TBLAW - Taboola.com Ltd. (TBLA) Q3 2023 Earnings Call Transcript
2023-11-08 15:12:08 ET
Taboola.com Ltd. (TBLA)
Q3 2023 Earnings Conference Call
November 08, 2023, 08:30 AM ET
Company Participants
Jessica Kourakos - Head of IR
Adam Singolda - Founder and CEO
Stephen Walker - CFO
Conference Call Participants
Jason Helfstein - Oppenheimer
James Kopelman - TD Cowen
Laura Martin - Needham
Andrew Boone - JMP Securities
Dan Day - B. Riley Securities
Sergio Segura - KeyBanc
Mark Zgutowicz - The Benchmark Company
Presentation
Operator
Good day ladies and gentlemen, and thank you for standing by. Welcome to the Taboola Third Quarter 2023 Earnings Conference Call. [Operator Instructions]
At this time, I would like to turn the conference over to Ms. Jessica Kourakos, Head of Investor Relations for the Safe Harbor. Ma'am, please begin.
Jessica Kourakos
Thank you and good morning everyone and welcome to Taboola's third quarter 2023 earnings conference call. I'm here with Adam Singolda, Taboola's Founder and CEO, and Steve Walker, Taboola's CFO.
The Company issued earnings materials today before the market and they are available in the Investors section of Taboola's website. Now, I'll quickly cover the Safe Harbor, certain statements today, including our expectations for future periods are forward-looking statements. They are not facts and are subject to material risks and uncertainties described in our SEC filings. These statements are based on currently available information and we undertake no duty to update them except as required by law. Today's discussion is also subject to the forward-looking statement limitations in the earnings press release, future events could differ materially and adversely from those anticipated.
During this call, we will use terms defined in the earnings release and refer to non-GAAP financial measures. For definitions and reconciliations to GAAP, please refer to the non-GAAP tables in the earnings release posted on our website.
With that, I'll turn the call over to Adam.
Adam Singolda
Thanks, Jessica. Good morning everyone and thank you all for joining us for our third quarter call.
Before we talk about the business, I wanted to first address the war in Israel. The last few weeks have been incredibly hard for us as we continue to face unimaginable events. The safety and well-being of our employees is our very top priority and we have implemented multiple initiatives to support our people and their families during this crisis.
I'm very, very proud of Taboola's tremendous resilience during this difficult time. Their work has been instrumental in keeping Taboola safe and in implementing our business continuity plans and it shows in our confidence in our future. As I think of our mission is clear to me, now more than ever, how essential professional journalism is, society needs thriving sources of truth, we can all count on and Taboola has always been and forever will be the biggest supporter of the open web publishers and our commitment to them is more necessary than ever. Our alignment and win-win approach makes it such that when we do well, the open web does well too.
And now, let's turn into our business results which I'm very proud of. Financially, we had a strong performance in Q3, bidding the high end of our guidance across all metrics. We achieved $125 million in ex-TAC gross profit; $23 million in adjusted EBITDA and $23 million in free cash flow. We're also excited to raise the midpoint of our full-year 2023 guidance for adjusted EBITDA and non-GAAP net income.
Free cash flow over the last 12 months is $55 million, which is three times what it was a year ago for the same time period. 2024 is basically here and given how we're executing on our key business priorities, we are reiterating our 2024 guidance of over $200 million in adjusted EBITDA and over $100 million of free cash flow.
Last year, when we launched our new bidder platform with Microsoft as our design partner, many investors asked us how this new AI technology would affect Microsoft. We said, we believe it will make it growing parts of our business and in Q3 I'm very happy to show that Microsoft is nearly 2X what it was last year at the same time. Yahoo integration is going well and is on track.
Now I care about it not only because it's a good thing for Taboola and for our advertisers, but because it's also a big step towards making Taboola the first open web must-buy ad platform, Google for search, Meta for social, Taboola for the open web. This was just some highlights from this quarter and why I'm happy with our momentum as a company.
There are two main factors that drive Taboola's revenue. The first is our ability to reach users and deliver engaging experiences in the open web so they spend more time with us and engage with our recommendation engine. The second is our ability to monetize our interaction with consumers, also referred to as our yield. I said before that was just investing in yield on the same user base, we have now, I believe we can double and triple Taboola's revenue. There's a lot of growth to be had here.
Now let's dive in and start with our ability to reach consumers and create engaging experiences. In our core business, working with publishers, all over the world we've seen strong momentum with publishers continuing to trust us and sign long-term partnership. We saw strong renewals and net new wins such as Nexstar, Absolute Sports, Excite Japan and more.
And in many of our existing long-term partners renewed their partnership with us, publishers like Gannett, Cox Media Group, Sports 1, McClatchy, NDTV and more. Our core is going to get even stronger as part of our 30-year partnership with Yahoo, the fifth largest media property in the U.S.
As of Q3 Taboola is now offering exclusive access to 100% of Yahoo's global native supply, which means that advertisers can now start buying on Yahoo through Taboola, and this is our main focus, migrating Yahoo native advertisers and onboarding new ones.
In addition, Yahoo DSP now has Taboola ads console integrated inside and it looks awesome. That was the initial part of enabling Yahoo omnichannel advertisers to migrate to Taboola and I can share with you that early results of migrated omnichannel advertisers are very promising. In summary, there is still a lot of work to do, but I feel really good about the progress so far and continue to expect to be fully ramped up by mid-2024.
