Publisher for our collaboration with The Independent. 2024 is a big year for us, and I am so proud of our execution leading into a strong Q4. We are looking forward to delivering on our guidance and having a very strong close to the year. With that, let me pass the call to Steve to review our financials and outlook in more detail.

Stephen Walker: Thanks, Adam, and good morning, everyone. As Adam mentioned, we've had another strong quarter, and we are well-positioned to build on this momentum in Q4. Let's dive into the details of our financial performance. Q3 results were strong, showcasing continued growth across all key metrics. Revenues reached $433 million, reflecting a 20% year-over-year increase, while ex-TAC gross profit of $166.4 million grew by 30% year-over-year. This strong ex-TAC growth in Q3 was primarily driven by increased advertiser spending, particularly from tier 1 brands and agencies, and the addition of a significant amount of premium supply since Q3 of last year. As we have previously discussed, this new supply is coming from Yahoo, Apple, and other premium publications. Net loss was $6.5 million, with non-GAAP net income coming in at +$22.2 million. Note that income before income taxes was at approximately +$3.5 million.

Stephen Walker: We had a relatively high income tax expense charge this quarter due to the timing of tax provisions. The volatility arises from a change in deferred tax expenses between quarters. In any case, there was no cash impact. Adjusted EBITDA for the quarter of $47.9 million was up 110% year-over-year and reflected a 29% Adjusted EBITDA margin. Free cash flow of $42.9 million benefited from our growth in Adjusted EBITDA and favorable operating leverage with our new publishing partners. I would note that over the trailing eight quarters, our conversion of Adjusted EBITDA to free cash flow has been 60%, which is at the high end of our long-term expectations of a 50% to 60% conversion rate. Q3 operating expenses of $128.3 million were up approximately $9 million versus the year-ago period. Headcount and cost increases were primarily limited to the growth areas of our business.

Stephen Walker: Our improved year-over-year Adjusted EBITDA margin of almost 29% demonstrates our strong focus on cost discipline. With ongoing expense discipline and strong growth expectations, we continue to expect we will approach our long-term Adjusted EBITDA margin target of 30% for the full year. The GAAP net loss for Q3 of $6.5 million narrowed significantly from $23.1 million for Q3 2023. This GAAP net loss included several non-cash items. It included $26.2 million of amortization of intangibles, including the non-cash-based Yahoo prepayment, the latter of which is listed as the commercial agreement asset on our balance sheet. I would note that this is the first time we have taken a charge for the amortization of the commercial agreement asset or the Yahoo prepayment, but you should expect to see continued amortization of that asset going forward.

Stephen Walker: The GAAP net loss also included share-based compensation expenses of $15.4 million and holdback compensation expenses related to the Connexity acquisition of $1.8 million. Excluding those non-cash items, our non-GAAP net income was $22.2 million and was within our guidance range for the quarter. In terms of cash generation, we had approximately $49.8 million in operating cash flow in Q3 and free cash flow of $42.9 million. This includes net publisher prepayments, which contributed $6.9 million to cash flow and interest payments on our long-term debt, which used $3.8 million. Turning to the balance sheet, our net cash balance remains very robust. We ended Q3 with a positive net cash position of $64.5 million. Cash and cash equivalents totaled $217.2 million, remaining above our long-term loan balance of $152.7 million. Regarding share repurchases, we bought back $10 million of shares in Q3.

Stephen Walker: We still have approximately $56 million remaining under our previously announced $100 million share repurchase program. As you know, when we originally announced our share buyback program, we set the goal to offset dilution and maintain share counts at the end of Q1 2023 levels. At the end of Q3 2024, our outstanding shares were down by 6.2 million shares compared to the end of Q1 2023. We have exceeded that goal. While we continue to believe that share buybacks are the best use of cash given our current share prices, we are constrained by Israeli regulations limiting shareholder ownership to 25% absent approval of an exception, which is close to Yahoo's current ownership stake. Given this constraint, our share buybacks will primarily be used to offset dilution, and we will also consider paying down long-term debt with our excess cash flow.

Stephen Walker: As always, both the share repurchase program and the debt paydown are contingent upon the availability of sufficient working capital. Looking ahead, I'm optimistic about the trend lines of our business and our team's ability to drive sustained and accelerated growth. We've had three strong quarters in 2024, and I believe we will continue to build on our momentum as we close out the year. Our guidance reflects strong expectations for the Q4. We continue to ramp advertising spend due to our advertiser success initiatives and as contextual data increases due to our increased scale, which will continue to improve our monetization performance. With three strong quarters behind us, we are reaffirming our annual guidance for revenues, gross profit, ex-TAC Gross Profit, Adjusted EBITDA, and non-GAAP net income. Revenues are projected to be between $1.735 billion and $1.765 billion, representing a 22% growth at the midpoint.

Stephen Walker: Gross profit is projected to be $535 to $555 million, and ex-TAC gross profit is expected to be in the $656 to $679 million range. That ex-TAC guidance reflects a 25% increase year over year at the midpoint. We continue to expect Adjusted EBITDA to be over $200 million for the year. Given our strong performance year to date, we are raising our free cash flow target to over $105 million. These targets for Adjusted EBITDA and free cash flow represent roughly a doubling of both metrics compared to 2023. Finally, we anticipate non-GAAP net income of $84 to $104 million for the year. For Q4, we are issuing the following guidance.

Stephen Walker: We expect revenues to be between $460 and $490 million, gross profit from $180 to $196 million, ex-TAC gross profit from $205 to $221 million, Adjusted EBITDA from $83 to $99 million, and non-GAAP net income from $37 to $53 million. In summary, we are confident in our ability to grow and scale our business while maintaining a disciplined and balanced approach to spending. Our emphasis is on enhancing efficiency and profitability even as we continue to invest in our growth. We believe that our strategic investments in technology will deliver long-term advantages, which will positively impact our financial performance and benefit our shareholders. You saw our announcement of Abby last month, which is a great example of how investments in technology can help our customers and make us more productive as a business.

Stephen Walker: Our momentum is very strong heading into Q4, and you can see that reflected in our accelerating year-over-year growth rates. This momentum, strong growth, and advancements to our technology bring us closer to becoming a must-buy for advertisers seeking to connect with consumers worldwide on the open web. With that, let's move to Q&A. Operator, can you please open the line for questions?

