Good day, and welcome to the Taboola Q3 2021 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you will need to press star then one on your touchtone telephone. If anyone should require assistance during the conference, please press star then zero to reach an operator. As a reminder, this call may be recorded. I would now like to turn the call over to Jennifer Horsley, Head of Investor Relations. You may begin.
Thank you. Good morning, everyone, and welcome to Taboola's Q3 earnings conference call. I'm here with Adam Singolda, our founder and CEO, and Steve Walker, our CFO. We issued our Q3 earnings press release yesterday after market, and it is available along with our Q3 shareholder letter in the investor section of our 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'll 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.
Thanks, Jen. Good morning, everyone, and thank you all for joining us for our Q3 call. I'm excited to share the progress we've made. We again delivered incredible performance in Q3. We beat our Q3 guidance. We're raising Q4 and as a result, 2021 overall. We also closed this quarter on Connexity, our largest acquisition to date. As a reminder, our Q3 results and our guidance included one month, September, of Connexity's performance. A few numbers that highlight our Q3 performance. Revenue was $339 million in the quarter, up 17% year-over-year. ex-TAC gross profit, which is what's left for us after we share revenue with publishers, the main metric we measure as management, was $127 million, up 22% year-over-year, above our guidance range of $122 million-$124 million.
We also delivered strong adjusted EBITDA of $40 million above our range of $36 million-$37 million. While adjusted EBITDA is a good proxy for profitability, Taboola generates good cash flow. Over the last two years, about 60% of our adjusted EBITDA converted to free cash flow. I'm very happy with the team's execution and these results give us confidence to raise our Q4 and full year 2021 guidance. A couple of highlights on 2021, and Steve, our CFO, will provide more information later. Ex-TAC gross profit of $512 million-$515 million, which translates to growth of 34%-35% for the year. This is dramatically faster than the advertising market worldwide. This is above our previous guidance of $503 million-$509 million that we shared at our e-commerce with Connexity information session.
To provide additional context, our original projection of ex-TAC at the beginning of the year when we were on the road raising money for our public offering was $445 million and 70% growth. We've doubled our initial growth expectation. We now expect adjusted EBITDA of $174 million-$177 million, which is growth of 64%-66% for the full year and above our previous guidance of $168 million-$171 million. Again, this is nearly 50% faster growth than our forecast from the beginning of the year of $127 million. Lastly, and I will touch on it later, we did not see an effect in Q3, nor do we expect one in Q4 from privacy dynamics or supply chain.
When looking at our performance, I'm encouraged by all of it. It shows again that the right strategy, focus, and execution is key to meet and beat our own expectations. Let me share now some details on our strategy, business, and what we're seeing in the market. Starting with Taboola's strategy. Some of you may have heard this. However, as a newly public company, I want to remind everyone about our vision, where we fit, and our winning aspiration. Taboola powers recommendations for the Open Web. We reach 500 million people a day and help them discover things they may like. The Open Web, as you may know, is the term for all great websites and publishers out there that you love that are not Facebook, Amazon, Google, Apple, or the like.
It's really important, even essential, because it's free and diverse, and it doesn't belong to any one giant company. It belongs to everyone, and that's where Taboola fits. We have established long-term partnerships with some of the most amazing publishers and digital properties in the world, such as BBC Global, CBSI, Comcast, and many others. We work with about 9,000 publishers globally. We are important to them. A lot of times, Taboola is a top three revenue source, and as part of our product-led approach, we empower the entire publisher organization. We drive audience, engagement growth, and other things. This includes things such as Newsroom, which is used by editorial teams, and our subscription offering that's used by the product team and many, many more.
At the center of what we do is proprietary deep learning recommendation engine that is able to infer what a user might be interested in based on context and our own curiosity graph, looking at what people who read this also read, similar to Amazon, people who bought this also bought. This means that we'll not rely on third-party cookies or IDFA, but rather our own proprietary data. We are focused on product innovation and growth, investing $100 million a year in R&D to forever bolster our platform and bring new solutions to our partners. It is critical for us to invest in things our publisher partners want, as well as advertiser clients need as they look to diversify outside of the walled gardens. It helps us become more strategic as we look to work with our publisher partners forever. There's also a network effect in our space.
Being bigger matters. The more publishers you have, the more reach and data you have. More advertisers can come in, and your yield in the end goes up. Yields going up is one of the most important things we like to see as it makes us even more competitive. We participate in a $64 billion market called Open Web, and this is our foundation, a business with a moat built on 14 years of technology and algorithms innovation, the right publishers and advertisers relationships. The strengths and predictability of our business model, along with the relationship we've built, have allowed us to expand beyond core recommendations to two main areas. First is to expand into recommending anything.
Over the next 10+ years, much like you can search for anything on Google, what to read, what to buy, where to go, we want to diversify what to recommend and to grow our yield for publishers in that way, which helps us become even more competitive. Over time, we want to recommend apps, games, and other types of verticals. In Q3, we continue to see great progress with recommending video. We call it High Impact Placements, which is where we expand from bottom of article into mid-article, home pages, section fronts, and other places. This is where we serve a video format, something agencies and brands love. At this point, brands and agencies is roughly 15% of our business, and every time we serve a video, our yield is even higher. We're able to pay our publishers even more. We earn more. It's high-quality advertising experience.
It's just great. Our Connexity acquisition falls within our Recommend Anything strategy, allowing us to recommend products and tap into a huge $40 billion Open Web e-commerce market. Connexity will help us transform the Open Web into one big shopping cart. Imagine how much you trust the publisher that reviews a product more, and how much you'd consider buying a product if CNET says it's better, or if Wirecutter says it's better, or if USA Today Reviewed.com says it's better. Especially on the back of the pandemic, we're buying online so much more, and trusted publishers can shape that future in a big way. We expect that in coming years, one-third of the Open Web publishers' revenue will be e-commerce. This is also great for retailers as they want to diversify outside of walled gardens themselves.