When you look beyond our core, working with publishers, we reach consumers on Android OEM devices as part of Taboola News. This business is becoming an important part of how Taboola reaches consumers and create engaging experiences for them. Taboola News grew strong double-digit in Q3 and is on track to approach $100 million in revenue in 2023. In the quarter we rolled out partnership with Realme, one of the world's fastest growing smartphones brands, adding more than 6 million devices to our existing reach and this is on top of existing partnerships with companies like Xiaomi and Samsung, Oppo and others.
Finally, we found ways to engage with even more consumers through our bidding technology. Advancing our bidding technology and getting more advertisers benefiting from it in Q3 provided us with ex-TAC improvement in the quarter.
We've shared with the investors that last year in April, Microsoft will be moving to our new bidding technology which they helped us design and it will help us make Microsoft grow and indeed in Q3, as a result, the revenue was nearly 2X higher than Q3 of last year.
Now that I've reviewed the first part of how Taboola grows its revenue by reaching consumers and creating engaging experiences, which is essentially our supply, let me move into the second way we grow revenue, which is by improving yield. As you know, half of our R&D is working on AI Technology helping advertisers to succeed with Taboola.
In Q3 Max Conversions went into general availability, which is a way for advertisers to share with us their objective as a business and let Taboola AI do the rest. No need any more for them to guess a CPC or anything of that kind, which is essentially how Google and Meta do it today.
We're working deeply with NVIDIA research team to advance our AI capabilities even further. And I'm happy to say that Max Conversion is now one of our fastest adopted technologies ever and we've seen encouraging results. In Q3 with some meaningful improvement in net dollar retention for campaigns using Max Conversions, which is essentially the leading indicator we want to see in track. I believe that the majority of our revenue will be using this sophisticated AI in 2024.
Our investments into Generative AI technology have had a good impact as well. We made our Gen AI offering available in July, helping our advertisers, many of which are self-serviced to create titles and thumbnails. I'm happy to say that Gen AI already represents over 2% of revenue from ads created in Taboola ads. This week we introduced a new feature called Taboola Generative AI Maker, which allows advertisers to edit existing creative automatically instead of just creating images from scratch.
As we've shared before, about a third of our company's revenue came from self-serviced advertisers. So we care a lot to make this as easy and as effective process as we can. Well, over 2% of our revenue is using Gen AI, 25% of all ads created from self-serviced advertisers are made with our Gen AI. So overall, we're seeing clients adopting on Gen AI capabilities, which contributes to our efforts as a company to grow yield.
Finally, one of our big investments to bolster monetization and drive yield growth is eCommerce. In Q3, we saw double-digit growth in eCommerce, driven by strong momentum in Europe as part of our international expansion and Yahoo now being a new supply channel for retailers in the U.S. Overall, we're seeing well over 100% MDR among top advertisers, which is just unbelievable. In summary, I'm very happy with where we are as a company, our performance in Q3 and our momentum heading into 2024, which is a big year for us.
And with that, let me pass the call over to Steve to review our financials and outlook in more detail.
Stephen Walker
Thanks Adam, and good morning everyone.
Before I dive into our financial performance, let me reiterate what Adam said about the war in Israel. It is so hard to hear the stories of this conflict, but like Adam, I'm amazed everyday by the resilience of Taboolars in Israel and the way our employees have continued to run our business under such trying circumstances.
Israel is our largest global office with over 600 employees and we have had over 100 who either were called into action in the reserves or had a significant other called into action. In terms of our business exposure, in Q3, we reported that approximately 10% of our revenue comes from advertisers with billing addresses in Israel.
However, most of that revenue is what we call export revenue and is actually targeting consumers and publishers outside of Israel. In fact, less than 2% of our revenue is what we would consider domestic Israeli revenue, meaning, advertisers spending on Israeli publishers and targeting Israeli consumers. It is because of the diversity of our revenue model, business continuity plans and the amazing efforts of our employees globally that we have not seen a material impact on our business. Though, we obviously continue to monitor the situation.
Now let me turn to our Q3 results and our forward-looking guidance. As Adam noted, our Q3 results beat the high-end of our guidance on all metrics. We are also raising the midpoint of our full-year 2023 guidance for adjusted EBITDA and non-GAAP net income and reiterating our 2024 expectations of over $200 million of adjusted EBITDA and over $100 million in free cash flow.
In Q3, revenues were $360.2 million versus the midpoint of our guidance of $344 million. Gross profit was $100.7 million versus the midpoint of $89 million ex-TAC gross profit was $128.4 million versus the midpoint of $118 million. Adjusted EBITDA was $22.8 million versus the midpoint of $4 million and non-GAAP net income was $6.7 million versus the midpoint of a loss of $14 million.
I will note that the revenue performance shows a return to year-over-year growth of 8%. Our ex-TAC gross profit was roughly in line with last year, reflecting some margin compression due to the ad rate declines in 2022 which have since stabilized in 2023. We continue to expect ex-TAC to return to positive growth in Q4. Positive free cash flow of $22.8 million in Q3 was stronger than anticipated. Three main factors drove this over performance.
First, our stronger than forecasted ex-TAC gross profit contributed to our adjusted EBITDA beat. Second, we did a good job of controlling the operating expenses, which further enhanced our adjusted EBITDA performance, both of these factors flowed through to operating cash flow and to free cash flow. Lastly, our Q3 free cash flow also benefited from the timing of our payables and from a delay in some capital expenditures, both of these were temporary benefits that will reverse in Q4.
As Adam said, our strong revenue and ex-TAC gross profit performance was driven by strength in our eCommerce bidding and Taboola News businesses, as well as relatively stable yields in our core business. eCommerce had double-digit growth in Q3, driven by strong momentum in Europe and the U.S. Revenue retention was well over 100% among top advertisers.