Operator: 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 one again. Please stand by while we compile the Q&A roster. Our first question comes from Zach Cummins at B. Riley Securities. Your line is open.

Zach Cummins: Our first question comes from Zach Cummins B Riley Securities. Your line is open.

Ethan Widell: Hi, thank you. This is Ethan Widell calling in for Zach Cummins. Thanks for taking my questions. To start, can you talk a little bit about your progress with your Apple relationship and when might you expect that to become a meaningful revenue contributor?

Adam: Yes.

Speaker Change: Hi. Thank you. This is even wider all calling in for Zach Cummins. Thanks for taking my questions.

Adam: To start.

Adam: Can you talk a little bit about your progress with your Apple relationship and when might you expect that to become meaningful threat become a meaningful revenue contributor.

Adam: Yeah.

Adam Singolda: Sure. Good morning, and thanks for joining. We're very happy with the Apple partnership on multiple fronts. One, as you said, we think there's an opportunity for Apple to become one of our larger partners over time, which is exciting. Two, we're seeing more and more opportunities through the Apple partnership to, one, attract premium advertisers. It's part of our Taboola Select offering, which is great. We're seeing that attracting premium Tier 1 advertisers that still want to drive performance.

Adam: Sure.

Speaker Change: Good morning, and thanks for joining so we're very happy with the Apple partnership on a multiple fronts one.

Speaker Change: As we said, we think theres an opportunity for Apple to become one of our larger partners over time, which is exciting too we're seeing more and more opportunities through the Apple partnership.

Speaker Change: One attract premium advertisers are now it's part of our tubular select offering which is great we think that.

Speaker Change: Attracting premium tier one advertisers are they still want to drive performance is one of the largest kind of a growth engine for the company and Apple is.

Adam Singolda: It's one of the largest kind of growth engines for the company. There's much more premium than Apple. Three, because it's such a huge validation in the marketplace that Apple has chosen Taboola to be their monetization partner. We think that as the industry is evolving to be much more kind of leaned in into advertising, we could be having more exciting partnerships like Apple. For all those reasons, we think it's going really well.

Speaker Change: There is no much more premium than Apple three because that's such a huge validation in the marketplace that Apple has chosen to blow that should be the monetization partner.

Speaker Change: We think that as the industry is evolving to be much more kind of leaned into advertising.

Speaker Change: It could be having more.

Speaker Change: Partnerships like like Apple So for all those reasons, we think we think it's going really well.

Ethan Widell: Got it. Thank you. With the adoption of Maximize Conversions, what's been the feedback so far from advertisers using that solution? Do you see equivalent to the mix of advertisers using the offering long term?

Speaker Change: Got it thank you.

Speaker Change: And then with.

Speaker Change: The adoption of Max conversions, what's been the feedback so far from advertising advertisers using that solution.

Speaker Change: Can you speak a little to the mix of advertisers using the offering long term.

Adam Singolda: Yeah. We mentioned that the adoption rate of Maximize Conversions is about 70%, which is great. If you compare quarter over quarter, we had about 1,500 advertisers joining in this quarter versus the one before. These are direct advertisers using Maximize Conversions, so that's fantastic. Also if you compare the amount of campaigns, we're seeing 36% growth quarter over quarter thanks to Maximize Conversions. As I look at the industry and again, the trend of big and small advertisers wanting to work with companies that can drive performance, Maximize Conversions is a key element of our AI investment to do that. We also mentioned that we're seeing a kind of good growth coming out of China as advertisers are able to drive performance with us in a fairly significant way. Again, Maximize Conversions is an enabler for that.

Speaker Change: Yeah. So we mentioned that the adoption rate of Mexican version is about 70%, which is great. If you compare quarter over quarter, we had about 500 advertisers joining in this quarter versus the one before which obviously is a great deal of direct advertisers using Max conversion. So that's that's fantastic and also when you compare the amount of campaigns.

Speaker Change: 36% growth quarter over quarter, thanks to Max conversion, so as I look at the industry and again the trend of big and small advertisers wanting to work with companies that can drive performance. Next next conversion is a key element of our AI investment to do that we also mentioned that we're seeing are kind of like good.

Speaker Change: Gross coming out of China as advertisers are able to drive performance with us in our firm.

Speaker Change: Significant way and again Mexican version is as an enabler for that.

Adam Singolda: We're seeing growth in some good verticals such as healthcare, auto manufacturers, and more. I think overall our investment in AI is a big kind of contributor to our growth.

Speaker Change: And we're seeing growth in some good verticals, such as healthcare auto manufacturers and more so I think overall our investment in <unk> is a big kind of contributor to our growth.

Ethan Widell: Got it. Well, I appreciate it.

Speaker Change: Got it I appreciate it.

Operator: Our next question comes from Dan Medina at Needham & Company.

Speaker Change: Our next question comes from Dan Medina, and Needham <unk> company.

Adam: Sure.

Laura Martin: Is it me? Can you hear me?

Speaker Change: Is it me can you hear me, yes, yes, and yes.

Operator: Yes.

Laura Martin: Oh, great. Okay. Yeah. Laura Martin standing in for Dan Medina. Great. Nice move. That is what I do anyways. I want to do that because I use Dan. Okay, three things. One, traffic. You said that you are driving 1 million people per day for traffic. Could you give me some kind of goal for traffic over time to connect it to 10 million? 1 million feels like a lot to me, but maybe you do not think it is. I am interested in growth of traffic as a metric. Secondly, Trump, I have never heard you talk about China before, and we are right on the cusp of a new president who said he is going to put big tariffs on China. Could you give us the number of how much is China of your revenue and how much is at risk if we start putting tariffs on China?

Speaker Change: Oh, great Okay, Yeah, Laura Martin standing in for <unk>.

Dan Medina: Dan Medina.

Adam: Great.

Adam: Yes.

Adam: Good morning.

Adam: And I wanted to do better.

Adam: Okay.

Speaker Change: Thanks, Robert So you said that Youre driving a million people per day per traffic could you give me some kind of goal for traffic.

Speaker Change: Over time, it can that get to 10 million I mean, it feels like a lot to me, but maybe they don't look at it so I'm interested in growth.

Adam: Capex.

Adam: <unk>.

Laura Martin: Third, Abby, you guys did a great demo. I think Abby's a great product. Can you tell me how awareness is going? That's a self-service product. I've been curious as to how you actually tell small and medium advertisers that Abby exists as an option for them to drive that cycle. Could you update us on those three things?