There's no other comparable Connexity out there in size or scope, and we believe by acquiring Connexity, we have years of advantage in this space. The second area of growth for us is expanding to recommend anywhere. This is where we're taking our recommendation engine and publisher partners anywhere people spend their time. As an example is Taboola News, our version of Apple News, but for Android devices. We had great momentum this quarter on this as well, where we announced partnerships like Xiaomi, reaching over 100 million devices, or Samsung, which we discussed in previous quarter. Over time, you should expect to see Taboola anywhere. On connected TV apps, as even every app on the TV needs AI to engage consumers with their content, we'll be in automobiles like Spotify has music integrations.
We expect Taboola to bring podcasts, local news, entertainment to any car out there and other devices at home interacting with consumers. Over time, we want to be recommending anywhere. Now that we've discussed our strategy and how over time we recommend anything and anywhere, I'd like to share some business momentum and progress we've made in Q3. As only one month of Q3 includes Connexity, let me share some updates about Taboola business before Connexity. We continue to build new relationships with premium publishers and digital properties. In Q3, 46% of our growth came from new relationships. To name a few, we announced LINE Today. Think of them as WhatsApp of Asia- Pacific. LINE messaging app reaches more than 188 million global monthly active users and provides a wide range of services to its users.
LINE Today serves as a news and content hub within the LINE app, and Taboola's recommendation engine will operate on LINE Today Hong Kong to start connecting users with news they may like but never knew existed, much like Apple News does. We also announced a new three-year strategic partnership with Weatherzone, Australia's largest private weather service. This partnership includes Taboola Feed, our High Impact Placement, which is also where our video solution fits, and Taboola News. Both of these examples are great demonstration of our growth in our core market. On the advertiser side, we are constantly building new relationships with advertisers and agencies looking to reach consumers in brand-safe environment on trusted publisher sites in the Open Web and diversify outside of the walled gardens.
A good example from Q3 is where we entered the new three-year strategic partnership with Dentsu India, a multinational agency headquartered in London. Under this partnership, our publishers in India will have access to Dentsu offering across its entire customer portfolio. Dentsu agencies will also be able to drive brand awareness, consideration, and conversion from trusted and brand safe environments. In Q3, 54% of our growth came from growing existing clients, primarily driven by yield. When thinking about yield, as I wrote in my letter, investors should think of yield much like race drivers look at their dashboard. RPM is everything that matters. RPM is revenue generated per 1,000 impressions, and it's a multiplication of three variables, click-through rates, CTR, cost per click, CPC, and cost per conversion, CVR.
None of these should ever be looked at in isolation, as in fact, there are scenarios where CTRs go up, but yield can go down. You could prioritize enticing creative, get higher click-through rates, but conversions will go down, advertisers would lower CPC, and yield will actually be lower. Another example can be prioritizing aggressive class advertisers who get higher click-through rates traditionally, but pay much lower CPCs. Here as well, yield would go down while click-through rates went up. Much like in racing cars, where speedometer doesn't matter and only RPM matters, also in the Open Web, click-through rate is irrelevant, CPC is irrelevant, and conversions are irrelevant as independent variables. Only when the three come together, RPM can go higher. That's what Taboola measures, yield and RPM. Check my letter if you want to learn more about this area.
Outside of core, we also made great progress in our two growth areas we've been discussing, Recommend Anything and Recommend Anywhere. Within Recommend Anything, looking at recommending video, we announced a partnership with NBC Sports who launched our High Impact Placements, which means we're expanding our presence to mid-articles, homepages, and highly visible placements which brands and agencies love. These High Impact Placements are key drivers for our video initiative, which also helps us grow our yield, and as a result, become an even bigger revenue driver for our publisher partners. To further assist on that, we also announced in the quarter brand safety partnerships. We attained Trustworthy Accountability Group called TAG, Brand Safety Certified, that confirms to advertisers that Taboola has high standards and has taken proactive steps to drive high-quality traffic. TAG is an organization that works to increase trust and transparency in digital advertising.
We also announced a new partnership with DoubleVerify that makes available directly within the Taboola Ads console. Advertisers can now easily use DoubleVerify solutions to verify brand safety. Sharing more on our progress to Recommend Anything, let's look at how we recommend products. We made a big bet this quarter acquiring Connexity. We closed the transaction on September 1st, and therefore recognized one month of the results in ours. Connexity had a strong Q3, exceeding all of our expectations and signing new publishers like Merriam-Webster and new merchants such as Dell UK and others. To give further context on the success Connexity is having, I will share a few Q3 success stories.
One large publisher partner in North America is starting in 150% commerce content growth year-over-year with Connexity into 2022, as well as taking the success in the U.S. and expand their team in Europe, which works with Connexity 5-fold in 2022. In another example, a fashion company spent with Connexity five times higher year-to-date with the peak shopping season still to go. They tested with Connexity and moved into always-on campaigns, which means they now trust Connexity and intend to spend as much as they can so long that it converts. I personally am engaged in conversations where publishers are choosing Taboola either to renew or for the first time, as they want Connexity built into the forecast and their strategy as well as ours.