In addition, we are seeing great success ramping Taboola's Feeds and now Yahoo as supply channel for our retail advertisers. Taboola's Feed Supply is now a top 10 traffic source globally. We continue to forecast that Taboola News will approach $100 million in revenues this year versus $50 million in revenues in 2022.
Finally, our bidding offerings continue to gain momentum. Microsoft registered nearly two times more ex-TAC in Q3 2023 versus the same quarter last year. Thanks to advances in our AI powered bidding technology. Our teams have achieved, this strong revenue and ex-TAC performance while improving cost efficiency, indicated by our adjusted EBITDA margin in Q3 exceeding the margin that was implied by the midpoint of our Q3 guidance.
Operating expenses were $119.4 million in the quarter, down $4.7 million year-over-year. This decrease was primarily the result of our focus on cost reductions that we announced in Q3 of last year. Our head count is down approximately 6% from its peak in July of 2022. With our ongoing expense discipline and strong growth expectations, we expect that in 2024 we will make significant progress toward our long-term adjusted EBITDA margin target of over 30%.
GAAP net loss for the quarter of $23.1 million included amortization of intangibles of $16 million, share-based compensation expenses of $13.6 million and hold back compensation expenses related to the Connexity acquisition of $2.6 million, all of which were excluded from non-GAAP net income. Our non-GAAP net income of $6.7 million was above the high-end of our guidance range.
In terms of cash generation, we had approximately $32.5 million in operating cash flow in Q3 with free cash flow of around $22.8 million. This includes net publisher prepayments, which were a source of cash this quarter of $7.2 million and interest payments on our long-term debt, which were a use of cash of $4.8 million.
I would like to note that net publisher prepayments were a source of cash for the second consecutive quarter. This was due to the fact that new prepayments were lower than the quarterly amortization of historical prepayments.
Now let's turn to the balance sheet. You can see that our net cash balance remains healthy. Cash and cash equivalents, plus our short-term investments increased from $246.9 million at the end of Q2 to $250.7 million at the end of Q3 and remained above our debt principal balance of $202.7 million.
I would note that the $202.7 million debt balance reported at the end of Q3 was before we repaid an additional $50 million in Q4, which I will discuss in a moment. The increase in our cash and cash equivalents balance was driven by our strong free cash flow performance of almost $23 million and includes approximately $19 million of share repurchases.
I also want to provide an update on our share buyback and debt repayment programs. As you probably recall, we announced that we would buyback up to $40 million of shares in 2023 and that we intended to repay up to an additional $50 million of our long-term debt in the second half of the year. The share buyback program was initiated on June 1 and as of September 30, we repurchased a total of approximately 6.7 million shares at an average price per share of $3.45. We continued to repurchase shares in Q4, and as of Friday, November 3, we had repurchased a total of approximately 3.3 million additional shares at an average price of $3.69.
Additionally, in October we voluntarily prepaid another $50 million of our long-term debt, which means that we have voluntarily prepaid a total of $141 million since Q4 2022. We are also announcing an expansion of our share repurchase program of up to an additional $40 million, as well as our intention to pay down up to $30 million more of our long-term debt in the first half of 2024. Both the share repurchase program and the debt pay down our contingent upon the availability of sufficient working capital.
As an Israeli company, we are also required to obtain Israeli court approval for share repurchases. Our current approval expires November 16th, and courts are currently operating at a limited capacity due to the war. But we expect to obtain approval once Israeli courts are back to normal operations.
Now let me shift to our forward-looking guidance. For the full year of 2023 we are raising the midpoint of our adjusted EBITDA and non-GAAP net income guidance due to our strong operating performance year-to-date. We believe it is prudent to reiterate our full-year 2023 revenue, gross profit and ex-TAC guidance, given our desire to be more conservative in the face of greater near-term uncertainty, given what is going on in Israel.
We expect revenues of $1.438 billion to $1.469 billion, gross profit of $420 million to $436 million, ex-TAC gross profit of $531 million to $546 million. We are raising our adjusted EBITDA range to $75 million to $82 million and our non-GAAP net income to $7 million to $12 million. I will also note that despite 2023 being a year of strategic investment in Yahoo and in our growth initiatives, we expect to generate positive free cash flow for the full year.
We continue to be very excited by the addition of Yahoo to our business. Adam mentioned earlier that 100% of Yahoo's global supply is now available to advertisers through Taboola platform and we continue to focus on migrating advertisers. As we have previously stated, we expect the revenue to start ramping in Q4 in the double-digit millions of dollars range and we'll expect to reach full run rate by the middle of 2024.
Finally, we are issuing Q4 guidance. For Q4 2023, we expect revenues of $418 million to $449 million, gross profit of $132 million to $148 million, ex-TAC gross profit of $164 million to $179 million, adjusted EBITDA of $26 million to $33 million and non-GAAP net income of negative $3 to positive $2 million.
Let me finish by saying that we are happy with our third quarter performance and to be able to raise the midpoint of our guidance on adjusted EBITDA and non-GAAP net income for the full year. We are also excited about the step change we are expecting in our business, as reflected by reiterating our 2024 targets of at least $200 million of adjusted EBITDA and at least $100 million of free cash flow.
Perhaps most importantly though, we are excited about the momentum we are building in our business. It is really amazing to start to see advertisers who previously spent their native budgets through Yahoo starting to use the Taboola platform and hearing them talk about their great experience.
