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

All right. Good morning, everyone. I'm Ro Dewan, Managing Director at JPMorgan in the Tech Investment Banking Group. Today, we have with us Adam Singolda, Founder and CEO of Taboola. Adam's deep background in data analytics and advertising has driven Taboola success. Taboola is a global leader in the ad tech ecosystem, powering recommendations across the open web and e-commerce, through its proprietary AI-based engine. Taboola partners with premium websites, devices and mobile apps to recommend editorial content and ads on the open web. Taboola enables publishers to drive new audiences, increasing engagement and monetization opportunities across the ecosystem. Adam, let's kick off.

Let's do it.

To start off, it would be great to hear a little bit about Taboola's journey from inception to today. How has the company evolved over the past decade? And walk us through where you sit in the ad tech ecosystem, and then your longer-term vision for the business.

Sure, and thanks for having me. This is great. So I started the company about 2007. Before this, I spent 7 years in the Israeli army as an engineer and I couldn't find anything to watch on tv. And I thought, why should I be looking for content? Content should be looking for me. And in many ways it was an opportunity to kind of build like a search engine, but in reverse, we only have 24 hours a day. If you don't know what you're supposed to be looking for, you need something that can help you discover things you may love but never knew existed. And then many years after, now Taboola is -- we're guiding for about $2 billion in revenue. We're probably the biggest company in our space. And that space is, and I take a step back. It's quite exciting to think about advertising in general. It's going to reach about $1 trillion in size. So it's huge. If you think about it, you have 2 great companies. You have Google for search, fairly easy to buy search as an advertiser. It's easy to buy social, so you can buy Meta or Snap or smaller. But then you have the rest of the world. It's referred to as the open web or the open Internet. In the open web, you have basically everyone websites. We love apps on our tv. As of recent, we're seeing companies like Uber is going to generate over $1 billion in revenue this year. We're seeing Amazon reporting that the second line of profit for them is ads. Advertising is the new -- it's the new thing. And in many ways, I believe that where it's going is we're going to see search is kind of. It is what it is now. Social is, it is what it is now. But the next big wave will be, I think, many, many great companies trying to tap into advertising. And all of them will need a friend. They're all going to need a technology that they can work with, partner with, kind of like advertising in a box and specifically for performance advertisers that are looking to scale. And that's a company we're building, kind of like the gateway into the open web. So it's easier for advertisers to spend and it's easier for great companies to partner. And you can see if you follow the last kind of 1.5 years companies like Apple, if you now have an iPhone and you swipe right and you see Apple news on your device, Taboola is the monetization partner for you. If you go to Yahoo Finance, which I'm sure many of us do multiple times a day, you'll see on the homepage recommendations, and then every third or fourth will be promoted by an advertiser. All of those are powered by Taboola. And I suspect over the next decade we'll see many Fortune 1000 companies saying, what's our advertising strategy and how are we going to do it.

There's a lot more focus now on AI. Taboola has been using machine learning and artificial intelligence for years. Walk us through the impact of AI on the open web.

First, I mean, I always want to make kind of clarify that I think AI is really hard to do. I mean, people say AI almost as easy as they drink coffee these days. But it's actually, if you think about it, there's a huge difference between kind of like deep learning, DL, machine learning, ML, and bulls***, BS. And I think there's so much going on. But the truth is that it's really hard to see the magic of AI in action. And there is -- when you go deeper, there's probably 2 types of AI that companies tap into. The first one is just the matchmaking. What you see when you go to Google, what you see when you go to a website, what you see when you open your Instagram, and that's mainly powered by deep learning, which is really hard to do. And you need a lot of data, a lot of machines, a lot of technology to do that we've been doing for a long time. Scale matters. We now reach about 600 million DAUs every day. So the average American sees Taboola about 2, 3 times a day. People discovered the click on Taboola north of 50 billion times a year. And all of that data helps us train the engine to say, to use AI, to say, you may like. And that's one of the biggest things that made us successful to kind of work with publishers and advertisers and help them find each other. The recent innovation we've done with AI is called Max Conversion, which essentially, if you're an advertiser, if you have a pizza oven and you want to get people that will buy your pizza oven, how do you do it? You have a great product. You know how it looks like. But what's the title? What's your bidding strategy? How much you should pay per click? What's your CP? Although, I mean, my wife has a flour business, and I keep asking her, like, what's your CPM? She's like, what are you talking about? But I said, what's your CPC? And she says -- and she thinks, I don't understand our business, which -- that sounds like what it is. And this is the biggest opportunity for investors and in general, in advertising, it's such a complicated space because as a business, you want to spend money, you want to reach consumers, you want them to buy your product. But to get there, you need to know so many the jargon and technologies and get to know different companies, and AI can make it simple. AI can make it such that all you have to do is build a great business, and AI will find a way to type the title for you, come up with a thumbnail for you, come up with a bidding strategy automatically for you. So all of those things we make available for clients, which this year will spend almost $2 billion with us, and 90% of our clients work with us directly. It's not programmatic. It's not all those, again, complicated things. So that's how we use AI to work, I would say mainly to oversimplify a complicated world and build a multibillion-dollar category that I think deserves to happen.

