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Taboola.com Ltd. (TBLA), a small-cap player in the digital advertising space, has recently garnered significant attention from investors and analysts alike following the announcement of an exclusive partnership with Apple (AAPL). The deal, which designates Taboola as the exclusive ad reseller for Apple’s News and Stocks apps, sparked a big rally in the company’s stock price. Trading at slightly more than $3 per share, Taboola stands out in the penny stock category, and its potential for growth suggests a much larger story.
The Apple partnership is a major milestone for Taboola, significantly enhancing its market presence and promising new revenue streams. The stock is currently rated as a “Strong Buy” by Wall Street analysts, who see an average upside potential of 75%, based on the mean price target.
The company’s robust artificial intelligence (AI) technology, combined with its strategic partnerships, positions it well to outperform in the competitive digital advertising market. Plus, the broader market dynamics are favorable for small-cap stocks like Taboola. As investors shift their focus from mega-cap technology stocks to smaller, high-growth potential companies, Taboola stands out with its innovative solutions and strong industry relationships.
With strong analyst endorsements and a promising partnership in place, is now the right time to invest in this penny stock? Let’s take a closer look.
About Taboola.com Stock
Founded in 2006, Taboola.com Ltd. (TBLA) is based in New York, with a market cap of $991 million. The company offers an AI-powered platform used by digital properties, including websites, devices, and mobile apps, to enhance monetization and user engagement.
Shares of Taboola.com have dropped over 24% on a year-to-date basis, and are up just 3.5% over the last 52 weeks.
Taboola.com Climbs After Securing Apple Advertising Deal
On July 16, Taboola’s shares jumped by more than 5% after a report from Axios indicated that the company had been chosen by Apple (AAPL) to integrate native advertising within the tech giant’s Apple News and Apple Stocks apps.
Thanks to its “massive” scale, global reach, and direct ties with publishers and advertisers, Taboola will act as the authorized ad reseller for Apple News and Apple Stocks. Taboola will insert native ads into these apps across all markets available on iPhones, iPads, and Macs in the U.S., U.K., Canada, and Australia.
The partnership is anticipated to boost Taboola’s market presence and revenue, while also elevating brand visibility across prominent Apple platforms.
Taboola.com Continues to Sign New Deals
Prior to that, on June 11, Taboola announced an exclusive three-year partnership with Mediahuis Ireland, the largest media group in Ireland. Having successfully collaborated with The Belfast Telegraph since 2014, the new agreement will have Mediahuis Ireland deploying a range of Taboola products across the websites and mobile apps of two additional leading national publications: The Irish Independent and Sunday World.
On May 29, Taboola announced a partnership with Foundry, the media, data, and martech division of IDG, Inc., which attracts 28 million monthly visitors. Foundry is implementing Taboola’s suite of products across its global digital consumer properties, including Macworld, PCWorld, TechHive, Tech Advisor, PCWelt, and M3. Taboola aims to expand Foundry’s extensive audience, enhance user engagement, and increase revenue.
On May 15, Taboola revealed a partnership with a360media, a prominent multi-platform media company that garners approximately 74 million pageviews each month. a360media will deploy Taboola’s suite of products to expand its audience, optimize user engagement, and boost revenue. Taboola will be integrated into several a360media sites, including Us Weekly, Life & Style, InTouch, Soap Opera Digest, and First For Women, among others.
Taboola.com’s Business Model
Taboola’s business model is relatively simple, consisting of a two-step business-to-business operation.
Initially, the company enters into long-term exclusive agreements with content creators, such as major online newspapers, referring to them as “digital assets” and offering a range of services at no cost. Taboola generates revenue from advertisers who pay to place ads on its digital assets, with charges based solely on ad engagement. The advertiser pays based on clicks, sales, or other measurable metrics, and Taboola shares this revenue with the digital asset where the ad was displayed. Taboola views ads as recommendations, and only earns when it places ads that capture user interest - so its value lies in the software that selects which ad to show to which user on which digital asset.
On this basis, Taboola’s success hinges on its recommendation engine: an AI machine learning algorithm designed to accurately predict the content that will engage users. In 2023, Taboola reported tens of billions of clicks on its recommended content, with one-third of these clicks directed at internal editorial content, helping to keep users engaged.