It is also great to hear stories of Taboola advertisers starting to spend money on Yahoo Supply and being excited about the performance they are able to achieve. The additional scale that Yahoo will bring and the growth of our core business is helping us in our progress towards becoming a must buy for advertisers looking to reach consumers in the open web.
With that, let me pass it back to Adam for some closing remarks.
Adam Singolda
Thanks, Steve.
We've heard Stephen share our point of view this quarter and how excited we are about our momentum. We beat the high-end of our guidance on all metrics in Q3, we're laser-focused on growing our reach and engagement with consumers, as well as our yield and we're doing a good job progressing those. The Yahoo integration is going well and on track, advertisers success and yield growth get a lot of our attention with Max Conversions being adopted faster than anything we've ever done.
2024 is around the corner and we're reiterating over $200 million in EBITDA, which is nearly three times our EBITDA guidance this year, as well as over $100 million in free cash flow, another big step up from this year. All of which supports our plan to buy more shares back and prepay more debt. Taboola's mission is to make the open web strong and to empower editorial teams all over the world to provide trusted content in an engaging way that drives exciting growth to publishers and advertisers.
As I stated in my shareholder letter, supporting the open web has never been as important as it is now. I'm proud to be part of Taboola and I'm proud of our execution this year and our employees working passionately to pursue our mission. I'm sending our employees in Israeli my prayers and my heart is with them every moment of the day. Thank you all for joining us today. We look forward to interacting with many of you over the next few weeks.
With that, let's open it up to questions, operator?
Question-and-Answer Session
Operator
[Operator Instructions] Our first question or comment comes from the line of Jason Helfstein from Oppenheimer. Mr. Helfstein, your line is open.
Jason Helfstein
Hi, thanks and just want to send support for everyone in Israel. So two questions, one just, Steve, maybe on the guide, so to the extent you're expressing a little bit some kind of conservatism there, how much of this is typically to like, we'll call like the impact in Israel, like very company-specific or Israel-specific as opposed to like you just maybe having some broader macro concerns that if things kind of expand in the Middle East that it impacts advertising more broadly called macro. So that's question one.
And question two, what are the conversations you're having with advertisers about what you can do for them with the Yahoo asset and how that might be different either then Yahoo is doing for them before or kind of how they're thinking about like where those dollars are now and why like working with you on Yahoo distribution really makes sense? Thanks.
Stephen Walker
Thanks Jason, and thanks for the support for Israel. We all are - that's on our minds, all of our minds constantly right now. So, thanks for that. In terms of your question about the Q4 guidance and what we're thinking there. So, first of all, obviously we're really happy with our performance in Q3. So we had a big beat on all metrics, which is great to see. Generally, looking forward, we wanted to be conservative. We didn't want to assume the same level of outperformance would continue. So we're just trying to be conservative there.
I will note we saw relatively normal seasonality in October, so there wasn't anything really unusual in terms of what we're seeing. So, net-net, overall, we're just trying to be conservative. We did raise the midpoint of EBITDA and non-GAAP net income, because we feel very good about our cost containment, but we're trying to be conservative on the revenue side.
Adam Singolda
Yes, good morning, Jason, thanks for the notes as well. So with regards to Yahoo there are few things that we're seeing. First of all, it's already getting some traction as I mentioned on the call and that's good for us because it validates what we assumed back then when we partnered with Yahoo that the quality of supply and what advertisers get, the value they get is higher than the average value they get in general. So it's very good for them. So, now this is, as we progressed, we can continue to showcase that to net new advertisers and existing advertisers as we wanted to spend more.
The second thing is that there is a whole slew of kind of journey in which Yahoo, if you look at the type of supply they have now, it's a lot of kind of homepage and great placements that today Taboola traditionally doesn't have a lot of, so most of our supply today and we will recommend to consumers at bottom of article, for the most part. And Yahoo is quite the opposite. It's a lot of kind of it's high impact homepage placement. So for advertisers it's a great mix of reaching consumers in multiple touch points. So let's say that.
And also over time we'll be able to come up with new formats that we're also excited about, again as it relates to homepage placement specifically. So I would start with one, it's very valuable, it works, which is great. And two, it's a very new type of supply versus what Taboola and I think in general what a lot of the open web has to offer, given how Yahoo was successfully launching their homepage with consumers. So I would say, quality of advertisers success homepage and format.
Jason Helfstein
Thank you.
Operator
Thank you. Our next question or comment comes from the line of James Kopelman from TD Cowen. Mr. Kopelman, your line is now open.
James Kopelman
Thank you for the question. The first one is for Adam, on Generative AI, you mentioned 25% of self-served creative is based on Gen AI tools, I'm curious in terms of advertiser feedback, do you find that clients are adopting these tools primarily because it's helping them save time and creative resources or is it more that Gen AI is also helping drive better conversions or is it some combination of both?
And then you also mentioned that Gen AI can help you improve yield. Could you also remind us how yield is trending in Q3 more broadly and I'm curious if it's been recovering along with the recent ad market stabilization? And then I have a follow-up for Steve. Thanks.
Adam Singolda
Yes, okay. Okay, I can start and that's enough that if I answer your question. So on Gen AI we're getting kind of like both feedback from clients, we're seeing in that. First of all as I mentioned, over 2% of our revenues now with Gen AI which is because a lot of our business is direct and its performance advertising driven, our clients, they only do what works for them and they continue to do it so long that it works.
So that's a good feedback from the market that Gen AI is not only something that drive productivity and of course helps them save time and getting more campaigns going and diverse campaigns because it gives them such a good offering automatically, but we also see that voted by the field in the way that revenue has been growing the tax for Gen AI.
