TBLA - Taboola.com: Upside Potential Following The Yahoo Partnership Charts Support The Bullish Thesis

Summary

• Ahead of earnings on the 24th, shares of Taboola have been on the rise after inking a key deal with Yahoo!
• I see more upside ahead based on attractive sales multiples and bullish chart features.
• I outline key price levels to watch along with a guide on what to expect with earnings next week.

The AI boom is all the rage. Step aside crypto and meme stocks, it seems the big conversation on Wall Street is what happens with Google (GOOG) (GOOGL) and Microsoft (MSFT) with this transformative technology. There are other plays, though.

I see momentum and upside in shares of Taboola as it has inked key partnership deals and has an attractive price-to-sales ratio ahead of earnings next week. The chart is encouraging too.

According to Seeking Alpha, Taboola.com ( TBLA ) together with its subsidiaries, operates an artificial intelligence-based algorithmic engine platform in Israel, the United Kingdom, the United States, Germany, France, and internationally. It offers Taboola, a platform that partners with websites, devices, and mobile apps to recommend editorial content and advertisements on the open web to users.

The New York-based $1.4 billion market cap Interactive Media & Services industry company within the Communication Services sector does not have positive trailing 12-month GAAP earnings and does not pay a dividend, according to the Wall Street Journal. Ahead of earnings next week, there’s a low 2.1% short interest.

Back in November , Taboola reported operating earnings of $0.04 which were ahead of expectations, but the firm cut its FY22 outlook. The stock notched a low on the earnings date but shares then surged on November 28 on news that Yahoo took a stake in the small AI firm. The partnership should result in more than $1 billion in annual revenue and lasts a whopping 30 years. More tailwinds came from a deal with Time Out in December.

What’s encouraging is that the firm has retired a chunk of debt which will result in less interest expense. Overall, if we simply apply a modest 2 sales multiple, the stock would trade at a $5 billion valuation using its hypothetical 2022 revenues under the Yahoo partnership.

Massive Top and Bottom Line Upside Potential

On valuation , TBLA trades at a cheap 11.9 forward operating P/E, but its EV/EBITDA ratio is high at more than 9 on a forward basis. What might be more applicable here is the price-to-sales ratio, which is just 0.97 on a forward basis – significantly below the sector median. Unfortunately, the stock does not pay a dividend, nor has it produced positive operating cash flow in the last year. I want to see improving profitability trends in its earnings report on the 24 th along with a return to positive margins, and I think that will happen based on the new deals.

Taboola Valuation Picture: Favorable Sales Multiples

Looking ahead, corporate event data provided by Wall Street Horizon show a confirmed Q4 2022 earnings date of Friday, February 24 BMO with a conference call immediately after results hit the tape. You can listen live here . Also possibly stirring up volatility may be the management team’s words at the JMP Securities Conference 2022 from March 6-7 in San Francisco.

Corporate Event Risk Calendar

The Options Angle

Digging into the upcoming earnings report, data from Option Research & Technology Services (ORATS) show a consensus EPS forecast of $0.16 which would be a sharp increase from a penny of per-share profits earned in the same period a year ago. Taboola has topped analysts’ expectations in each of the previous three reports and shares have surged post earnings in the last two instances.

This go around, options traders have priced in a 10.6% move post-earnings when using the at-the-money straddle expiring soonest after the report. With monster 16% swings following the August and November reports, I think a flyer-long play on premium could work here.

TBLA: An Earnings Increase Expected, Somewhat Inexpensive Options

The Technical Take

With earnings turning positive and a reasonable price-to-sale ratio following all the deal activity, how does the chart look? Notice in the graph below that shares broke above key resistance at the $3.30 mark and then held that level on a test earlier this year. Based on that chart pattern, with a low near $1.50 and the $3.30 to $3.60 being support, I see a measured move upside price target to near $5.50 - around where it traded a year ago. What’s more, the RSI momentum is in a bullish range after being stuck at 60 or lower for many months. Finally, notice the monster gap up on volume in late November that coincided with the Yahoo news – shares pulled back but did not even enter the gap. That's a bullish feature to me. Long with a stop under $3.30 makes sense.

TBLA: Shares Breakout, Hold Support. Eyeing $5.50.

The Bottom Line

I like the valuation on TBLA ahead of earnings and see upside potential in the chart. Of course, expect volatility with this one given how hot and yet uncertain the AI space is right now. Long with an exit plan is an effective way to play it.

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