Who Am I?....Episode 2 / Taboola (TBLA)

Dec 03, 2024

I’m unloved and ignored

Despite having a market cap over $1bn, I have no bulge bracket sell-side coverage and in the last 3 years NOBODY has pitched me on Value Investor Club, Twitter or Substack

But I’m attractive

I’m a capital light global platform
5-year historic Net Revenue CAGR is 17.5%
I’ve guided to 20% growth as sustainable long term
60%+ of EBITDA converts into FCF
I have a net cash balance sheet
I’ve had insider buying in recent weeks
I’ve been recycling FCF into buybacks

AI and new partnerships have re-invigorated my growth and profitability

This year my net revenue growth has accelerated over 30% (from -6% to +25%) and I’m now demonstrating substantial operational leverage.

EBITDA & FCF have more than doubled this year, thanks to operational leverage.

Apple & Yahoo are new partners, providing both a growth tailwind and validation of my offering.

AI productivity improvements drive better outcomes for my customers, and cost efficiencies, thus is a tailwind for both revenue growth and margin expansion.

Upgrades, low valuation & high FCF per share growth

Consensus assumes my net revenue growth decelerates to c.15%, no further EBITDA margin expansion, FCF conversion rises to 62% in 2025 and 65% in 2026 & 2027, with FCF offsetting SBC and excess cash building on the balance sheet.

Year…EBITDA…………FCF………………FCF/share….FCF multiple
2024: $200m (103%), $116m (123%), 0.29 (123%), 13.3x
2025: $231m (+15%), $144m (+24%), 0.36 (+24%), 10.5x
2026: $267m (+15%), $175m (+22%), 0.43 (+22%), 8.8x
2027: $308m (+15%), $202m (+15%), 0.50 (+15%), 7.6x

=> 10.5x 2025 (fully diluted) FCF per share vs a 18% FCF CAGR (2025 to 2027).

Base case scenario:

net revenue growth: 15% (vs LT guidance at 20%)
overhead cost growth: 7.5% (vs 5.5% in 2024)
capex growth: 7.5% (vs 3% in 2024)
net working capital / net revenue: 4.5% (same as 2024)
tax rate: 18% (vs 16-18% guidance)
gross cash used to repay outstanding debt
remaining net cash & FCF => buybacks at 12x FCF

Year…EBITDA…………FCF………………FCF/share….FCF multiple
2024: $200m (103%), $116m (123%), $0.29 (123%), 13.3x
2025: $267m (+33%), $167m (+44%), $0.43 (+52%), 8.8x
2026: $343m (+29%), $223m (+34%), $0.63 (+44%), 6x
2027: $435m (+27%), $290m (+30%). $0.86 (+38%), 4.4x

=> upgrades to FCF/share: 20% / 46% / 72% in 2025/26/27
=> growth: 40% FCF per share CAGR (2025 to 2027).
=> valuation: 9x 2025 FCF per share, 4.5x in 2027

Margin expansion and optimising capital allocation more than doubles my FCF / share growth trajectory, from 18% (impressive) to 40% (best in class).

Today’s adj EBITDA / net revenue margin of 30% would rise about 400bps per year, which combined with 15% net revenue growth would make me a “Rule of 50” company within 12 months.

What other $1bn+ market cap “Rule of 50” companies, delivering c.40% FCF per share growth trade on a single digit FCF multiple?….PS if you know any, please let me know!

Re-rating & upside potential

I’m from the same gene pool as Applovin & The Trade Desk. A sell side analyst has even labelled me “The Trade Desk of Performance Advertising”.

Attributes we share: performance based Adtech, founder led, capital light, scaled global platform, AI model improvements driving top line growth & operational leverage, earnings upside, with a commitment to buybacks.

Not long ago, Applovin traded on 10x FCF, despite guiding to 20-30% long term growth. (see my prior “Who Am I” write up on APP here on 21st June 2024 at $82)…strong growth and earnings upgrades have driven a shift in investor confidence re the sustainability of the growth trajectory, and with that the valuation and share price have exploded higher.

While my top line growth trajectory is lower than APP & TTD, I have greater margin expansion and my depressed valuation means buybacks are materially more accretive. Therefore my FCF / share CAGR (2025 to 2027) should be much faster, ie c.40% vs 25-30% for APP & TDD, who trade at 40-60x 2025 FCF. If the market builds confidence that my (FCF / share) growth algo is sustainable, my re-rating potential should be substantial. Even at 20x FCF, I have multi-bagger upside.

20x 2026 FCF per share ($0.63) => $12.6 = 200%+ upside
20x 2027 FCF per share ($0.86) => $17.2 = 300%+ upside

The catalyst?

I have an investor day in March 2025. I suspect spelling out and delivering upon my impressive FCF / share growth trajectory, with a beat & raise cadence is what would attract investors over time.

The risks?

Adtech - it’s a dynamic industry, with macro sensitivity

Yahoo - large integrations typically have teething problems and lapping the first year revenue contribution is a risk for 2025 growth.

Buybacks - regulatory approval might be needed to continue buybacks beyond offsetting SBC

Who Am I?…..I’m Taboola

Ticker: TBLA. Date: 3rd December 2024, Share Price $3.8