So I do like it and I hope that over time more and more of our revenue will be driven like I said, vast majority of our revenue next year, I expect to be using sophisticated AI in general like Connexity conversion and rollout and other things, but then also with Gen AI, so that's very important to us.
And I think from an yield perspective, as, it's - about half of our technology organization of R&D is working on performance advertisers - advertising success and yield expansion. So this is soft cup of mind for us, given how much supply we're adding and the trends of our yield today, I would say it's mostly flat today or in line with the seasonality we expect, which to me is encouraging, given how much supply we're adding. I do expect expansion in 2024 of that given our investments in yields. As I mentioned, it's a lot of what we do and I think mainly driven not by the market recovery, but mainly our internal investment in technology. So I don't wait for the world to get better, Taboola will make it better.
James Kopelman
And then for Steve. In terms of the Yahoo investments, earlier in the year you identified, I think, roughly $30 million in Yahoo related expenses for 2023, is that still how you're thinking about the size of that investment for this year? And then taking a step back, obviously only November, but can you remind us how far along, we are in terms of the overall investment for the integration, both 2023 and 2024 to get us to the full ramp point of mid-next year?
Stephen Walker
Sure. So, first of all, we've managed to figure out ways to cut down on the amount of increased cost that we expect to have from Yahoo, so that's been a good thing. That's one of the reasons that we've - part of the cost discipline that I talked about and part of the reason that we're ahead on adjusted EBITDA. So I don't expect the full $30 million anymore, so that's good.
I think in terms of thinking about how much are we investing and where are we added - and where are we in terms of the investment? I think I said in my prepared remarks that most of the increase in operating expenses in Q4 is really around two things. It's mostly investment in Yahoo, with a little bit of investment in our eCommerce business as well, both of which are ahead of the revenue, so that's why the cost is up a bit more than the revenue. So that's - if you want to see how much we are investing, you can kind of look at the delta of our operating expenses in Q4, and that gives you a pretty good idea.
I would say, as of right now, we expect most of the hiring that we need to support the transition of the Yahoo business to Taboola to be done by the end of Q1. So we're in that ramp phase yet, it's not all there yet, but it will probably all be added by the end of Q1. And just as a reminder for everybody. In terms of the revenue, we're starting to transition advertisers now, the impact on Q4 will be small, but then we'll be fully ramped by the middle of next year.
James Kopelman
Great, thank you guys.
Stephen Walker
Thank you.
Operator
Our next question or comment comes from the line of Laura Martin from Needham. Ms. Martin, your line is now open.
Laura Martin
Hi, can you guys hear me okay?
Adam Singolda
Yes. Good morning.
Laura Martin
Great. Good morning. So I wanted to ask about, so my net revenue ex-TAC is down 1%, despite the fact that we're selling new Yahoo ad-avails, we had strong growth in Microsoft of 2X, eCommerce of double digits and News revenue growth. So my question is, what's falling? Is it just the yield because we're bringing on all this new ad units on for Yahoo and we're not bringing on their new demand? What's going wrong that's offsetting all these wonderful growth categories that you wrote about in the press release, Adam?
Adam Singolda
Yes, I'll take it. So, it's actually, if you look at the business right, the core supply of our business and the core business in general is very strong. We're winning publishers, we're investing in yield expansion, Q3 revenue is up over last year 8%, Q4 is 17% up versus last year. The main thing that is still affecting us is which we're carrying from the end of 2022 is the decline of yield in 2022, so because the yields went down throughout the year, the beginning of 2023 was just the pie smaller and that's something that we still carry and so we're still seeing that in our results.
But as we - as we are going to expand yield and like I said, I do expect it to go up and right in 2024 we're going to see that recovering and again mainly because of our investment as a company. So the main thing that creates this optics is that end of 2022 and how we started 2023.
Stephen Walker
Let me also just add that, if you look at the midpoint of our guide, we are expecting gross revenue to grow 17% year-over-year in Q4, and ex-TAC to grow 8% year-over-year in Q4. So we're basically returning to growth, we're just lapping some tougher comparables from before yield declines happened in 2022.
Laura Martin
Okay, super helpful. Okay. My second one is on one of things I'm glad you're reiterating 2024, the $200 million and the $100 million of free cash flow as well. My question to you Adam is, is the use of cash to prepay more debt and repurchase more shares with that huge step up in free cash flow and EBITDA implies that you don't actually have a better return on capital use of funds, which would imply that you don't think there is something in the fundamentals of your business you can invest in, it's a higher return, so could you speak to that, why shrinking your capital structure is their highest return on capital?
Stephen Walker
Yes, I think - let me jump in Laura, Adam would love to answer it, but he pointed at me. So, I think what I would say is, we can fund all the investments that we wanted to do in our business out of our existing operating cash flow. So we really don't need to use any of the cash that we are going to use on share buybacks or debt repayments to fund any sort of new initiatives.
And we think - I think we've talked about this in the past. We think of R&D as an investment and that's where we spend our money. We think we're investing the right amount right now in those new initiatives. I think there is a, there is a natural limit in terms of how many things any one company can do and we have a lot of investment initiatives going on.
We've got investments going on in eCommerce, we're bringing on Yahoo, we've got our performance advertising investments. We obviously are continuing to invest in our bidding platform. So we're investing in a lot of things, we think we're investing the right amount and yet we were still able to generate excess cash flow and we think right now frankly buying back shares is a very good use of our cash. Because we think there's a good return on that and that's getting expenses, so we do want to pay that down. So we have enough cash flow that we can do all of those things.