Adam Singolda: All right. Good morning, Laura. Thanks for the question. Taboola News is really an exciting business because not only do I think it has a chance of becoming a significant growth driver for the company, I mentioned before, I think it's going to be hundreds of millions of dollars of incremental revenue for the company, a very special type of access to supply and data that as you work with consumers before they ever open their browser, ever get to search and social. We are kind of like their first main dish, if you will, introducing them to products and offering and content before they even start their journey. It's a very unique access to consumers. I love that business. Two, I said financially it can be significant.

Adam Singolda: As I look at the trends in the industry with search and Gemini and social networks and all those things, policies being changed, becoming a source of traffic for publishers is as important, if not more, to actually driving revenue. I think with that, driving over 1 million people a day is a significant number. Over time, I would like that to be over 10% of publishers' source of traffic. If you think about it today, when publishers open their Google Analytics to see where is traffic coming from, they're seeing usually 20%, 30%, sometimes more coming from search, 20%, 30% coming from social, and then the rest is very insignificant.

Adam Singolda: I would like us to be kind of like a double-digit source of growth and source of traffic for them so that over time, much like companies are having SEO strategies and perhaps even some companies, all they do is optimize it for SEO, people will optimize for Taboola. We can become something that publishers need to and can rely on. As I look at the trend, which is only renewing and expanding, I mentioned a top 10 OEM in the world that has launched, and a lot of great conversations that are taking place. I will say that opportunity for Taboola News is not only to be partnered with OEMs, but further with many utility apps and anyone that is trying to go up the food chain and be engaging consumers beyond just the actual utility.

Adam Singolda: Whatever you actually do with your app, you might want to offer news to consumers in a local way, get them to engage with you more than one or two times a day. Taboola News is such a great global aggregator news that can do that. I think over time, we might see Taboola News integrated beyond just OEMs, but rather with many utilities that we all love and use every day. There's a question about Abby. I can take that. First of all, I hope you enjoyed me walking the streets of Manhattan. It was fun. Convincing my wife to work with us, that was also great. On a serious note, I think it was really great to see the feedback we got from the industry about again, not only simplifying the journey advertisers have as they want to drive growth for their business.

Adam Singolda: Abby is mainly on the onboarding phase right now. Such an easy and intuitive way to interact with advertisers, big or small, as they look to become an advertiser. As you know, Laura, it's very complicated for businesses, even the most sophisticated ones, to start a campaign, come up with a CPC or CPM, which bidding strategy, what is a viewable CPM? Such a complicated industry, and I strongly suspect that over the next three to five years, we are going to see Meta and Google doing a lot more in that world and Taboola as well, kind of making it very simple while still providing transparency and control for advertisers to succeed and onboard. Over time, again, I think this will help us, one, make it easy to onboard Taboola and hope to grow our advertiser count.

Adam Singolda: Even beyond just the onboarding phase, helping existing advertisers kind of manage their campaign, suggest things. I was joking internally that if Taboola had 1 million account managers, what would be the experience advertisers have? Obviously, we're not going to have 1 million advertisers, but maybe Abby can imitate that experience. I really like that. Again, it's one step out of many steps we're going to hear from Taboola investing in generative AI.

Stephen Walker: Sorry about that, Laura. Regarding your question about Trump and the impact of potential tariffs on our business overall. Our Chinese business, which I think to your point is a good proxy for how big an impact that could have. It's low single digits percentages, probably 3% to 4% depending upon how you measure it, demand side, supply side, et cetera. A decent portion of that is Chinese demand on Chinese supply or Taiwanese demand on Taiwanese supply or the like. That would not obviously be affected. Some of it is what we call kind of import demand. It's Chinese demand on US and other countries' supply. That's probably the Chinese demand on US supply is what would be at risk, but that's a fairly small percentage of our business.

Adam: good you know a good proxy for how big an impact that could have.

Adam: A big, decent portion of that is Chinese demand on Chinese supply.

Speaker Change: or Taiwanese demand on Taiwanese supply or the like. So that would not obviously be affected.

Adam: Some of it is what we call kind of import demand, so it's Chinese demand on U.S. and other countries' supply.

Adam: That's probably, you know, the Chinese demand on U.S. supply is what would be at risk, but that's a fairly small percentage of our business. Like, I don't have it broken out exactly that way, but it would be, you know, 1 to 2 percent max.

Stephen Walker: I don't have it broken out exactly that way, but it would be 1% to 2% max. We're not as concerned about that from a direct impact perspective. I do think that we've started working with some of the Chinese retailers who have been spending a lot with Facebook and Google and others, but we're earlier in that journey. Again, we don't have as much revenue at risk there. I think it's not a big impact on us.

Adam: So, we're not as concerned about that from a direct impact perspective. You know, I do think that there's, we've started working with some of the Chinese retailers who are, who have been, you know, spending a lot with.

Adam: Facebook and Google and others, but we're earlier in that journey. So again, we don't have as much revenue at risk there So that's I think it's not a big impact on us

Operator: Thank you very much, Chris. Our next question comes from Jason Helfstein at Oppenheimer.

Thank you very much, guys.

Adam Singolda, Jessica Kourakos

The End

Our next question comes from Jason Helfstein at Oppenheimer.

Steve Roman: Hi, this is Steve Roman on the line for Jason Helfstein. Just two questions from us. One, is the Q3 TAC rate representative for next year and any color as we are thinking about modeling next year? Secondly, just asking for a progress update on filling the Yahoo inventory. What inning are we in, roughly? Thanks very much.

Speaker Change: Hi, this is Steve Homan on the line for Jason Helstein. So just two questions from us. One, is the 3Q TAC rate representative for next year in any color as we're thinking about modeling next year? And then secondly, just asking for a progress update on filling the Yahoo Inventory. What inning are we in, roughly? Thanks very much.

Stephen Walker: Let me take the question about kind of next year expectations. I'll talk kind of generically about that. First of all, we don't really want to guide now. We'll guide in February. We're obviously happy that we've hit everything that we said we were going to do in 2024 thus far, and we reiterated guidance. We expect to meet all of our goals this year. We are excited about, we have many growth drivers going forward. We have continued opportunity to grow advertiser budgets. That's the biggest thing we need to do, by the way, to continue to grow our business is grow advertiser budgets. Our investments in AI like Abby and our Maximize Conversions algorithms, those are the keys to continue to grow that.