While we're on the topic of just the evolution of the ecosystem, let's talk for a couple minutes on cookie deprecation. So, deprecation has been delayed until 2025. What are the implications to Taboola today and over time, as that happens?

First of all, can they go already, those cookies? But -- so for those who may not follow the industry. So cookies are those things that enable weird ads to follow you when you go to a website to buy shoes, and then suddenly the entire Internet looks like the shoes you already bought. That's implemented using cookies, many third-party cookies. And then about in 2020, Apple decided this is not a good user experience and deprecated cookies back then. So in many ways, we've already -- that signal is already lost. And now in the future, Google say they'll do the same. So I think the world is going to be, we're going to see winners and losers. As that happens, I suspect companies who have a lot of first-party relationship with consumers will be more resilient to third-party cookies going away. And that's going to create more auction, more budgets that will go to companies that can take it and make advertisers successful. And those who rely on cookies more, or maybe too much, might risk losing that signal and not being able to do a good job for advertisers. The way I think about this industry is that it's mainly driven by performance advertisers. Clients want to see success on the back of recession and inflation, all those, the last few years, clients want to see that if they give you $5,000 to $10,000 test, you can get some success quickly and you can't do it unless you have scale, a lot of technology and a lot of good data. So one, I think it's good for consumers that cookies will go away, because I think we need a safe Internet. I think it's a bit creepy to see ads that I don't want to see and I don't know how to get rid of that. So luckily for us, big platforms like Apple and Google and Microsoft are doing the right stuff to make the Internet safer. And on the other side, companies like Taboola, I believe, have an opportunity to benefit from those transitions because of our deep relationship with publishers, because of our deeper integration with them, granting us more users than Snap, more users than Twitter on a daily basis. So we have enough reach now with first-party connection. That makes me feel good about this transition whenever that happens, because Google keeps pushing it away as it seems. But whenever that happens, I think it's a good thing for the industry and hopefully for us as well.

Let's discuss the exclusive partnerships you have and just what that means with respect to these top tier publishers. The quality of the inventory that you have access to, and just the implications for Taboola as a result of that relationship you have and where you sit in the ecosystem.

So we work now with, I mentioned, 600 million DAUs daily active users. The way we reach consumers is through long-term exclusive relationships with thousands of publishers. I'm sure many of you are using Taboola all the time. If you go to NBC News, CNBC, ESPN, if you have an iPhone, if you go to any one of these beautiful, great websites to discover news and follow things you care about, you see usually at the bottom of the article you may like giving you more news to read or on the homepage recommending you what to watch. That's all of that recommendation engine is powered by taboola. So you're all using us probably many times. And the reason those publishers work with us for 3, 5 Yahoo signed a 30 year partnership is because we help them drive audience growth, which they need. We help them monetize their business, which they need, and we help them engage consumers on their site. In many ways, their biggest competition is user attention, which is captured by social networks so heavily. So all of these great organizations which we love, they all need a great partner that's not Google, that's not Facebook, that they can rely on forever. And we feel very honored to work with Disney and all these amazing companies, many of them for over a decade now. It's -- when I started Taboola, I remember this industry was very much driven by short-term agreements. You're here today, you're not here tomorrow. I think it's one of the, probably the keyless heel of this industry. If you were an investor 10 years ago, you saw companies come and go and I wanted to build Taboola to be different, to look and feel like a walled garden in a way that we have our own user base.

