On Monday, Benchmark reiterated its Buy rating on Taboola (NASDAQ:TBLA) shares, maintaining a $5.00 price target for the company's shares. The firm's stance comes ahead of Taboola's expected third-quarter earnings report, which is scheduled for the week of November 4, 2024.
Benchmark anticipates that Taboola will announce total net revenue and adjusted EBITDA figures that align with third-quarter estimates. However, there is a note of caution regarding the fourth-quarter consensus expectations, which suggest a significant quarter-over-quarter increase in ex-TAC (traffic acquisition costs) gross margin.
Benchmark's own estimates are more conservative, predicting a rise of 410 basis points in ex-TAC gross margin for the fourth quarter, compared to the consensus expectations of a 670 basis points increase. The firm acknowledges Taboola's success in integrating Max Conversions, which now accounts for approximately 70% of revenue. This integration has positively impacted the net dollar retention rather than providing an incremental yield.
The analyst from Benchmark also mentioned that while Taboola's management is optimistic about returning to yield growth in the second half of 2024, the unusual expansion of ex-TAC margin in the third quarter, attributed to Yahoo! advertiser tests, remains uncertain. These tests are recognized as net revenue without corresponding TAC, which has temporarily influenced margins.
Despite these concerns, Benchmark suggests that the current valuation of Taboola's shares already reflects apprehensions about second-half margins. Furthermore, the firm believes that the potential for growth reacceleration in 2025 is not yet factored into the stock price. This outlook underpins Benchmark's decision to reiterate the Buy rating and a discounted cash flow (DCF)-based price target of $5.00.
In other recent news, Taboola has reported substantial growth in its financial metrics despite a net loss of $4.3 million in the second quarter. The company saw a 21% increase in ex-TAC gross profit, reaching $149.5 million, and a 138% surge in adjusted EBITDA to $37.2 million. Moreover, Taboola's free cash flow showed a year-over-year increase of 237%, totaling over $26 million. The company's Q2 revenue increased by 29% year-over-year to $428.2 million.
Taboola has also expanded the availability of its Maximize Conversions bidding technology to all advertisers. This AI-powered tool, previously accessible to a select group of advertisers, has led to a significant increase in campaign conversions. The technology has seen rapid adoption, with 70% of Taboola's advertisers incorporating it into their campaigns.
Benchmark, an analyst firm, has adjusted its outlook on Taboola, reducing the price target to $5 from $6, while maintaining a Buy rating. The firm expects Taboola's core business to return to a normalized annual growth of 10-15% due to increased platform spending and improved margins. 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.
InvestingPro Insights
To complement Benchmark's analysis of Taboola (NASDAQ:TBLA), recent data from InvestingPro offers additional context for investors. As of the last twelve months ending Q2 2024, Taboola's revenue stood at $1.62 billion, with a notable revenue growth of 18.98%. This aligns with Benchmark's focus on the company's financial performance and potential for growth.
InvestingPro Tips highlight that management has been aggressively buying back shares, indicating confidence in the company's future. Moreover, net income is expected to grow this year, which supports Benchmark's optimistic outlook for 2025. These insights are part of 8 additional tips available on InvestingPro, providing a more comprehensive view of Taboola's financial health and market position.
It is worth noting that while Taboola was not profitable over the last twelve months, analysts predict the company will be profitable this year. This projection aligns with Benchmark's cautious yet positive stance on the company's future performance. Investors seeking a deeper understanding of Taboola's financial metrics and growth potential may find value in exploring the full range of tips and data available through InvestingPro.
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