Speaker Change: So let me let me take the question about kind of next year expectations, so I'll talk kind of

Speaker Change: generically about that. So first of all, we don't really want a guide now.

Speaker Change: will guide in February. We're obviously happy that we've hit everything that we said we were going to do in 2024 thus far and we reiterated guidance so we expect to meet all of our goals this year.

Speaker Change: And we are excited about, we have many growth drivers going forward. So we have continued opportunity to grow advertiser budgets. That's the biggest thing we need to do, by the way, to continue to grow our business, is grow advertiser budgets.

Speaker Change: and our investments in AI like ABI and our max conversions algorithms. Those are the keys to continue to grow that.

Stephen Walker: They drive lower churn and higher net dollar retention among advertisers, which is again, what helps us grow the budgets over time. We also have growth drivers in our core with great supply from Yahoo, Microsoft, Apple, other publishers that we've expanded and grown with over time. I think, we believe we have a lot of supply, and we have an opportunity to grow revenue as a result of that. Beyond core, Taboola News, e-commerce, our bidding, they're all growth drivers that we think can help us grow faster in the future as well. While we don't specifically want to guide, we're excited about our growth prospects, and we're happy to continue to say that we expect our long-term growth rate should be 20% plus.

Adam: They drive lower churn and higher net dollar retention among advertisers, which is, again, what helps us grow the budgets over time.

Adam: We also have growth drivers in our core with great supply from Yahoo, Microsoft, Apple, other publishers that we've expanded and grown with over time.

Adam: So I think, you know, we believe we have a lot of supply and we have an opportunity to grow revenue as a result of that. And then beyond CORE, Taboola News, e-commerce.

Adam: are bidding. They're all growth drivers that we think can help us grow faster in the future as well.

Adam: So, while we don't specifically want a guide, we're excited about our growth prospects and we're, you know, happy to continue to say that we expect our long-term growth rate should be 20% plus.

Stephen Walker: I would also say, as Adam said earlier, we're going to have an investor day in 2025, in probably March. I think that's a good opportunity just to go deeper on where are we investing, where do we see the growth coming from, how is it going to work. I think that'll be a good opportunity to go in more depth there.

Speaker Change: And then, you know, I would also say, as Adam said earlier, we're going to have an investor day in 2025 in probably March.

Adam: And I think, you know, that's a good opportunity for us to go deeper on where are we investing, where do we see the growth coming from, how is it going to work. So I think that'll be a good opportunity to go in more depth.

Adam Singolda: On the Yahoo front, just to say that, one, we're obviously, as you can see with our numbers, we're happy with our progress. We're laser-focused on advertiser success and migration of Yahoo on the advertisers. We're seeing very good results, really amazing names that are happy and expanding, and it's great to see the partnership we have with Yahoo and the ecosystem around us. Just to say one more note about that, I think in general what we're seeing more and more as Yahoo becoming kind of part of our core business is that that partnership and that type of partnership is really contributing to Taboola's success and growth over time. As I think about having such special, unique, exclusive access to supply, especially when you need access to data and contextual segments we can bring to market, is something that advertisers really want.

Adam: On the Yahoo front, just to say that, one, we're obviously, as you can see with our numbers, we're happy with our progress. We're laser focused on advertiser success and migration of Yahoo, Omni Advertisers. We're seeing very good results.

Adam: Really amazing names that are happy and expanding, and it's great to see the partnership we have with Yahoo and the ecosystem around us.

Adam: And just to say one more note about that, you know, I think in general what we're seeing more and more as Yale becoming, you know, kind of our core, part of our core business

Adam: is that that partnership and that type of partnership is really contributing to Taboola success and growth over time.

You know, as I think about having such special, unique...

Adam: Special and unique access to data and contextual segments we can bring to market.

Adam Singolda: Google has YouTube, Amazon has Twitch, and we have Yahoo and Apple and others. The more we can grow that type of uniqueness in the marketplace and let advertisers realize the opportunity with open web, non-search, non-social, I think it's going to be a big part of our strategy moving forward as we think about becoming the performance advertising company of the open web.

Adam: It's something that advertisers really want. You know, Google has YouTube, Amazon has Twitch, and we have Yahoo and Apple and others.

Adam: So, the more we can grow that type of uniqueness in the marketplace and make advertisers, you know, realize the opportunity with the open web, you know, non-search, non-social, I think it's going to be a big part of our strategy moving forward as we think about becoming the, you know, the performance advertising company of the open web.

Andrew Boone: Great. Thanks very much.

Great, thanks very much.

Operator: Our next question comes from Andrew Boone at JMP Securities.

Our next question comes from Andrew Boone at JMP Securities.

Andrew Boone: Thanks so much for taking my questions. Adam, I'd love to hear more about the outcome of you guys introducing more automated tools. If I think about Abby as well as Max reducing friction for advertisers, has that led to an increase of smaller advertisers? What's the outcome of that other than just saying, Hey, budgets are a little bit more robust, and you guys getting more spend there? If I think about some of the other drivers across the business, I'd love an update in terms of e-commerce and what you guys are seeing there. How do we think about that contributing to Q4 too, more broadly, what can we expect on the product side as we think about the roadmap for 2025 and beyond? Thanks so much.

I'm sorry. I'm sorry. I'm sorry. I'm sorry.

Thanks so much for taking my questions.

Speaker Change: I'd love to hear more about the outcome of you guys introducing more automated tools. So if I think about Appy, as well as Max, reducing friction for advertisers, has that led to an increase of smaller advertisers? What's the outcome of that other than just saying, hey, budgets are a little bit more robust, you guys are getting more spend there?

Adam: And then if I think about some of the other drivers across the business, I'd love an update in terms of e-commerce and what you guys are seeing there. How do we think about that contributing to 4Q? And then more broadly, what can we expect on the product side as we think about the roadmap for 25 and beyond? Thanks so much.

Adam Singolda: Sure. Hey, good morning, Andrew. On the first one with Abby, and it's early days in terms of what's the impact for us to share, but let me say two things as investors think about our business and our advertiser business. In terms of the product effect, what you really want, we want it easier for advertisers to join, which does mean we want to less churn, which means we want more advertiser count over time. We have about 15,000 to 20,000 direct advertisers, which again, outside of Google and Facebook, it's a remarkable, astonishing number to have most of the vast majority of our revenue coming from advertisers who work with Taboola's technology and Taboola's AI direct. That's very special, and it gives us the license to invest more in AI, invest more in technology, and improve advertiser success. Abby it's a pillar on that journey.

