Taboola.com, Ltd. Q2 FY2025 earnings call

• Taboola delivered a strong second quarter, beating the high end of guidance across all key metrics, with revenues, ex-TAC gross profit, and adjusted EBITDA all above guidance. - Bought back about 12% of the company in the first half of the year and raised full-year guidance. - Realize, the new performance advertising platform, is seeing early traction with 650 advertisers testing its display and social capabilities since February. Examples include an aviation company beating performance goals and a real estate advertiser growing display budget by 65%. - Taboola News is growing double-digit, offering unique supply and strong performance for advertisers. - Minimal impact from LLM-driven search changes due to top-tier publisher partners with substantial direct traffic and OpenWeb platform partnerships with little search traffic.

In the second quarter, Taboola reported revenues of $465 million, representing 8.7% year-over-year growth. Ex-TAC gross profit was $172.1 million, a 15.1% year-over-year increase. Revenue from scaled advertisers (those spending over $100,000 in the last 12 months) grew nearly 9%, and the average revenue per scaled advertiser rose about 2%. Ex-TAC gross profit growth was driven by higher advertising spend, margin expansion on certain digital publishers, and strong contributions from Taboola News and Bidded Supply. The ex-TAC gross profit contribution to the overall business is significant, fueling profitability and free cash flow generation.

• For Q3 2025, expects revenues between $461 million and $469 million, gross profit between $127 million and $133 million, ex-TAC gross profit $166 million to $172 million, adjusted EBITDA $43 million to $48 million, and non-GAAP net income $29 million to $34 million. - For full year 2025, raises guidance to revenues between $1.86 billion and $1.89 billion, gross profit between $541 million and $555 million, ex-TAC gross profit $689 million to $703 million, adjusted EBITDA $208 million to $214 million, and non-GAAP net income $138 million to $144 million. - Full-year growth rate normalized for Yahoo onboarding is 3% to 5%, with Realize expected to drive return to double-digit growth.

• LLM-driven search changes could potentially impact publisher traffic, though Taboola has seen minimal effect to date with only mid-single digit year-to-date impact. - China revenue had a reduction in the past, currently accounting for about 5% of revenue, and impact is not material but assumptions for the second half assume continued status quo. - Regulatory and approval processes related to share repurchases, such as Israeli authorities' regulations, which may impact buyback timelines.

Q: What's the roadmap to get back to double digits from current 3% to 5% growth?

A: The path back to double-digit growth is through Realize expanding into larger TAM of performance budgets, including display advertising and tapping into social spend tail where advertisers see diminishing returns. Realize needs to capture a share of the $10 billion display budget and attract social spend tail.

Q: How does the OpenWeb survive generative AI search behavior?

A: Taboola has seen minimal impact to date with 5% of traffic from search, due to top-tier publishers with substantial direct traffic and OpenWeb platform partnerships with little search traffic. Publishers can capitalize on LLM on their sites creating new interactions with consumers, which may be more valuable than lost search traffic.

Q: Update on China revenue and second half assumptions?

A: China revenue was less than 1% impact, currently accounts for about 5% of revenue, and assumptions for the second half assume continued status quo with no material recovery factored into guidance.

Q: Sales and marketing G&A expenses?

A: Second quarter had unusual timing items, average of first and second quarter expenses is a better indicator for third and fourth quarters, with second quarter higher than normal due to Q1 timing issues.