You could never have imagined a 30 year partnership back then.

No, I wanted 50 from Apollo, to be honest. But they told me only 30. I said, you know what? We kind of met in the middle, but I love it. I mean, I think, I'll be in my 70s renewing the Yahoo relationship with Apollo. That's a good -- that's the way -- this is how it's done, this is how you should do it, because relationships should be forever, it should be value driven. And you want to build a business that has predictability. I have a license to build a great advertising technology because I work with publishers forever. I'm not buying inventory. I'm in their house. I'm representing them. In effect, we are journalism, we are the open web. And fundamentally that's a different type of company that gives us the opportunity to invest in AI so much and build great advertising technologies because we know we have 600 million DAUs through those relationships. When I started taboola, I would go into a meeting and then the revenue person would take the meeting. It would talk shop about revenue and all that stuff. And now, you walk into a Taboola meeting and you have 10 people in the room. We have the Chief Editor, and that person wants to know how we can help drive growth to audience. You have the subscription person who says how you can diversify my revenue. You have that commerce person that says, well, I see what you're doing with Time.com, and you build an e commerce website for them. Tell me more about. And you have 10 people in the room, and that's so much fun for us and our people to be, to matter, money matters. But to be more than money, for an organization to empower everyone is great. So that allows us to kind of have this long-term relationship with publishers, but mainly to build a company that has predictability and supply access for the rest of time so that we can then grow our ARPU. And I always say that Taboola is big enough now from a reach to consumers. Again, I mentioned on the 600 million people we have now every day will generate almost $2 billion. So call it $3.5 ARPU-ish. Facebook makes $200. Snap makes $33 a user. We're $3.5. Can we get to $33 soon? Probably not. But can we get to $6, $7, $10? I think so. So that means we can double or triple the company by just getting more demand. And that's our biggest focus. And we're about the size of revenue of Twitter this year, but I think we can be bigger than them by next year. And mainly by making advertisers successful and growing ARPU over the next many years.

One of the things that's on investors minds is performance advertising. You just unpack that a little bit for the audience. And what does that mean for Taboola?

Yes, you have really 2 types of people spending money in advertising. The first one is more of a brand, right? Like through an agency, a lot of time and the Super bowl ads. It's like these big, splashy ads. They're trying to get you to be aware of something. It's not bad, but it's usually more. It's something that you have to keep winning again and again, that type of budget. And you need a lot of wine and dine, which I'm not great at. I mean, I love wine, but I'm not, I mean -- But, it's a different type of IO business that you have to keep repurchasing and winning every quarter. Performance advertising, which is the vast majority of the industry, that's 80%, that's the lion's share of the $1 trillion I mentioned. Those are the expedias of the world. Those are like, people, we now see a lot of great money coming out of China that we see that e-commerce, retailers, those dollars, if it works, it's unlimited. And that's a beautiful place to be. If you have great technology and you have enough reach to consumers, you're basically unlimited. You can grow as much as the client sees value in your technology. So we focus on that type of spend, which I think is what made Google and Facebook great. TikTok, which is growing super fast, is talking about $17 billion of bottom funnel commerce revenue this year. So when you see all those companies grow fast, I think to grow fast you have to grow through performance advertising first, and kind of look at the brand advertising as the cherry on the top type of thing. We've seen a good company that's done a good job with agencies and brands, the trade desk. I think that trade desk has done a great job in open web, building a must buy for brands and agencies. Good for them. This meeting is like 5 years ago for the trade desk. It's like they want to be the first open web kind of must buy for brands and agencies. They've done it. We want to be the first must buy for performance advertising in the open web. No one has done it yet, and that's kind of what we're trying to bring. And I think a company like that has to exist, and hopefully we can continue to see that growth and build that one.