It's only been a few months, and I like seeing these early signs of the market reacting positively. This is only the beginning. Since the acquisition closed, we have worked through the details of our integration and our plans to capture $100 million of synergies we outlined in our e-commerce with Connexity information session in late September. We're even more confident in our future success after a deep dive with the team. When I think about our competitive advantage in the commerce affiliate space specifically, there are four things that are unique to us. One, strong relationship with publishers who trust us and want to do more with us. Two, strong relationships with advertisers, retailers, and merchants built on the foundation of high-performing scaled network. Three, data.
We know what people read and know what people buy, and we can use that to guide publishers about which content they need to write about. I hear so many times that many publishers have never got into e-commerce because they were not sure where to even begin, what to write, so that it feels authentic to the readers. We can help. Four, last but not least, traffic. The ability to drive audiences to our publisher partners to build on our reach as we reach 500 million people a day, and we can provide positive ROI traffic to those pieces of content we can create together.
Within Recommend Anywhere, we recently announced the Taboola News, where we take our publisher partners to other canvases where users spend their time, continues to scale and now drives an average of more than 220 million monthly engagements on editorial content through mobile device and OEM partnerships. This represents an increase of more than 270% year-over-year. In Q3, we announced another exciting partnership with Xiaomi as part of Taboola News. Xiaomi is one of the second-largest Android OEM manufacturer in the world, and they will integrate a feed of Taboola News on their devices. Now, taking a big picture view, and before I pass it over to Steve to discuss our results further, I want to make a few comments on the market more broadly.
As we've stated before, we are a business that is not reliant on third-party cookies, and we instead leverage contextual signals to deliver relevant recommendations. This is also true for Connexity, where their commerce recommendations are solely intent-driven. This quarter, there was a lot of conversation on privacy, impact on iOS changes, and IDFA. We did not see any impacts from these on our business. Taboola's yield keep growing through our ability to leverage contextual signals due to our hard-coded integrations with 9,000 publishers, through which we reach 500 million active users every single day. This is important now and will become even more important over time as advertisers look for alternatives to the walled garden. There also has been a lot of conversation and news about supply chain challenges faced by some manufacturers and businesses.
We're tracking this like everyone, and it's new to us all, but as I updated on my letter, we did not see any impacts from supply chain challenges in Q3, and that is mainly due to our diverse advertiser base and growth in digital-first advertisers. We're also feeling comfortable about Q4 and raising our guidance. In summary, I'm very excited about what we accomplished in Q3 and how Connexity integration is making progress and what is still to come in Q4 in 2022. I will now hand it over to Steve, who will dive in deeper on our financial performance and guidance.
Thanks, Adam, and good morning, everyone. As Adam shared, we had a very good Q3 and have expectations for a strong close to the year. If you read our earnings release, you noticed that we beat our Q3 guidance on all measures, and we're raising our guidance going forward. Before I get into specific numbers, I have a couple of items to highlight now that we have completed the Connexity acquisition. First, we closed the Connexity acquisition on September 1st, and as a result, we have one month of Connexity results in our reported Q3 financials. This is consistent with the guidance that we gave during our eCommerce with Connexity information session on September 28th, which also included one month of Connexity results in our Q3 guidance. Second, we have determined that going forward, we will account for Connexity's business on a net revenue basis.
Previously, Connexity had accounted for a portion of their business on a gross revenue basis and a portion of it on a net revenue basis. This change only impacts the top-line revenues. Going forward, Connexity's revenues will be what we keep after we pay our publisher partners, equivalent to ex-TAC gross profit for the rest of the Taboola business. To have our comparisons on an apples-to-apples basis, we adjusted our Q3 and full year guidance to reflect this net revenue recognition treatment for Connexity. In our e-commerce with Connexity information session, we guided to gross revenues of $338 million-$342 million in Q3 and $1.392 billion-$1.4 billion for the full year.
With this change in accounting, the adjusted guidance for revenues in Q3 is $331 million-$335 million and would have been $1.35 billion-$1.36 billion for the full year. With our outperformance in Q3 and our higher expectations for the full year, we have raised the full year 2021 gross revenues guidance to be $1.36 billion-$1.37 billion. Again, note that nothing else changes in our guidance due to this accounting change. The only adjustment is the top line revenues. Since we are still relatively newly public, I will also repeat the comment I made last quarter to remind everyone of how we look at and measure our business. We're focused on achieving profitable growth.
The way we measure our performance against this goal is by looking at two measures. To measure growth, we look at our ex-TAC gross profit growth rate. Ex-TAC is what we keep from our revenues after we pay our publisher partners. To measure profitability, we look at our adjusted EBITDA margin, adjusted EBITDA divided by our ex-TAC gross profit. Just as SaaS businesses have a Rule of 40, where they always want their growth rate plus their profit margin to exceed 40%, we too want the sum of our ex-TAC growth rate and our adjusted EBITDA margin to exceed 40%. Now on to our Q3 results. Revenue was $339 million. Ex-TAC gross profit was $127 million and adjusted EBITDA was $40 million.
This represented ex-TAC growth of 22% year-over-year and an adjusted EBITDA margin of 31.4%, which means that we were a Rule of 40 company this quarter. All of these results were above our guidance for Q3. As Adam shared, we are seeing continued good progress in the business, winning new business, executing on our Recommend Anything and Recommend Anywhere growth initiatives, and realizing very good yield expansion. Of Q3 gross revenue growth of $48 million, $23 million came from new digital property partners and $25 million came from growth of existing digital property partners. As a reminder, when we talk about growth from new digital properties, that is revenue that is coming from publishers that are new to our network since last year.