Adam Singolda
And just one more note to add is that, we also as the management, we care about free cash flow per share. So buying back share helps us and our investors to kind of track that over time as we kind of stabilize our share count. So that's another thing that we care about and we hope over time we can spend more time on.
Laura Martin
Okay, that's super helpful. My last point is on, there's a lot of industry pressure on made for advertising websites. Could you talk about whether you get caught up in that category and in that negative sort of feedback loop from a lot of industry, a lot of industry criticism right now that type of website?
Adam Singolda
Yes, of course, we monitor the industry discussion, I'll say, I'll tell you we're not concerned about it as it relates to us. We had a small single-digit percent of revenue spent by publishers of all kinds. So it's small, from an exposure perspective, and we feel good about our leadership with our policies and our moderation team. We have about 100 people working full-time kind of making sure that we adhere to those policies and we support the industry trends towards making sure that advertisers know exactly where they spend and what value they get. So I think it's a very good discussion to have and as a company I think we're in a good place.
Laura Martin
Thank you very much.
Stephen Walker
Thanks a lot.
Adam Singolda
Thanks.
Operator
Thank you. Our next question or comment comes from the line of Andrew Boone from JMP Securities. Mr. Boone, your line is now open.
Andrew Boone
Good morning and thanks for taking my questions. Adam, I wanted to go to a big picture question in terms of the strategy of Yahoo deal in the first place. We've talked about in the past, the benefits of scale and so just relate that to where we are today, like how is scale playing through and benefit the overall platform for Taboola as it relates to today and then how do we think about that for '24?
Adam Singolda
Yes, good morning, thanks for the question. This is maybe one of the main thing that keeps me excited, as it relates to our journey over the next three, four, five years, because I think today for advertisers and it's - I think it's always important to take the point that you have the clients. When advertisers and about 10 million of them spend on Google and 10 million about spend on Facebook, and we're seeing the growth of advertisers spending with Amazon, and we're seeing how more and more businesses, NVIDIA is spending so much energy on making sure that advertisers is - are supported because everyone sees the opportunity with the advertising sector.
I think when you - their point of view is, it's uniquely complicated to buy open web today, you have dozens of companies and they're all in the sub $1 billion range revenue scale. And then they have - you have - they each have different platforms, different account management team. It's just too much, it's too complicated too much.
And I think for the most for the most part, there's a very few amount of companies that actually have direct relationship with advertisers, right. We had about 18,000 clients working with us directly, which I'm proud of but imagine Taboola with 30,000, 40,000, 50,000 or 100,000, but to get there, to get to the point where advertisers says we need, Taboola is a must-have, we need a Taboola strategy, we have to be bigger.
I think when we get Yahoo fully ramped up, and we get to our, call it, $2.5 billion run rate, we're bigger than Twitter, right, at that point. We're in the same realm as Snap and Pinterest, at that point it's a whole different area code and I hope this is a - this is our one level up. I place that these days, so this is when we get the master stores. This is where we get to become invincible and we're one level up and advertisers will say, well, we can't ignore this open web opportunity search for Google, social Facebook and Taboola and that's not where we want to end, and we want to get to $4 billion, $5 billion in revenue and truly become an alternative to the walled gardens.
So I see Yahoo as a great partner, an amazing source of supply, which is exclusive to Taboola as it relates to native, a lot of formats, a lot of homepage, a lot of goodness that has that with us. And I think it's going to get us one step forward kind of getting outside of the attic as it is today, nothing wrong with that. But I do want Taboola to be just one step out bigger so advertisers build strategies with us.
Andrew Boone
Thanks Adam. And then you guys in the past have talked about bidding being a $1 billion plus opportunity. Understood the very good commentary out of Microsoft this past quarter. But talk about the path to be able to make that $1 billion opportunity. Where are you guys today and what needs to happen to get to that cycle? Thank you.
Adam Singolda
Sure, so yes, I'm very happy. First of all I'm always happy when we tell something to our investors and analysts and the year after it happens on time. So I'm very happy is Microsoft is double what it was a year ago, which is what we thought it's going to be and it is. So that's part of that makes me happy. As we're still a new public company and we're trying to both trust with our community.
So I think over time this is going to be our bidder technology and there's a lot of work. You're right, we're still new, it's a start up within Taboola, it's a start-up that makes hundreds of millions of dollars, but it's still a start-up. We're going to plug that in across all of our publisher base, this is still early stages and we want to do a good job.
And the way we want to think about it is, ever display inventory that exist across our 9,000 publishers, which I think those display inventory today they probably generate $20 billion, $30 billion. If we take 10% of it or 5% of it, this is a good billion. And then you have Yahoo, which has a very significant display business which I also hope to be 5%, 10% of. And then you have just other areas where we can bid into that completely sit outside of a browser like know CTV perhaps and other places.
So over the next 3, 5 years, at the very least, I want to be part of our core display ecosystem. So that's 9,000 publishers and Yahoo and I want to take a 5% of it or 10% of it. If that takes us 3 to 5 years, that's a good billion or more. And then over time, I think we can get our bidder integrated into kind of non-browser environments, such as CTV and others, so that will take some time, but that's how we get to a $1 billion and more.
Andrew Boone
Thanks.
Operator
Thank you. Our next question or comment comes from the line of Dan Day from B. Riley Securities. Mr. Day, your line is now open.
Daniel Day
Hi, good morning guys. Can you hear me?
Adam Singolda
Yes.
Stephen Walker
Yep.
Daniel Day
Hi, Adam and Steve, how are you?
Adam Singolda
Good. How are you doing?
