To The Moon

Risk Reward

Everyone using social media probably has had interaction with Taboola Ltd (TBLA). Even savvy investors get so involved in the experience they miss the company generating it … the forest for the trees, kind of thing. TBLA shares are currently on sale for about $4.75. It is a risky investment but worthy of its bullish rating among analysts, in my opinion.

The average 12-months price target from analysts is $11.40; that is an implied upside of over 140%. I believe the stock will not hit that target but has the oomph to move into the $7 range this year if earnings stabilize and revenue keeps growing. The consensus is earnings per share for Q1 ’22 will be six cents and revenue will report at over $355M.

Source: Seeking Alpha

Taboola.com Ltd opened for business in 2007 and went public via a SPAC. There is a captivating backstory portraying Taboola as a Mom and Pop operation. CEO Adam Singolda developed the original Taboola software so he could watch entertainment shows. But Taboola employs 1,700, its market cap tops $1B and operates an artificial intelligence-based algorithmic engine platform internationally covering about 64M items in 13 languages.

Rifle Shot Focus

The company has one purpose, i.e., to reach and engage audiences and drive their business to Taboola clients. Taboola creates ads using behavior data. The ads build awareness, generate high-value leads, and encourage customers to take action online. Taboola partners with websites, devices, and mobile apps; the company recommends placements and editorial sites on the open web to clients.

Taboola primarily sells native advertising with a twist. Native advertising does not look or feel like advertising. Most often, developers create ads and recommend placements based on the preferences of the advertiser; i.e., advertising promotes their image. Advertisers choose the products to advertise. The choice of platforms, digital or print media, where and when are up to the advertiser. They hope to convince consumers the messages and products are appealing.

Taboola software deduces assessments of what users might like to see from search engine reports. It includes new and updated content in real-time, whether the searches are navigational, informational, or transactional. The ads are not disruptive but discreet; they are buried in editorial sites.

Ads appearing on social network news feeds are called In-Feed ads; Search and Promoted ads appear at the top of the sidebar on search engines, and ads appearing as recommended articles are Content Recommendations. Singolda told Forbes that a user searches for content, receives it on a share from others, or opportunistically comes across content. Taboola helms all the possibilities, uncovering and driving content "you may like."

Taboola claims:

• Over 500M daily active users
• 9,000 publishers
• +13,000 advertisers
• 500,000 recommendations per second
• 100 terabytes of data per day

Native advertising spending and TBLA shares took a beating from the pandemic. The TBLA market cap fell from $2.16B as shares tumbled over the past year, some 54.6%. TBLA operates in an industry that was expected to fly to a total global value of $402B by 2025. The 52-week high for TBLA shares hit $11.44. Trading volume has dried to a light average of 360K shares.

Source  Seeking Alpha

Management’s positive expectations for industry growth and Singolda’s outlook captivates the investment community. TBLA went public in the throes of COVID-19 and tumbled to unexpected depths.

Mixed Messages

Q4 ’21 was the company’s strongest financial quarter in its history. Shares were selling for $7.78 at the close of the year then plummeted after the good news. The share price is on an uptick from its low of $4.24 in anticipation, actually forecasts, for Q1 ’22 to be reported on May 12, ’22.

The company predicts revenue between $353M to $359M vs. consensus of $356.61M; gross profit of $108M to $112M; ex-TAC gross profit of $134M to $138M; Adjusted EBITDA of $32M to $34M; Non-GAAP net income of $12M to $14M. Revenue was $1.38B in 2021; expectations are revenue will be about $1.67B in ’22.

There are a lot of mixed messages about TBLA. Analysts recommend a strong buy, but hedge funds decreased their holdings by 112K shares last quarter. Short interest is negligible at 0.76% and declined in the past six weeks. Institutional investors bought shares in the last quarter, including ARK Investment Management LLC, Cannon Global Investment Management LLC, Cornerstone Investment Partners LLC, and McDonald Partners LLC.

Digital ad spending increased 12% during the pandemic. At the same time, industry leaders warned ad dollar spending plateaued and will slow down.

In the last report, the company holds over $310M in cash and equivalents but its total debt is $362.9M. Significant debt is a downer when the Federal Reserve is raising rates.

Takeaway

Growth continues at Taboola. Line Today Hong Kong has 188M, global monthly users. Line Today selected Taboola to power ad module recommendations. NBC Sports and Taboola announced this month a multi-year deal that all its digital properties will use Taboola exclusively for video monetization and content recommendations. I think the digital ad market is stabilizing and quality improving.

All things considered, the consensus was a moderate buy when the stock sold at $9 per share. Now it is a strong buy at half the price. It’s risky but leads in an industry with a solid foundation. There is a Chinese proverb that luck overtakes sense: When you only have two pennies left in the world, buy a loaf of bread with one, and a lily with the other.