Adam: Sure, good morning Andrew. So on the first one with Abby, you know, it's early days in terms of, you know, what's the impact for us to share, but let me, you know, say two things as investors think about our business and our advertiser business.

Speaker Change: On the first one with Abbvie and its early days in terms of what's the impact for us to share, but let me, let me say two things.

Adam: As investors think about our business and our advertiser business.

In terms of the product effect

Adam: In terms of the product effect, what you really want to we want to see.

Speaker Change: You know what you really want, we want it easier for advertisers to join, which does mean we want less churn, which means we want more advertiser count over time. We have about 15,000 to 20,000 direct advertisers, which again, outside of Google and Facebook, it's a remarkable, astonishing number to have the vast majority of our revenue.

Adam: We want it's easier for advertisers to joint which doesn't mean, we want so less churn, which means youre wants more advertiser account over time, we added about 15 to 20000 direct advertisers, which again outside of Google and Facebook. It's a remarkable astonishing number to have most of our divest majority of our revenue coming from advertisers, who worked with to bolus technology.

Adam: coming from advertisers who work with Taboola's technology and Taboola's AI Direct.

Speaker Change: And two brothers AIG direct.

Adam: That is very special and it gives us the license to invest more in AI and invest more in technology and improve advertiser success.

Adam: That is very special and it gives us the license to invest more in AI and invest more in technology and improve advertisers' success. Abbvie is it's a pillar on that journey and like I mentioned, we look at the entire journey. So that advertisers essentially have it on the one hand very simple to join and be successful.

Adam: Abby is, you know, it's a pillar on that journey and like I mentioned we look at the entire journey so that AdWords has essentially have it on the one hand very simple to join and be successful that is on the churn front

Adam Singolda: Like I mentioned, we look at the entire journey so that advertisers essentially have it, on the one hand, very simple to join and be successful, that is on the churn front, but then also be able to spend more and more with us, and that could be more of, like I mentioned earlier, sort of an account management agent and other tools that we can bring to market. Over time, I think generative AI can do things as far as even generating landing pages for advertisers. Today, if you think about campaigns that advertisers create on Google, Facebook, and Taboola, the landing page tends to be the same between all of those. Over time, I think we can even be in a situation that the landing page is personalized to me. You might like video experiences. You'll see videos on landing pages that will help you convert.

Adam: but then also be able to spend more and more with us.

Adam: And that could be more of, like I mentioned earlier, sort of an account management agent and other tools that we can bring to market. Over time, I think generative AI can do things as far as even generating landing pages for advertisers.

Adam: If you think about campaigns that advertisers create on Google, Facebook, and Taboola, the landing page tends to be the same between all of those. Over time, I think we can even be in a situation that the landing page is personalized to me. Andrew, you might like video experiences.

Adam Singolda: I may like thumbnails, and Stephen Walker may like text. Each one will get their own experience that will help them understand the product better, discover the things they like, and eventually convert. There's just a really long roadmap here on things that we can do. I'd like to see more advertisers, big and small. Abby will, I think at first, help sort of like the mid-size advertisers. Think about maybe a financial services advertiser that wants to be successful but does not have the resources to do so, does not have the team to do it, but now can. As we continue to invest, and we do have people dedicated to this, we'll have even smaller and smaller advertisers, which is great because it can diversify the advertiser experience for consumers, drive yield growth.

Adam: So, each one will get their own experience that will help them understand the product better, discover the things they like, and eventually convert.

Adam: So there's just a really long roadmap here on things that we can do. I'd like to see more advertisers, big and small.

Adam: Abby will, I think at first, help sort of like the mid-size, you know, advertisers think about maybe financial services, advertiser that wants to be successful but does not have the resources to do so, does not have, you know, the team to do it, but now can.

Adam: As we continue to invest, and we do have people dedicated to this, we'll have even smaller and smaller advertisers, which is great because it can diversify the advertiser experience for consumers, drive yield growth.

Adam Singolda: Like I said, I think that with just investing with advertiser success, Taboola can double and triple the company on our existing supply. As you know, we have no intent to not grow supply. That still is encouraging because by just doing that, we can grow significantly. That's with regards to just Abby and generative AI. The feedback was really exciting since we launched it.

Adam: And, like I said, I think that with just investing with AdWords as a success, Taboola can double and triple the company on our existing supply. And, as you know, we have no intent to not grow supply.

Adam: But that still is encouraging because by just doing that we can grow significantly. So that's with regards to just ABI and generative AI, and the feedback was really exciting since we launched it.

Stephen Walker: You also asked about e-commerce and kind of where we're going there. I guess first I would say e-commerce continues to perform well. It's one of the reasons that we expect to have an accelerating growth in Q4 and a very big quarter in terms of our year-over-year growth and the like. I think it continues to perform well. Generally speaking, I think where we continue to invest there is basically in similar to our core business, it's in making it work better for advertisers and in now we're investing more in sales teams to go out and get more retailers for that business and then expanding globally. I think that's kind of where we're focusing on growing that business over time.

Okay.

Adam: So you you also asked about e-commerce and kind of where we're going there So I guess first I would say e-commerce continues to perform. Well, it's one of the reasons that we see, you know that we expect to have a accelerating growth in the fourth quarter in a very big quarter in terms of our year over year growth and like

So I think it continues to perform well.

Adam: And generally speaking, I think, you know, where we continue to invest there is basically in, similar to our core business, it's in making it work better for advertisers.

Adam: and now we're investing more in sales teams to go out and get more retailers for that business and then expanding globally.

Adam: So I think that's kind of where we're focusing on growing that business over time.

Adam Singolda: One more note to that is, I mentioned that in the letter, one of our actually the largest growth segments within our e-commerce business is what we call Shop Your Likes, which essentially is a way for creators that use social networks to come to Taboola, pick up a product they like, or actually an offering of multiple products that they like across the open web, create authentic content that they are passionate about, link to it on their social network, and drive conversions and real products being sold through that channel. I can tell you we're getting calls from retailers leaning in and asking us questions about that. They want more of it. What's nice about it's not only driving financial growth, but also it's really a new era.

