Benchmark has adjusted its outlook on Taboola (NASDAQ: TBLA), a leading discovery platform, by reducing the price target to $5 from the previous $6. The firm, however, continues to endorse the stock with a Buy rating.
The reassessment follows Taboola's second-quarter report and the confirmation of its 2024 expectations, which indicate a stable performance within its main business operations, despite the lack of specific revenue figures from its partnership with Yahoo!.
The analyst at Benchmark noted that Taboola's core business is expected to return to a normalized annual growth of 10-15% due to increased platform spending and improved margins excluding Traffic Acquisition Costs (TAC).
Despite projecting approximately flat core revenue growth for 2025, the analyst believes the stock is undervalued, considering the expectations for a long-term Compound Annual Growth Rate (CAGR) of about 3%.
Taboola anticipates that its primary growth initiatives, such as commerce, Taboola News, and Header Bidder, will contribute around 5 percentage points to its normalized incremental growth.
The 2025 revenue forecasts excluding TAC do not include significant gains from these areas, as a conservative measure. Additionally, although the impact is not yet significant, the analyst expressed optimism regarding MAX Conversions, a feature that is expected to enhance net dollar retention by a double-digit percentage and promote a shift towards premium publishers, which typically offer lower relative profitability.
Taboola, the global leader in powering recommendations for the open web, has reported significant year-over-year growth in key financial metrics, including a 21% increase in ex-TAC gross profit to $149.5 million and a 138% surge in adjusted EBITDA to $37.2 million.
The company's free cash flow also showed a substantial year-over-year increase of 237%, reaching over $26 million. Despite a net loss of $4.3 million for Q2, Taboola's non-GAAP net income stood positive at $23 million.
The company has reiterated its 2024 guidance, projecting accelerated growth, with ex-TAC expected to reach $667 million, and adjusted EBITDA and free cash flow expected to double the 2023 figures. This reiteration underscores Taboola's confidence in its business model and its ability to capitalize on the growing advertising market.
Taboola's Q2 revenue increased by 29% year-over-year to $428.2 million, and the company maintains a net cash position of $29.5 million. Partnerships with Yahoo, Apple (NASDAQ:AAPL), and a major OEM for Taboola News are anticipated to drive growth, alongside the planned launch of a new generative AI offering, Abby, in Q3.
InvestingPro Insights
As Taboola (NASDAQ:TBLA) navigates its business landscape, recent data from InvestingPro provides additional context for investors considering the company's stock. With a market capitalization of $1.02 billion and a notable revenue growth of nearly 19% in the last twelve months as of Q2 2024, Taboola demonstrates a solid top-line expansion, which is further underscored by a quarterly revenue growth of nearly 29% in Q2 2024. Despite not being profitable over the last twelve months, analysts are optimistic about the company's potential to turn a profit this year, as indicated by InvestingPro Tips.
InvestingPro Tips also highlight that Taboola's management has been actively buying back shares, which can be a positive sign of confidence in the company's future. Additionally, the company's liquid assets surpass short-term obligations, providing financial flexibility. However, it's worth noting that the stock has been trading near its 52-week low, reflecting the recent market sentiment.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips on Taboola, which can be accessed through their platform. With the next earnings date set for November 6, 2024, and a fair value estimation of $4.48, slightly below the current analyst target of $6, investors have valuable information to gauge the stock's potential. For further insights, there are 11 more InvestingPro Tips available, which could provide deeper analysis and help in making a more informed investment decision.
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