The new revenue growth was right in line with our plan, so we are continuing to see plenty of opportunities to bring new digital properties onto our network. In terms of growing our existing relationships, our net dollar retention or NDR on an ex-TAC gross profit basis exceeded expectations. It was 112%, which primarily reflects strong improvement in yield. Very good growth on both fronts, bringing on new partners and also growing our existing partner relationships. Our ex-TAC gross profit was up $23 million or 22% year-over-year. It benefited from the growth in both new and existing digital properties, the addition of one month of Connexity, as well as from the continued flywheel effect that Adam referenced.
This effect drives improvements in yield and helps us move from paying some publishers on minimum guarantees to paying on rev share over time. These gains year-over-year were partially offset by the withholding in 2020 of $7 million in guaranteed TAC payments to publishers that were subsequently paid in Q4 of 2020, which made for a more difficult comparison with 2020. Turning to operating expenses, which were up $40 million year-over-year, there are three noteworthy items to call out. First, $13 million of the year-over-year increase in operating expenses was due to share-based compensation, which is higher now that we are public. Excluding share-based compensation, operating expenses were up $27 million. Second, part of this year-over-year increase comes from including one month of Connexity in operating expenses.
Third, there are higher professional fees and legal expenses related to our M&A transaction. In terms of more routine operations, we had higher expenses driven by public company expenses, as we expected. In addition, expenses were up due to a partial return to more normal operations following the COVID pandemic. This included a partial reopening of offices in several countries and some increased travel. The strong revenue performance flowed through to the adjusted EBITDA of $40 million, which was better than expectations and guidance. It was, however, flat year-over-year, as the increase in gross profit was offset by the increases in operating expenses that I just described. From a margin perspective, the 31.4% ratio of adjusted EBITDA to ex-TAC Gross Profit was above our guidance and model.
It is worth noting that net income was $17.3 million, which was $600 thousand higher year-over-year. Net income was above our expectations of a net loss of $5 million-$7 million, driven by a $17 million reduction in warrant liability, lower income taxes, and higher gross profit that more than offset higher operating expenses. Lastly, Q3 produced free cash flow of $19 million. Through nine months, free cash flow was $11.8 million, and we expect to exceed our original guidance from our pipe deck of $33 million in free cash flow for the year. I would also like to note that if you look back to the beginning of 2020, we expect our ratio of free cash flow to adjusted EBITDA for the 24 months that will end this December to be approximately 60%.
That means for every dollar of adjusted EBITDA that we will report in 2020 and 2021, we will convert $0.60 into free cash flow. This is very consistent with the directional guidance we have given that we expect approximately 60% of our adjusted EBITDA to convert to cash over any reasonably long period of time. We ended the quarter with $312 million in cash and cash equivalents after the cash consideration paid for the Connexity acquisition. After netting out the $300 million in debt that we raised for the acquisition, we had positive net cash, so we feel good about where we are from a capitalization point of view. Following our strong performance in Q3, which was on the back of a strong first half, we are raising expectations for Q4 as well as our full year guidance.
I won't go through our Q4 guidance, which is detailed in our release. For the full year of 2021, though, we are now projecting ex-TAC gross profit will be $512 million-$515 million, which represents growth of 34%-35% versus 2020. That is an increase from our previous guidance of 31%-33% growth that we gave during our e-commerce with Connexity information session. We're expecting 2021 full year adjusted EBITDA to be $174 million-$177 million, which represents growth of 64%-66% versus 2020. This demonstrates a very healthy adjusted EBITDA margin, meaning adjusted EBITDA divided by ex-TAC gross profit of over 34%.
Per my previous comments about always seeking to beat the Rule of 40, our growth rate of 34%-35% and our adjusted EBITDA margin of over 34% well exceeds that goal. For modeling purposes, we estimate the fully diluted shares outstanding at the beginning of Q4 to be approximately 272 million shares. We are not updating at this time the guidance for 2022 that we provided during our e-commerce with Connexity information session, except to adjust the top-line revenues guidance for the Connexity accounting change that I mentioned earlier. This results in our previous 2022 revenues guidance of $1.7 billion-$1.75 billion to be recast as $1.59 billion-$1.63 billion.
To be clear, the only change in these numbers is to reflect that accounting change, and the change does not affect the fundamentals of the business. We look forward to providing an update on our 2022 expectations during our Q4 earnings call. Let me wrap up by saying that we continue to see many paths for growth in our business, and we continue to invest in these growth areas. We believe we will continue to grow our core business by bringing on more digital property partners and by growing revenue from our existing partners, primarily by continuing to grow our yield. As Adam spoke about earlier, our investments in Recommend Anywhere and Recommend Anything growth strategies are showing good promise, and we look forward to telling you more about that in future calls.
Finally, the Connexity acquisition is a game changer that will provide significant upside to our business going forward. On that note, let's open it up for questions.
As a reminder, to ask a question, please press star then one. If your question has been answered and you would like to remove yourself from the queue, press the pound key. Our first question comes from Stephen Ju with Credit Suisse. Your line is open.
Okay. Thank you, and good morning, everybody. Adam, I think you announced yesterday, Smart Bid Dimensions. If we understand this product correctly, it seems like other companies who have released conceptually similar solutions have talked about this being a catalyst to hopefully onboard more long-tail marketers because this helps to, simplify advertising in general. We're wondering if this will help you expand the advertiser base from the current, about 14,000 or so to hopefully something much bigger. Also, you've also expanded relationships with publishers like NBC, but onboarding, I think you mentioned LINE, earlier as well as Xiaomi. Conceptually, how will your products be deployed on LINE today? You have about 500 million users right now. W hat can these two partnerships do in terms of hopefully unduplicated potential user base? Thanks.