How Did Taboola.com Perform in Q1?
Taboola.com reported its financial results for the first quarter of fiscal 2024 on May 8. In Q1, the company’s revenue increased by 26.3% year-over-year to $414 million, fueled by the addition of new publisher partners to the Taboola network. Its revenue topped consensus estimates by $10.9 million.
Notably, Maximize Conversions, the company’s first offering in the AI-bidding technology suite, accounted for nearly 60% of revenue, driven by advertising spend from leading brands such as Hyundai, ERGO, Leica Camera, Sonova, Peugeot, and Opel.
TBLA posted a GAAP loss of $0.08 per share for the quarter, roughly in line with Wall Street’s expectations.
The company’s ex-TAC gross profit reached $139 million, representing a 20% year-over-year increase, primarily fueled by double-digit growth in advertising spend. Additionally, adjusted EBITDA surged 132% year-over-year to $23.5 million, with the adjusted EBITDA margin improving to 16.9% from 8.7% in the same quarter last year.
Taboola.com generated $27 million in free cash flow, including $7 million from pre-payments. Its free cash flow was bolstered by stronger-than-expected adjusted EBITDA, although this was partially offset by costs associated with integrating Yahoo. The company also bought back $28 million in shares during Q1, and has $92 million left under its buyback authorization.
Overall, Taboola.com had a strong start to 2024, with its quarterly results exceeding the upper end of the guidance range for all metrics.
Looking ahead, management reiterated their fiscal 2024 guidance. The company anticipates revenue between $1.89 billion and $1.94 billion, representing a 33% year-over-year growth at the midpoint. It also expects ex-TAC gross profit to range from $656 million to $679 million, indicating an approximately 25% year-over-year increase at the midpoint, and a doubling of adjusted EBITDA to over $200 million.
The company is expected to release its Q2 results on Aug. 7, before the market opens. Analysts tracking Taboola.com expect the company to report a $0.05 loss per share for the quarter, consistent with the loss from the same period last year. At the same time, analysts project TBLA’s revenue will grow 28.68% year-over-year to $427.23 million in Q2.
TBLA Stock Valuation
Assessing Taboola’s valuation, the stock is currently trading at 0.60 times forward sales, well below the sector median of 1.25x.
It also looks undervalued compared to key competitors Magnite (MGNI), PubMatic (PUBM), and The Trade Desk (TTD), whose multiples are significantly above the sector median.
Options Market Sentiment on Taboola Stock
Looking at the August 16, 2024, option chain, there is a bid/ask spread of $0.45/$0.90 for the $2.50 CALL option and $0.00/$0.10 for the $2.50 PUT option. Note that this is the options strike closest to the current stock price. We can calculate the expected price movement by using the midpoint prices of these options:
0.05 (2.50 put) + 0.68 (2.50 call) = 0.73/3.28 = 22%
Based on current prices, the options market indicates that TBLA stock could potentially move up or down by about 22% by the August options expiration, applying the long straddle strategy. This would position the stock within a trading range of approximately $2.56 to $4.00.
Additionally, call options at the $2.50 strike price outnumber put options by approximately 1.6 to 1, with 19 open calls compared to 12 open puts. That said, this light open interest could be partially influenced by the lack of a bid in the $2.50 puts relative to the calls, as highlighted above.
What’s more noteworthy, then, is that at the $5.00 strike price, there are 736 open calls versus just 1 open put, reflecting strong bullish sentiment in the options market and suggesting a higher probability of the stock rising.
What Do Analysts Expect For TBLA Stock?
Analysts have a consensus rating of “Strong Buy” on Taboola stock, with a mean target price of $5.75, which indicates an upside potential of about 75% from current price levels. Out of seven analysts covering the stock, five recommend a “Strong Buy,” one advises a “Moderate Buy” rating, and the remaining one gives a “Hold” rating.
The Bottom Line on TBLA Stock
All things considered, I believe TBLA is a solid buy candidate at current levels. The company’s deal with Apple, along with new agreements with other firms, solid financials, and a favorable valuation compared to key competitors, all suggest substantial growth potential. As an added bonus, the bullish skew in the options market further supports the likelihood of the stock appreciating.
On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