Daniel Day
Too good. So just quick one from me, you talked about your focus in the near-term here being migrating spend to over to Taboola for the Yahoo inventory, just maybe if you could give us a peek into what your game plan is to make that happen as quickly as possible, as effective as possible in terms of migrating budgets over, is it just sales people reaching out to get test budgets over? You have incentives in place to start moving budgets over? And then, is there a plan down the line to deprecating the whole Gemini platform that maybe might get people using it to start at least testing on the fuller platform?
Stephen Walker
Sure, I'll jump in on that one, Dan. So first of all, yes, there are detailed plans in place. I don't want to get into too many specifics because it's obviously getting into the weeds in terms of how we're working with a key customer like Yahoo. But what I can say is, we've said all along that we would start migrating the advertisers in the back half of the year.
You obviously all saw the announcement that the supply is now fully available through the Taboola platform. So that has started now. We're making good progress. We feel good about where we're at. I think Adam mentioned that, it's really nice to hear stories of some of the advertisers that have migrated over and how they're finding - having a good experience. I heard about one advertiser just last - earlier this week or maybe it was late last week, it all boils together, but about how they are hitting the record levels of spend versus what they've ever done with Yahoo directly and in fact are now spending more with us than they are with Meta, which was kind of amazing to hear.
So, I think so far progress is encouraging. Our sales teams have a plan that they're executing on. I don't want to get into all the specifics there, but we're making good progress and we still feel very good about getting that fully migrated by middle of next year and being at full ramp starting in Q3.
Daniel Day
Great, thanks, Steve. Just the other one, we did hear yesterday from - here about revenue headwinds from an increase in publisher page views attributable because the war-related content advertisers blocking those for brand safety suitability reasons. Just making it more challenging to monetize those incremental page views. So just wondering if you guys have seen anything similar over the last few weeks?
Adam Singolda
Yes, I mean we obviously have business out of Israel. So about 10% of our revenue in Q3 came from Israel, but that revenue most of it is what we call export revenue, which is businesses, advertisers that are actually trying to reach consumers in other countries, U.S., U.K., wherever they are trying to reach those consumers, it's not in Israel. And that tends to be much less affected by what's going on.
Only around 2% of our revenue is what we would consider domestic Israel revenue which is advertisers spending on Israeli publishers and because of that we're not seeing a huge impact. And in fact, by the way on those publishers traffic is up revenue was down. So it kind of offsets itself somewhat. So it's a small enough portion of our business that we're really not seeing an impact overall in our business. Obviously we're monitoring pretty closely though because we need to see if it spreads are if anything more happens, but as of now, we're not seeing a material impact.
Daniel Day
Okay, great, thanks guys.
Operator
Thank you. Our next question or comment comes from the line of Sergio Segura from KeyBanc. Mr. Segura, your line is now open.
Sergio Segura
Great, thank you. Good morning, Adam. Good morning, Steve. Two questions. First on Max Conversions, how broad has that adoption been? And how has that impacted net dollar retention for campaigns using it and when should we see for adoption of that product? And then for Taboola News, great progress towards the $100 million in revenue. How should we think about the drivers for the next $100 million revenue? Thank you.
Adam Singolda
I can start and, Steve, feel free to jump in. So on Max Conversion, first, it's - like I said in my letter, it's great to see the adoption. It's about 30% now of our revenue has been adopted with Max Conversion which is, as a level set is one of our recent sophisticated AI that helps clients and advertisers share their business objective with us, but not have to provide a CPC, which is very common in ethic, but not common with Google and Facebook. So we're now - we look more like a Google and Facebook from the advertiser point of view, and it's our fastest growing adopted product since we started Taboola in 2007. But that's, that's pretty awesome to see.
What's good about it? It does affect NDR. I think we said this, I'll let's Steve check it, but I think we shared in our letter and press release some numbers, but it does affect NDR, so I will tell you advertisers, the course of clients who use AI in Max Conversion, they see better NDRs, as well as lower churn and these are kind of the leading - two leading indicators that we're tracking to the company and we have aggressive goals to whether improving them.
So, and my expectation is that this will be - the majority of our revenue in 2024 will be driven by AI and Max Conversion, as well as the next iteration, which will be our rollout and that's where advertisers can optimize for revenue as well, and not just conversions. So this is, this is as a whole roadmap into 2024. In fact, just before this call, I had an hour of course with our VP product on that and it's very exciting to see what we're trying to do.
As it relates to Taboola News, there's a bunch of things that were going there. First of all, it's a great business on its own, because it helps our core business to get stronger and energetic. So if there's is a win-win orientation there, we send traffic to our publishers, they grow audience, especially in times of the open web that could use more attention and in general, we're growing that business in a few ways. One, existing relationships with Xiaomi and Samsung and Oppo and Realme and others. We can get to more markets with them. So there is geography expansion and that's going to help us get more users.
The second thing is, get more touch points. So if you look at many of our OEMs today, they tend to work with us in one or two touch points, but not all of them at the same time. And there's an opportunity there, so they might have us on the lock screen, they might have us in the minus one. They might have us in a notification when they send news to consumers. They might have us in the browser. But a lot of times, they're just starting a certain integration and they grow it over time. So there is a whole vertical expansion opportunity with existing OEMs and how much more we can do with them.
And then you have other kind of mid-size OEMs and all of that is before working with carriers, which we have not yet really done, so over time you can imagine Taboola supports not only OEMs directly, but perhaps carriers and again, this is like a 5, 10 years roadmap for this business. So there's a lot of ways this can become hundreds of millions of dollars and effective and even more.
