AI And Open Web Advertising Shift Will Drive Significant Long Term Upside

Catalysts

About Taboola.com

Taboola operates a large scale performance advertising platform that connects advertisers with consumers across the open web using AI and first party data.

What are the underlying business or industry changes driving this perspective?

• Acceleration of advertiser demand for alternatives to search and social as returns diminish on those channels. This is positioning Realize to capture share from a roughly $55 billion open web opportunity and to focus on sustained double digit revenue growth and higher ex TAC gross profit.
• Structural shift of user engagement into premium apps and OEM surfaces, with app traffic already about one third of supply and growing. This should enhance ad performance, improve pricing power and support expanding net margins over time.
• Rising preference for measurable, outcome based advertising including on CTV and TV, where products like the Paramount performance multiplier can extend campaigns from the living room to the open web and lift advertiser budgets, boosting revenue and earnings.
• Deeper AI and machine learning integration across Realize, including predictive audiences and AI assistants for campaign setup and optimization. This is intended to improve advertiser success rates and retention, which should increase average revenue per scaled advertiser and expand EBITDA.
• Growing adoption of unique, LLM resilient supply such as Taboola News and OEM integrations on devices from partners like Apple and Samsung. This increases high intent, human traffic and supports durable ex TAC gross profit growth and robust free cash flow generation.

Assumptions

This narrative explores a more optimistic perspective on Taboola.com compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Taboola.com's revenue will grow by 7.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1.3% today to 2.1% in 3 years time.
• The bullish analysts expect earnings to reach $48.6 million (and earnings per share of $0.16) by about December 2028, up from $25.3 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $30.4 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 36.7x on those 2028 earnings, down from 45.7x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 16.8x.
• The bullish analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.61%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The path back to double digit growth is not yet proven, with full year 2025 ex TAC gross profit expected to grow only about 6 percent and Q4 ex TAC to be down year over year. This could signal that advertiser budgets and scaled advertiser additions are insufficient to sustain the bullish revenue and earnings trajectory over time, pressuring long term revenue and earnings growth.
• Taboola remains heavily dependent on a concentrated set of premium publishers, OEMs and messaging apps for traffic, including Yahoo, ESPN, Apple, Samsung and LINE. Any renegotiation, underperformance of these partners or slower onboarding of new ones would weaken its unique supply advantage and could cap ex TAC gross profit expansion and net margins over the long run.
• While management highlights limited current exposure to search traffic and views LLM driven search as a tailwind for direct app traffic, there is a secular risk that AI assistants and LLM interfaces capture more advertiser demand and user attention over time. This could reduce open web ad opportunities and eventually constrain Taboola’s revenue growth and EBITDA margins.
• The strategy hinges on sustained improvements from AI driven products like Realize, predictive audiences and Abby. If these tools fail to consistently deliver superior return on ad spend versus search and social, advertiser retention and scaling could stall and undermine the assumed uplift in average revenue per scaled advertiser, limiting long term revenue and earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Taboola.com is $6.0, which represents up to two standard deviations above the consensus price target of $4.8. This valuation is based on what can be assumed as the expectations of Taboola.com's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $6.0, and the most bearish reporting a price target of just $4.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $2.3 billion, earnings will come to $48.6 million, and it would be trading on a PE ratio of 36.7x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of $4.01, the analyst price target of $6.0 is 33.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.