Hey, good morning. Good morning, everyone, and thanks for the question, Stephen. To start with the first one, Smart Bid Dimensions is a big deal in the sense that it's going to do two things. One of them you touched on, which is help advertisers, smaller advertisers who may not have the know-how of sophisticated advertisers to be successful a nd that's basically it's very much like hands-off or a really autonomous experience for advertisers who on Taboola can succeed. That's going to be one thing that we expect to happen.
The second one is actually even for existing advertiser base, if up until now they had to log in to Taboola, multiple times a day, create multiple campaigns to find further optimization beyond the way we used to do it, now they're going to have to actually do that much less, which will free up their time, to work more with Taboola, to increase budgets, and to be successful with us. As a recap of what exactly Dimensions is, up until now, 85% of our revenue that is controlled by Smart Bid, which is our AI software that helps advertisers to be successful, optimized at the publisher level, which means if one site did really well for a certain type of advertiser, Smart Bid would increase the CPC to get more traffic from that site.
If it was not performing, it would decrease the CPC. The gap it created is that Smart Bid did not take into account as an example, one example I like to give is that let's say this publisher had one article that was actually great for the pub, for the advertiser, but the publisher as a whole was not that great. Smart Bid would decrease the CPC, even though one article was really doing well for that advertiser. As of now, it will not happen. Smart Bid will basically create more dimensions and more granular view of the Taboola network. For that piece of article, it will increase the price, and for the rest of the site it will decrease the price. Advertisers will be more successful in that fashion.
There are many other examples I've given a bunch on my letter, but I'm very excited about it. The team has done a lot of hard work to develop this, and I hope to see even more advertisers being successful with us. That's about Smar Bid Dimensions. About Xiaomi and LINE, this is great for Taboola, just as a reminder what it means. Companies like Xiaomi, which have 100 million devices, will integrate, that's part of Taboola News, which is Taboola Recommend Anywhere. That's one of our growth engines areas. That means that when people buy Xiaomi, as it continues to roll out, Taboola will be pre-installed on the device. It will be in the lock screen. As you look on the device, we'll surface news you might like.
It's very much the main experience, the news experience that people will have powered by Taboola. What's really nice about it's not only this is a revenue opportunity and I'm excited about it's actually very strategic to us because as opposed to Apple News, every time you click on a piece of news that you discovered by Taboola, we open the browser and you go to the publisher site, which means that over time, the more Taboola News becomes successful, our publishers will receive traffic from Taboola, which will be similar to SEO, which is what, a big part of Google's business or Facebook and Twitter and the like. It means we're going to be more important to publishers.
When we think about competitive advantage and how we continue to grow over time, yield is obviously very important. If we can become 5%, 10% and more of publishers' sources of traffic using Taboola News, that's going to be a big deal. With LINE and Taboola, with Xiaomi, that's how it's integrated. LINE, it's going to be again a feed of recommendations integrated in the app. Xiaomi, it's on the device, it's in the lock screen.
Great. Thanks, Stephen. Operator, next question.
Our next question comes from Andrew Boone with JMP Securities. Your line is open.
Hi, guys. Thanks for taking the question. I'd like to hit on Smart Bid Dimensions as well. Can you just help us understand the ad performance? Look, you guys started your machine learning, deep learning efforts five years ago. how do we think about this developing over time as you guys add more data and publishers adopt it more and advertisers adopt it more? Can you just talk about what's the benefit today as well as how that develops over time?
In terms of a bit more information about that, Dimensions adds about 40 dimensions that Smart Bid will start looking into, which we did not do up until now. That includes day of week, time of day, location, platform. Again, just to give this follow-up on the same example I've given before, let's say a publisher did really well and Smart Bid wanted to increase the price because of that, Smart Bid did not take into account the location. It could be that some geographies are really good and some geographies are not as good. Now that will be broken down automatically by Smart Bid.
The advertiser works with Smart Bid once. Smart Bid might br eak that campaign into 40 pieces based on what works and what's not behind the scenes. The advertiser wouldn't have to do anything. Up until now. By the way, that's very common for other companies in our space, and that's differentiation and advantage. A lot of times, these advertisers have to build know-how of how to optimize in the platform they work with. They have to figure out, is it working in this geography? Is it working for that time of day? Should you create something for the morning, something from the evening? All of those efforts on the advertiser side, a lot of times prevent them from even working with certain platforms. That's just to give you some more color on the types of dimensions.
The expectation I have is that they will be able to be even more successful, which means that they'll get more budget with us, and they'll drive better conversion rates. The CPA will be even more attractive. It will be easier for them to work with us, increase the budget, and more advertisers to come along. I'm happy to give more examples. Over time, what we do is we especially now with Connexity, we have about 1 million purchases a month that Connexity is getting. I think we talked about that on the information session. As we're merging the datasets of Connexity and the dataset, the readership of Taboola, Smart Bid will be able to know even more and then further optimize for advertiser success.
Our goal is for advertisers to have lowest CPA acquisition costs so they can scale with us. For that, data helps us, AI helps us, getting more publishers helps us. That's a continuous and forever efforts. If I had to guess, from one to 10 where we are, we're still early. I think there's so much work for us to do. This is, of course, a big announcement, Andrew, but there's so much more for us to do, and it's a big effort for R&D.
Yes. Let me just jump in and put it in a broader context. I think, we've talked about, as Adam just alluded to, we've talked about the fact that we're very early in our yield growth journey, we believe. We think that we could grow our business o ver time, almost exclusively just by growing yield if we wanted to. I think this is a really important step along that journey. We've talked in the past about how yield grows from algo improvements. It grows from bringing on more advertisers to increase density, and it grows with bringing on more data. This is the synthesis of all three of those.