Operator
Thank you. Our next question or comment comes from the line of Mark Zgutowicz from The Benchmark Company. Mr. Zgutowicz, your line is now open.
Mark Zgutowicz
Thank you. Good morning, Adam and Steve. Just curious on the Yahoo advertiser migration. I'm just curious how much visibility you have on making that happen there by mid-2024. Just maybe more specifically, do you have like a concentration of advertisers that have committed to moving over after the seasonal holiday period?
And then just in terms of the eComm, just broadly speaking, can you talk about how your go-to market there is perhaps evolving and sort of what types of new client engagements you're seeing, obviously you're having some continued pretty strong growth there, but just maybe how that strategy is evolving? Thanks.
Stephen Walker
Sure, I'll start with the Yahoo advertiser migration question. So, yes, I think we have very good - we're partnering very closely with Yahoo on this. It's in Yahoo's best interest to help us with this migration, because obviously the revenue that those advertisers bring flows back to them largely, so there we're working hand-in-hand with them. We have good visibility from working with them on what we need to do.
We obviously know kind of what the concentration is and which advertisers we need to move, like that's what we're working with them on. So I think we have very good visibility. I think we have a pretty good notion of what we can get done on that. So, I feel good that we have what we need. We have the visibility and we have a plan in place with them to help make it happen.
Adam Singolda
Yes, so about eCommerce, firstly I'm very happy with our decision, our strategic decision to acquire Connexity and get into eCommerce in a significant way. I think it's going to play a very important role in the future of Taboola, as well as the future of the open web. So it's a very lucrative part of our business that will continue to be as such. And we're seeing that in the results of our business.
So I mentioned that we saw double-digit growth in eCommerce in Q3. And that is driven by a lot of what we said we'll do. International expansion in Europe, the synergy with Taboola and now Yahoo as a source of supply on top of what Connexity had before. I'll tell you, Taboola is now a Top 10 partner to eCommerce buyers or retailers now when they see where is traffic coming from, Taboola is now a top 10 traffic source, which is great. We're, again we're - and we're signing new clients, as we're investing more in growth, more sales outside of the U.S. So we're seeing in EMEA, and APAC, new clients and new affiliate partnerships.
So all of that is great and as it relates to our business, it's trending to be about 20% or almost 20% of our ex-TAC which is great, because it's very premium consistent reliable source of revenue and over time I think that's going to - that has a chance of being a third of our business as well, as a third of our publishers, we're seeing some publishers that now make as much money from eCommerce as they make from native advertising, some of them even make more than from eCommerce. So if you think about that future, that means if you're not in eCommerce and you don't have an eCommerce offering, you may not - you may become relevant over time. So that makes me happy.
Mark Zgutowicz
And then just in terms of the capacity to address the eComm opportunity, how would you characterize that in terms of having enough capacity to address obviously a big opportunity?
Stephen Walker
Yes, so I'll jump in on that. I think so, when you say capacity, I assume you're talking about people resources and the other resources we need to run the business. Is that kind of how you're - what you're thinking about?
Mark Zgutowicz
Right. Sales strategy broadly with sales capacity.
Stephen Walker
Yes. So think what's interesting - yes, I hear you. What's interesting is, and I think we said this at the time that we acquired Connexity. This is a business that makes very good revenue, very strong EBITDA, is run by a private equity firm for a long time. Despite the fact that, frankly, in our view there it was probably under invested in, in terms of looking for seeking growth.
So I think what we're doing right now is we're investing more resources into growth areas for Connexity and for our eCommerce business more broadly. So, for instance, we're bringing on more salespeople to sell new merchants in the U.S. and abroad. We're helping them expand internationally into territories where they really didn't have a strong presence historically.
And then we're also taking advantage of other synergies that work with our core business. For instance, we disclosed in our shareholder letter that - and in my prepared remarks that actually Taboola Feeds are now a top 10 supply source for our eCommerce advertisers or our merchants, as we call them.
So it's a - it's been, it's been a success story in terms of all the good things that are going on there. And I think I would characterize it as, we have what we need to run the business. I think there's still opportunity to invest more and grow faster over time and that's really what we're doing now. So that's, in Q4 here, I mentioned that there's really two areas that we're investing more people in and that's the Yahoo and eCommerce and it's because we think there is potential to grow eCommerce even more and faster. So I'd say we have what we need to keep it going. We probably can invest more to grow it faster.
Mark Zgutowicz
Great, that's helpful, Steve. Thanks a bunch.
Stephen Walker
Thanks, Mark.
Operator
Thank you. I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Adam Singolda for any closing remarks.
Adam Singolda
Thanks operator. And thanks everyone for joining us today. As you can see from our results, we feel very good about our performance this quarter and where we're going. There are many, many things that are going strong, Taboola News, eCommerce, our AI powered bidding technology with Microsoft and others.
Our core business, which is well positioned and only getting stronger with Yahoo. And our massive investments in performance advertising technology to drive yield expansion, like I told you, that's one of the key things, it's going to - it can double and triple Taboola over time on its own. I look forward to 2024 to arrive. It's going to be an important year for us as we make big step forward towards becoming very first ever large scale must-buy advertising company in the open web.
I'll finish my summary here, I would - the same way I started the call today. I want to send our employees in Israel and their families my prayers, my heart is with all of you and I think about you all the time. And I want to thank everyone for the hard work at Taboola and the dedication, especially given what's going on in the world. And to our investors, thanks for the support and interest and here's to a great, great 2024.
Operator
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program, you may now disconnect. Everyone have a wonderful day.
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Taboola.com Ltd. (TBLA) Q3 2023 Earnings Call Transcript