Adam: And one more note to that is, and I mentioned that in the letter, one of our, actually the largest growth segments within our e-commerce business.

is what we call shops you like.

which essentially is a way for...

creators.

Adam: that use social networks to come to Taboola, pick up a product they like.

Adam: or actually an offering of multiple products that they like across the open web, create authentic content that they are passionate about, link to it on their social network, and drive conversions and real products.

Adam: being sold through that channel. I can tell you we're getting calls from retailers leaning in and asking us questions about that. They want more of it.

Adam Singolda: We're seeing those creators, some of them are quitting their daily jobs, and all they do now is create content with Taboola for commerce. It's a whole new ecosystem that we're growing. We're early stages, but it's growing really fast. Those retailers now have access to content, which is very good content. They can reach out to those creators, they can partner with them. It's a win-win-win across everyone. Again, I like that because it's a new type of supply, a new type of financial blood flow within the e-commerce, and I'm very happy that we're part of that ecosystem.

Adam: So, it's a whole new ecosystem that we're growing. We're early stages, but it's growing really fast.

And then also those retailers now have access to content.

which is...

Very very good content

Adam: So they can reach out to those creators, they can partner with them. So it's a win-win-win across everyone. And again, I like that because it's a new type of supply, a new type of financial growth for us within the e-commerce, and I'm very happy that we're part of that ecosystem.

Andrew Boone: If I could sneak one more in. Steve, if I think about headcount and where you guys have allocated dollars across the P&L, you guys have been very consistent in terms of 2024. How do you feel about your staffing levels as we think about 2025? Is there any areas that we should expect investment as we look at next year? Thanks so much.

Speaker Change: If I could sneak one more in. Steve, if I think about headcount and where you guys have allocated dollars across the P&L, you guys have been very consistent in terms of 2024. How do you feel about your staffing levels as we think about 25? Is there any areas that we should expect investment as we look at next year? Thanks so much.

Stephen Walker: I think, and in fact, you saw that in Q3, our sales and marketing expenses were up a bit versus Q2 linearly. That is a starting point of investing in more sales teams, especially to bring in more of what we are calling internally our ideal customer profile customers, which would be customers who we think do particularly well in our network, especially in the area of direct-to-consumer products. Think of it like Ooni Pizza Ovens, who's a big advertiser of ours, and they're selling pizza ovens directly to consumers. That's the type of advertiser that tends to do relatively well with us. We're investing more now in sales teams around that, as well as some other areas which is more about bringing in really good larger brand dollars, not necessarily the biggest brand.

Speaker Change: Yeah, so I think and in fact you saw that in Q3 our sales and marketing expenses were up a bit versus Q2 linearly so and that is a

Speaker Change: starting point of investing in more sales teams, especially to bring in more of what we're calling internally kind of our ideal customer profile customers, which would be customers who we think do particularly well in our network.

especially in the area of direct-to-consumer products.

Speaker Change: So, think of it like Uni Pizza Ovens, who's a big advertiser of ours and they're selling pizza ovens directly to consumers, that's the type of advertiser that tends to do relatively well with us, so we're investing more now in sales teams around that.

Speaker Change: as well as some other areas which is more about bringing in really good, larger brand dollars.

Stephen Walker: By the way, not branding, they're still performance, call them brandformance, but they're basically big or emerging enterprise advertisers who spend big on the internet. We're investing more in sales teams to address them as well. Yes, we are starting. That's probably the biggest area of investment for us is investing in sales teams to go after markets that we've identified are particularly lucrative for us and to bring on more demand. Because as we've said, right now, the quality of supply we have is amazing, and the amount of supply we have is amazing. We need more budgets basically to continue to grow the business, which when you've got good quality supply, you should be able to get those budgets, but it is a sales effort, so that's where we're investing.

Speaker Change: particularly lucrative for us and to bring on more demand because

As we've said like right now

Speaker Change: The quality of supply we have is amazing and the amount of supply we have is amazing.

Speaker Change: And we need more budgets, basically, to continue to grow the business, which, when you've got good quality supply, you should be able to get those budgets, but it is a sales effort, so that's where we're investing. Thank you.

Andrew Boone: Thank you.

Operator: Our next question comes from Kevin Kopelman at TD Cowen.

Our next question comes from James Koppelman at TD Cowen.

Kevin Kopelman: Good morning, and thanks for taking the question. The first one is for Adam. You mentioned in the letter that most publishers have yet to adopt AI in a meaningful way. We've seen similar commentary in some cases across the broader ad space, and it seems like education is probably a big part of it. How are you approaching educating publishers to get them accustomed to all these new and admittedly disruptive AI tools? Are you finding that clients are a lot more comfortable than they were, say, six months ago? Then I have a follow-up for Steve.

Thank you.

Speaker Change: Good morning, and thanks for taking the question. The first one is for Adam.

Speaker Change: You mentioned in the letter that most publishers have yet to adopt AI in a meaningful way. We've seen similar commentary in some cases across the broader ad space, and it seems like education is probably a big part of it.

Speaker Change: How are you approaching educating publishers to get them accustomed to all these new and admittedly disruptive AI tools and are you finding that clients are a lot more comfortable than they were Say six months ago, and then I have a follow-up for Steve

Adam Singolda: Hey, good morning. Yeah, I think, innovation like innovation, a lot of times, ecosystems tend to change when the upside is or downside is significant. It's one of those moments now when you look at AI and what it can create, now more than ever. At the same time, you're looking at also the downside if you choose not to change, where you're seeing much more lean in conversation in general. As an example, a year ago, two years ago, three years ago, the notion that homepages would be fully personalized by machine and the article pages would be fully personalized, even to the extent that the design will change by machine was ludicrous because that was a very sensitive area to tap into.

Speaker Change: Hey, good morning. Yeah, I think, you know, innovation like innovation, a lot of times, you know, ecosystem tend to change when the upside is or downside is significant. And it's one of those moments now when you look at AI and what it can create.

Speaker Change: Now more than ever at the same time you're looking at also the downside if you choose not to change Well, you're seeing much more kind of leaned in conversation in general And so and as an example, you know a year ago two years ago three years ago the notion

Speaker Change: that homepages will be fully personalized by machine and the article pages will be fully personalized even to the extent that the design will change by machine was ludicrous.