Because it's bringing in more data, getting more granular with it, making more advertisers successful, so we can bring on more advertisers over time. This is a really important step in that journey, but, just demonstrates how early we are in that journey and how we can continue to grow the business through yield.
Just one last note that I think it's worth sharing, and I wrote about that. I even put a screenshot of the car dashboard. Smart Bid job is to, on the one side, help advertisers be successful, and that's measured usually with a conversion measurement, how what's the price of an acquisition and how much you're able to scale. On the publisher side, it's measured by optimizing for yield, which is RPM, revenue per thousand impressions. As a reminder, Smart Bid does not care about click-through rates independently, does not care about CPC independently, does not care about conversion rates independently. In fact, any one of them is completely dangerous to monitor and track. If Smart Bid was just looking at optimizing for click-through rate, it would have prioritized enticing creative.
It would have prioritized perhaps even advertisers that don't succeed on Taboola necessarily. Then over time, CPCs would go down and yields would go down. Actually, it's quite dangerous to look at just one metric. Smart Bid is looking at all three, and on the advertiser side, making sure conversions are exciting and meeting their thresholds. That's a lot of hard work, and that's why we invest so much in deep learning to make sure that's successful.
Thanks for the question, Andrew.
Thank you.
Hopefully that addressed it.
That was great. Can I follow up with a second in terms of just Connexity?
Sure.
As we think about e-commerce demand just coming onto the platform more broadly, can you talk about bringing e-commerce demand specifically onto more core Taboola. How are you guys incorporating, especially as we think about Q4, e-commerce onto the core Taboola platform? Thanks, guys.
Yes, definitely. Thanks for the question. I would say that the, the most immediate thing which we're working on is to bring Connexity demand onto Taboola's core experiences or Taboola feeds all around the world on 9,000 publishers. We've mentioned that we believe a single-digit percent of our traffic has high intent already and is able to basically absorb those high paying and premium retailers that are looking to convert in the Open Web. That's something that we expect to happen. It's one of the synergies. if you remember, we talked about it.
Over time, one of the biggest goals we have is to increase the portion of traffic the Open Web has and as a proxy our publishers have with intent from single digits to much more than that. That's going to be a lot of great work that we've started doing, and I'm seeing good momentum from publishers. The immediate thing is we're working on basically having Connexity advertisers bidding in the Taboola ecosystem. My expectation is that about 1% of traffic will be able to win that demand, and the yields will be much higher when that happens. If you saw what I mentioned, 15 minutes of Facebook in terms of revenues is about 1 minute on Google.
Intent c an create a logarithmically higher RPM and yield. That's going to happen. We're working on having them bid on our network. When they win, it's going to be higher yield, but more revenue to publishers, more margin and all those good things.
Great. Thanks, Andrew. Operator, next question.
Our next question comes from Laura Martin with Needham. Your line is open.
Hey, Adam. I just want to build on that last question you just answered. I want to talk about content quality. When you look at your core business, you have very high quality content publishers like USA Today, CBS Interactive, NBC News, Bloomberg. It feels like this Connexity stuff is about lead gen, where you're writing content to drive intent to sell something, which feels very low quality. Tell me why I'm wrong about that and why the Connexity acquisition doesn't turn you into more of a lead gen company and away from this very high premium news representation that you've done historically.
Yes, good question. Good morning, Laura.
Hi.
Good chatting. First of all, before even Connexity and taking Taboola aside, if you just look at the market, take a market view. You're seeing the following dynamics. You're seeing companies like The New York Times, which is definitely high quality publisher, acquiring Wirecutter and investing in reviews and high intent content that sits side by side to The New York Times, but owned by The New York Times. You're looking at USA Today, they own reviewed.com, which is a nine-digit revenue business, big business, as an extension of them. If you look at Condé Nast, Hearst, Meredith. Meredith is generating half a billion dollars a year from high intent pieces of content, and of course, they're also very high quality journalistic organization. I can go on and on. CNET, obviously, and Red Ventures in general, mega successful.
The way I see it, there's going to be two types of integrations. By the way, I believe all publishers will do it. In fact, I believe a third of the revenue of the Open Web will be like that. There's going to be two ways it's going to happen. One, some publishers will say, "We'll take a CNET strategy. We're CBSI. We'll have CBS News, CBS Sports and CNET." That was before it was acquired by Red Ventures. We'll be like The New York Times. We'll have thenewyorktimes.com, and we'll have Wirecutter that carries the clout and trust of The New York Times in a separate domain. Reviewed.com of USA Today, and so forth. Then you'll have publishers that will say, "Well, we will build a subdomain. We'll have a section on our site called Shop or Reviews or something like that."
I think that's how it's going to happen. We're already seeing, I think the examples I've given show us that these are highly journalistic organizations that want to tap into a $40 billion Open Web e-commerce high-intent budget that right now most of them are outside of it. I think they're either going to launch a site that carries the trust of them, or they will launch a subdomain. And I'm seeing actually some great examples also outside of the US. I think everybody looking at Red Ventures, CNET, Reviewed, Hearst, Meredith, now IAC, everybody's saying, "We want that strategy too. Where the hell do we begin? How do you even know what to write about?"
I spent a lot of time over the last month with publishers. Everybody want it. Their biggest question to me is. Where do we begin? What should we write? What feels endemic and authentic to our readers? That's the main question. Will they do it? All of them. Where do they begin? How do they write it, so it feels at home and feels relevant to the consumer? That is where Connexity comes in. That is where data comes in.
They're going to ask Connexity, "Give us a sequence and a pipeline of things we need to write that makes sense to our readers, and then help us monetize that, then help bring retailers, CPC, and CPA." I think, on the back of companies like, Red Ventures and all those folks, we're going to see everyone, wanting to do it. I think Connexity being the largest by far in this space, we could be an enabler for that transition.
