Taboola (TBLA)

Content discovery platform Taboola (NASDAQ:TBLA) reported Q4 CY2025 results exceeding the market’s revenue expectations, with sales up 147% year on year to $522.3 million. The company expects next quarter’s revenue to be around $453 million, coming in 186% above analysts’ estimates. Its GAAP profit of $0.17 per share was 56.6% above analysts’ consensus estimates.

Company Overview

Often appearing as those "You May Also Like" or "Recommended For You" boxes at the bottom of news articles, Taboola (NASDAQ:TBLA) operates a digital platform that recommends personalized content to users across publisher websites, helping both publishers monetize their sites and advertisers reach target audiences.

The sector is on the precipice of both disruption and growth as AI, programmatic advertising, and data-driven marketing reshape how things are done. For example, the advent of the Internet broadly and programmatic advertising specifically means that brand building is not a relationship business anymore but instead one based on data and technology, which could hurt traditional ad agencies. On the other hand, the companies in the sector that beef up their tech chops by automating the buying of ad inventory or facilitating omnichannel marketing, for example, stand to benefit. With or without advances in digitization and AI, the sector is still highly levered to the macro, and economic uncertainty may lead to fluctuating ad spend, particularly in cyclical industries.

Taboola's main competitors include Outbrain (NASDAQ:OB), which offers similar content recommendation services, as well as major digital advertising platforms like Google (NASDAQ:GOOGL), Meta (NASDAQ:META), and other native advertising networks such as Nativo and MGID.

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $1.02 billion in revenue over the past 12 months, Taboola is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.

As you can see below, Taboola grew its sales at an incredible 21.8% compounded annual growth rate over the last five years. This shows it had high demand, a useful starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Taboola’s annualized revenue growth of 38.2% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, Taboola reported magnificent year-on-year revenue growth of 147%, and its $522.3 million of revenue beat Wall Street’s estimates by 153%. Company management is currently guiding for a 199% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 27.8% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will see some demand headwinds.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Taboola was roughly breakeven when averaging the last five years of quarterly operating profits, one of the worst outcomes in the business services sector.

On the plus side, Taboola’s operating margin rose by 6.9 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q4, Taboola generated an operating margin profit margin of 8.4%, down 14 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Taboola’s full-year EPS flipped from negative to positive over the last five years. This is a good sign and shows it’s at an inflection point.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Taboola, its two-year annual EPS growth of 61.4% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q4, Taboola reported EPS of $0.17, up from $0.10 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Taboola’s full-year EPS of $0.14 to shrink by 24.2%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Taboola has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 12.1% over the last five years, quite impressive for a business services business. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that Taboola’s margin expanded by 12.6 percentage points during that time. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Taboola’s free cash flow clocked in at $46.93 million in Q4, equivalent to a 9% margin. The company’s cash profitability regressed as it was 15.6 percentage points lower than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Taboola’s five-year average ROIC was negative 2%, meaning management lost money while trying to expand the business. Its returns were among the worst in the business services sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Taboola’s ROIC has increased. This is a good sign, but we recognize its lack of profitable growth during the COVID era was the primary reason for the change.

Taboola reported $122.3 million of cash and $194.1 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $215.5 million of EBITDA over the last 12 months, we view Taboola’s 0.3× net-debt-to-EBITDA ratio as safe. We also see its $287,000 of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Taboola beat analysts’ EPS expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. On the other hand, its full-year revenue guidance slightly missed. Zooming out, we think this quarter featured some important positives. The market seemed to be hoping for more, and the stock traded down 1.2% to $3.10 immediately after reporting.

When considering an investment in Taboola, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

First of all, the company’s revenue growth was exceptional over the last five years. And while its relatively low ROIC suggests management has struggled to find compelling investment opportunities, its rising cash profitability gives it more optionality. Additionally, Taboola’s expanding operating margin shows the business has become more efficient.

Taboola’s P/E ratio based on the next 12 months is 5.3x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $4.80 on the company (compared to the current share price of $3.10).