Speaker Change: because that was that was a very sensitive area to to tap into. But these days when you're seeing things like you know TikTok, 4Upage doing such an amazing job attracting more than an hour a day of consumers engaged solely you know driven by AI and you know we're seeing obviously the growth of open AI and Gemini.

Adam Singolda: These days, when you're seeing things like TikTok For You page doing such an amazing job attracting more than an hour a day of consumers engaged solely driven by AI. We're seeing, obviously, the growth of OpenAI and Gemini. Everyone wants to see what is their part of it. I think this is why a lot of the growth we're seeing with adoption is because the industry is changing around us, and we're just the best positioned to, 1, offering those technologies because we've been investing in them for a long time. 2, we have the trust of publishers that I think more than any other company in the world. I don't know any other company that has such a vast list of tier 1 trusted publishers that wants to change and grow together.

Everyone wants to see what is their part of it.

Speaker Change: And I think this is why a lot of the growth we're seeing with adoption is because the industry is changing around us and we're just best positioned to, one, offering those technologies because we've been investing in them for a long time, and two, we have the trust of publishers.

Speaker Change: that I think, more than any other company in the world, I don't know any other company that has such a vast list.

of, you know, tier one trusted publishers.

Speaker Change: that wants to change and grow together. And you're seeing those renewals and you're seeing those exclusivity and all those things. So, I think it's a combination of the industries changing around us and then we're well-positioned to just tap into that. So, that's why I think that happens.

Adam Singolda: You're seeing those renewals, and you're seeing that exclusivity and all those things. I think it's a combination of the industry is changing around us, and then we're well-positioned to just tap into that. That's why I think that happens.

Kevin Kopelman: Then for Stephen Walker, what were the key drivers getting you back to positive yield growth? More broadly, can you just remind us of the dynamics behind yield trends over time amid the Yahoo ramp, as well as your work on performance advertising? Finally, looking ahead, how should we think about yield trends in the next couple of quarters as we head into 2025? Thank you.

Speaker Change: And then for Steve, what were the key drivers getting you back to positive yield growth, and more broadly, can you just remind us of the dynamics behind

Speaker Change: yield trends over time amid the Yahoo! ramp, as well as your work on performance advertising, and finally, looking ahead, how should we think about yield trends in the next couple quarters as we head into 2025? Thank you.

Stephen Walker: Good question. I think, the key drivers to get us back to positive yield growth, basically it was that we had completed onboarding the full supply from Yahoo earlier this year, and then we had transitioned the advertisers fully by the end of Q2. That gave us the opportunity then in Q3 and going forward to start to grow those advertiser budgets. Growth of advertiser budgets, as long as the supply is relatively stable, is what drives increased yield over time.

Speaker Change: So, good question. So, I think the key drivers to get us back to positive yield growth, basically it was that we had completed onboarding the full supply from Yahoo.

Speaker Change: And then we had transitioned, you know, early this year and then we had transitioned the advertisers fully by the end of Q2. So that gave us the opportunity then in Q3 and going forward to start to grow those advertiser budgets.

Speaker Change: and, you know, growth of advertiser budgets as long as the supply is relatively stable is what drives increased yield over time.

Stephen Walker: I think, the key driver was our supply had stabilized, and we had brought over those advertisers, so we had a chance to start growing them, and that's what brought us back to positive yield. Looking forward on that, our expectation is that we will continue to drive higher growth of our demand side than we will on our supply side, intentionally, by the way, because we have really good supply. That'll drive positive yield growth. We do expect it to remain positive and to continue to drive positive yield going forward. As you alluded to, a big part of that is our investments in AI automation like Abby, our investments in our algorithms such as Maximize Conversions that make it easier and for advertisers to work with us and also make them more successful.

Speaker Change: So I think the key driver was our supply had stabilized and we had brought over those advertisers so we had a chance to start growing them and that's what brought us back to positive yield.

Speaker Change: Looking forward on that, our expectation is that we will continue to drive

Speaker Change: higher growth of our demand side than we will on our supply side, intentionally, by the way, because we have really good supply. So that'll drive positive yield growth. So we do expect it to remain positive and to continue to drive positive yield going forward. And as you alluded to, a big part of that is our investments in

Speaker Change: A.I. automation like Abby, our investments in our algorithms such as max conversions that make it easier.

Speaker Change: for advertisers to work with us and also make them more successful. So those investments are what will help drive.

Stephen Walker: Those investments are what will help drive higher advertising budgets with us and will help drive that higher yield over time. My expectation is now with all the onboarding and the supply we've done, we should have a more stable supply environment. We should be able to grow yields here going forward, which by the way, also gives us the opportunity in our core business to grow the core XTAC margin over time as well, which I expect to do.

Speaker Change: higher advertising budgets with us and will help drive that higher yield over time. So my expectation is now we're with all the onboarding and the supply we've done, we should have a more stable supply environment. We should be able to grow yields here going forward.

Speaker Change: which, by the way, also gives us the opportunity in our core business to grow the core XTAC margin over time as well, which I expect to do.

Kevin Kopelman: Great. Thanks, guys. I appreciate the color.

Great, thanks guys. I appreciate the color.

Operator: Our last question comes from Mark Zgutowicz at The Benchmark Company.

Speaker Change: Our last question comes from Mark Vogadowitz at The Benchmark Company.

Mark Zgutowicz: Thank you. Steve, maybe a follow-up to the headcount question and specific to tier 1 ad sales capacity. Can you just talk about where you are today and how much of a limiting factor that is on you fulfilling all of the Apple supply that you have today? I assume that there's probably other Apple-like publishers out there that you can also address, but you need that sort of tier 1 sales capacity to address. I'm just curious where you are today and where you expect to be over the next six months there in terms of that tier 1 sales capacity. Thanks.

Speaker Change: Thank you. Steve, maybe a follow-up to the headcount question and specific to Tier 1, ad sales capacity. Can you just talk about where you are today and how much of a limiting factor that is?

Speaker Change: on you fulfilling all of the Apple supply that you have today.

and I assume that there's...

Speaker Change: There's probably other Apple-like publishers out there that you can also address, but you need that sort of Tier 1 sales capacity to address. And I'm just curious sort of how you – where you are today and what you –

Speaker Change: where you expect to be over the next six months there in terms of that tier one sales capacity. Thanks.