Super helpful, Adam. Thank you.
Great. Thanks, Laura. Operator, next question.
Our next question comes from Shyam Patil with SIG. Your line is open.
Hey, guys. Thanks for taking the question. This is Jared on for Shyam. I know that you aren't updating your 2022 outlook at this point, other than revising for the Connexity accounting changes. Given the 2021 raise, how are you thinking about the setup into 2022? Might we see further upside at this point?
Hi, Jared. Yes, good question. I think, the reason that we're not raising 2022 at this point is we basically just released that guidance, roughly a month ago. We're at this point still standing by that. We still feel very good about 2022, and we think we have good strength going into the year. W e'll update that guidance as we release our Q4 results in February. We'll give an update then. I think, generally speaking to your broader question, I think what you're asking about is how do we feel going into the year and how are we doing? I think generally speaking, we're feeling very good. We obviously raised Q4 because we've had a great Q3.
We see good strength going into Q4 here. The Connexity is doing very well. We're actually ahead of our expectations for where they were going to be at this point. They're part of the reason that we're raising Q4, so we feel good about their numbers as well. I think we have very good strength going into 2022, we're looking forward to talking to you in February about our Q4 results and then probably revising expectations for 2022 at that point.
Great. Thank you. Just one more, if you don't mind following up on your Connexity commentary there. Do you mind helping us unpack your progress towards that $100 million in synergies that you were speaking to, and when might that full $100 million be realized?
Yes. In terms of just where we are, we're making good progress, I would say on the people front. I n London, the teams are already together. In New York, I expect the first half of the year we'll have the folks, being together. financials are great. Connexity, they keep signing great advertisers and publishers. I would say the business is continuing to have great momentum. Merriam-Webster has signed. Dell UK signed. That's just independently exciting to me. More on synergies, ad sales, which was one of the synergies. As a reminder, Connexity has built an amazing business with two ad sales people. We obviously have many salespeople all around the world.
We've started the global expansion essentially via our international ad sales people. That includes China and Brazil to start, but more to come. In fact, there was a nice surprise there because we saw that as our ad sales people in China reached out to retailers, many of them wanted to actually buy in the U.S. as well. Not only in China mainland. That's great because that basically means demand from China being exported into the U.S., which is great for yield here in the U.S. and continuous growth here as well. Ad sales from a synergy perspective has started, China and Brazil to start. Publishers, we started upselling to publishers just the standalone service of Skimlinks and Connexity, which is related to what Laura has asked before.
I will tell you, we're thinking also at the leadership level, given Taboola is a bigger company and we have more resources, how do we build a batch of publishers that get even a more resource-heavy implementation where we can grow even faster. Growth is something on our mind. We wanted to really, double down and make this a huge success. I already said publicly that I believe in four years, that's going to be a third of our business. We're very much believers. We started upselling. That also has happened on the integration front since the close. These are the high-level things that have started. That's only been a month plus into it.
That's very encouraging to me. Personally, I can tell you, I'm spending time with their team. I'm spending time with publishers, and I'm getting really exciting feedback. People are basically telling us it also affects renewals and signatures. I'm seeing good signs from the market that they want an e-commerce and affiliate strategy, and they look for us to help them get there.
Great. Thanks, Jared. Operator, next question.
Our next question comes from John Blackledge with Cowen. Your line is open.
Great. Thanks. Two questions. Could you discuss the video advertising progress in Q3? More broadly, how do you view video as a growth driver in the coming years? Second question on the iOS, the Apple changes. Just given the measurement and targeting issues caused by the Apple changes, do you think Taboola might see higher ad demand in the coming quarters as the platform's affected and deal with the changes? Thank you.
Hi, good questions. I'll start with video. Video represents about brands and agencies, in general, which is primarily video, is very important for us. It's about 15% of our business. That's great. Every percent of traffic that gets video, very similar to e-commerce, generates higher yield. It's higher quality, it's higher yield, so it's great for the consumer, it's great for the publisher, it's great for the advertiser. In general, we love to increase, portions of our business when we can bring premium demand that pays more and creates this, flywheel effect, for our business. In general, we care about it, and it's about 15% of our business. At our size, that means it's significant.
We announced this quarter that Dentsu signed with us. It's a big agency. It's going to start in India, where basically all of their clients will have access to Taboola in the region. That was a big progress. In general, we're seeing good momentum with brands and agencies, especially as we sign more and more what we call High Impact Placement. High Impact Placement is the main way we expand our recommendation into video. The way it works is, up until now, or a few quarters ago, the vast majority of our footprint in the Open Web was bottom of article. That's fantastic for, of course, performance advertisers and e-commerce. For video, brands and agencies want something else. They want much more visible.
They want to be in the middle of the page. They want to be in the homepage. They want to be on the section front. Like I said, one of the biggest advantages of Taboola is that we are a publisher company. We work with many of them for three or four or five years. It's exclusive, it's global, and it's long-term. They trust us. We have great relationships, and they upsell with us. We upsell with them constantly. That means that when we bring a new solution to market, they really consider that. We're not buying traffic, and hope for the best. We work with them. We are integrated on their pages. This quarter, we announced, as an example, NBC Sports launching High Impact Placement.
That means you will now see Taboola on those placements I mentioned, and brands and agencies will be able to funnel high-quality video demand into those placements. That's just one example. As a summary, I'm seeing good momentum on both the advertiser side with companies like Dentsu and others coming in, appreciating the Open Web. They want to diversify outside of walled garden and so forth. Two, I'm seeing the publishers doing more with us, and then expanding into placements we've never been. I think it's also a good indication of the transition of the Open Web from traditional advertising formats, banners and things like that into in-feed native Instagram-like formats, which is basically a Taboola revolution. I see, if I look at the Open Web as a whole, it's a $64 billion market.
It's mostly still monetized with banners. Unbelievable. That's going to, in my belief, change aggressively. My kids will view a very different Open Web. The more I'm seeing NBC Sports of the world transitioning into High Impact Placements from old school ad formats, that's a great sign. All of those things happen. It's 15%, it's high yield, so we care about it. That's about the first question. The second question about IDFA. Short-term, I don't know how much we'll see that because people are... It takes advertisers time to change. But I do think, and I'm hearing a lot of chatter from the market about advertisers being unhappy about prices going up. In general, advertisers really want to diversify and have more channels that they can scale with.
I do think over time, we'll see more advertisers trying other reasons so they don't feel locked into one or two or three channels. That also ties into Smart Bid Dimensions. That's why it's so important for us to make sure that when advertisers come to Taboola because the IDFA makes it hard for them to succeed on other platforms, it works. That again, I'm not sure if in Q4 we'll see a big rise, but I do think over time we will see advertisers coming in for other reasons and that one as well.
Thank you.
Thanks, John.
Thanks, John.
Operator, I think we have time for one last question.
Our last question comes from Shawn Ross with Oppenheimer. Your line is open.
Hey, guys. This is Jason. I'm going to take the question. Hey, how are you? Maybe just help us understand the timing. I guess just through the mechanics and timing. Right now, are you assuming in your 2022 guidance, the positive impact of bringing Connexity, to the "legacy Taboola real estate?" Maybe question more like is it in there and if so, when maybe. You had a September 1st close. C an you help us understand to the extent we want to try to get to organic growth, the impact of Connexity on Q3 and what's factored in Q4 guidance? I guess last, was there any one-time items in G&A that you want to call out because it seemed a little high? Thanks.
Great. Yes. Thanks, Jason. Good questions. First of all, on Connexity in 2022. I think you know us well enough at this point to know that we tend to try and be fairly conservative with items that we that are less certain. The Connexity synergies are something that I consider to be, it's a little bit like our growth initiatives. Great big opportunities that we're going to be conservative with until we start to see them showing up in our numbers. We've been pretty conservative with how we're factoring Connexity synergies into 2022. When we did the Connexity information session, we raised our 2022 growth guidance by about 1%. That translates into about $6 million of ex-TAC.
That's about what we have factored into the 2022 plan for Connexity synergies at this point. We think that's conservative, but t hat's our intent, is to be conservative with it. That gives you an idea of how we're thinking about that. In terms of organic growth, I guess the way to think about organic growth in our business right now is that. Well, let me talk about Q3 first. In Q3, we had one month of Connexity in there. We grew roughly 22% year-over-year in that quarter. If we didn't have the guarantee holdbacks last year, if we had paid out those guarantees, that would've been $7 million more of TAC last year, and we would've actually grown 29%.
On an as reported basis, we reported 22%. It would've been 29% without that unusual item last year. In terms of on a pro forma basis, without the unusual item last year of those guarantee repayments, it would've been 22% growth, and as reported, it would be 15% growth. That gives you a sense of how to look at it for Q3. For 2021 as a whole, we're reporting 34%-35% growth of ex-TAC a nd on a straight organic or without the Connexity piece, it would've been 26% on a pro forma basis. That gives you some idea of how to think about the organic growth.
Your last question was you asked about any unusual items in operating expenses, I believe, is what you were asking about. In Q3, we did have some unusual items that we could, that we should mention. If you look at 2020 versus 2021 for Q3, and you looked at a similar OpEx as a percentage of, gross revenue or really of gross revenue, we were up about $28.5 million versus what you would have expected. O f that, the unusual items were there was a $13.5 million increase in stock-based comp. That's just higher stock-based comp related to us being public.
We had one month of Connexity this year, obviously didn't have Connexity last year, so that was about $4 million roughly of an unusual increase. We also had depreciation and amortization went up about $3.5 million in this quarter due to the Connexity purchase price accounting, so amortization of the Connexity goodwill. Then we had $2 million this quarter of M&A costs related to closing the Connexity transaction and about $4 million of public company expenses this year that we didn't have last year. All of that, those unusual items add up to be about $27 million of the $28.5 million increase year-over-year in terms of unusual items. Hopefully, that gives you a sense of what was unusual about this quarter relative to last year.
Great. Thank you very much for the call.
All right. Thanks. Thanks, Jason.
There are no further questions. I'd like to turn the call back over to Adam for any closing remarks.
Thank you. Thanks, everyone, for joining. I feel energized by our progress. Financially, we're beating 34% growth year-over-year, faster than the entire industry. Over the last two years, 60% of our adjusted EBITDA converts to free cash flow, which obviously matters and I think unique to Taboola. we're well-positioned in a strong market dynamics that they are taking pace with privacy and supply chain. we're doing really well and growing. Connexity is beating financials. We're integrating. We're just getting started. $100 million of synergies. I'm seeing good growth in our core business with yield beating our expectations.
Smart Bid Dimensions, LINE, and others are taking our technologies and also the growth engines that we love, Recommend Anything and Anywhere, Taboola News, Xiaomi, NBC Sports with video, Dentsu. There's a lot of good momentum. We're having a good time. I look forward to talking to many of you over the next few weeks. Thanks for leaning in and asking us good questions. Looking forward to our Q4 in 2022. Just the beginning. Thanks, everyone.
Thank you for participating. This does conclude the conference. You may now disconnect. Everyone, have a great day.