Stephen Walker: Yep. I think, I wouldn't say it's necessarily a limiting factor per se, but I do think we've identified specific opportunities to invest in our sales teams and our sales efforts to drive additional demand that we think will be positive ROI and will help us drive increased performance, increased yield, in essence, from our supply. We're obviously doing that. That's what I talked about. One, the direct-to-consumer sales team, we're investing there. The second one, which we call internally emerging enterprise, which is kind of mid to larger advertisers who are also focusing on performance campaigns. We're investing there. I would say that we've definitely identified some areas where we think we can invest and have positive ROI and drive more ad dollars.

Yep.

Speaker Change: So I think, you know, I wouldn't say it's necessarily a limiting factor per se, but I do think we've identified specific opportunities to invest in our sales teams and our sales efforts to drive additional demand that we think will be positive ROI and will help us drive increased performance, increased yield in essence from our supply. So we're obviously doing that.

Speaker Change: And that's what I, you know, talked about, the one, the direct to consumer sales team, we're investing there. The second one, which we call internally emerging enterprise, which is kind of mid to larger advertisers who are also focusing on performance campaigns.

Speaker Change: So I would say that we've definitely identified some areas where we think we can invest and have positive ROI and drive more ad dollars. I also think, though, that there's a big opportunity for us just to grow our existing advertiser base.

Stephen Walker: I also think, though, that there's a big opportunity for us just to grow our existing advertiser base based on the fact that they're seeing positive returns from us. When you have a huge influx of supply like we've had over the last basically nine to 12 months, what happens is the supply becomes cheaper initially, and advertisers typically see better CPAs, lower CPAs, cost per acquisitions. Then over time, you get more budgets from them because they say, Oh, wow, this is working well. We're now in that, oh, wow, this is working well phase, and we need to go get more budgets from them. I think the opportunities we've identified around direct-to-consumer and emerging enterprise and the investments we're making in new sales teams there are part of the story.

Speaker Change: huge influx of supply like we've had over the last basically nine to twelve months.

Speaker Change: What happens is, the supply becomes cheaper initially and advertisers typically see better CPAs, lower CPAs, cost per acquisitions.

Speaker Change: And then over time you get more budgets from them because they say, oh wow, this is working well. So we're now in that, oh wow, this is working well phase, and we need to go get more budgets from them.

So I think...

Speaker Change: We, the opportunities we have identified around direct-to-consumer and emerging enterprise and the investments we're making in new sales teams there.

Stephen Walker: The other part of the story is we expect to be able to grow budgets from existing advertisers with our existing team, which is obviously the best way of doing it because that's higher productivity. I think we haven't said exactly where we get to on the sales teams, and I think we should talk about that more when we guide to 2025. I think that gives you kind of a flavor of where we are and what we're investing in.

Speaker Change: are part of the story, the other part of the story is we expect to be able to grow budgets from existing advertisers with our existing team, which is obviously the best way of doing it because that's higher productivity.

Speaker Change: So I think, you know, we haven't said exactly where we get to on the sales teams and I think we should talk about that more when we guide to 2025, but I think that gives you kind of a flavor of where we are and what we're investing in.

Mark Zgutowicz: That's helpful, Steve. Maybe one last question, unrelated. You talked about, I would call these sort of three relatively new revenue opportunities, the top 10 global EM, the China advertiser, and then I would call it maybe more of an emerging new relationship with Microsoft Outlook. Could you force rank maybe those opportunities in terms of revenue over the next six to 12 months? Just trying to get a sense of how much contribution you can expect from either of those three. Thank you.

That's helpful, Steve. And then maybe one last question, unrelated.

Speaker Change: You talked about, I would call these sort of three relatively new revenue opportunities, the Top 10 Global OEM, the China Advertiser, and then I would call it maybe more of an emerging new relationship with Microsoft Outlook.

Speaker Change: Could you force-rank maybe those opportunities in terms of revenue over the next six to twelve months? Just trying to get a sense of how much contribution you can expect from either of those three. Thank you.

Stephen Walker: Yeah. Good question. One that frankly I don't even have in front of me. I would say that all three of them are good-sized opportunities. By the way, all three of those are, in essence, supply-side opportunities. Well, two of them are supply side, one of them is demand. The Chinese retailers, that's a demand-side opportunity. The other two are more supply-side opportunities. I'd say in general, all three are significant opportunities, and all three we think can be meaningful to our growth over time. Frankly, we haven't quantified them. I'm not sure if we necessarily want to, and I don't even have it in front of me. Sorry for the vague answer, we don't have that.

Speaker Change: Yes, so good question. One that, frankly, I don't even have in front of me. I would say that all three of them are good-sized opportunities. By the way, all three of those are, in essence, supply-side opportunities. Well, two of them are supply-side, one of them is demand. So the Chinese...

Speaker Change: retailers are, that's a demand side opportunity, the other two are more supply side opportunities.

Speaker Change: But I'd say, in general, all three are significant opportunities and all three, we think, can be meaningful to our growth over time, but, frankly, we haven't quantified them. I'm not sure if we necessarily want to, and I don't even have it in front of me. So sorry for the vague answer, but we don't have that.

Mark Zgutowicz: No worries. Thanks, Steve. That's helpful. Appreciate it.

No worries. Thanks, Steve. That's helpful. Appreciate it. Thanks, Mark.

Stephen Walker: Thanks, Mark.

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

Speaker Change: This concludes the question and answer session. I would now like to turn it back to Adam Singolda for closing remarks.

Adam Singolda: Thank you again, everyone, for joining us this morning. As you can see, I'm very happy. We're very happy as a team with our Q3 performance, exceeding revenue, ex-TAC, and Adjusted EBITDA guidance, as well as raising our 2024 free cash flow target. Even more, I'm very proud of my team's hard work and the resilience they've shown. We'll continue executing on our strategy, launching new products like Abby and delivering on our financial targets. I look forward to seeing everyone soon and hope you can join us for our Investor Day early 2025. It's going to be great. Speak soon.

Adam Singolda: Thank you again everyone for joining us this morning. As you can see, you know, I'm very happy, we're very happy as a team with our Q3 performance, exceeding revenue, XTAC and adjusted EBITDA guidance, as well as raising our 2024 free cash flow target.

Speaker Change: Even more, I'm very proud of my team's hard work and the resilience they've shown. We'll continue executing on our strategy, launching new products like Abby and delivering on our financial targets. I look forward to seeing everyone soon and hope you can join us for Investor Day early next year. It's going to be great.

Speak soon.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.