I'm Andrew Beer, and I cover internet here at Citizens. I'm joined today with Steve Walker, the CFO of Taboola. Thank you so much for being here.
Thank you for having us.
Let's just start big picture, right? The last call, a lot of focus on performance advertising. The question I want to ask is, what gives Taboola the right to win performance budgets? Big picture, just define that.
Yeah, good question. Let me take a step back and first just so we're all on the same page as to what Taboola does. We are a performance advertising platform that helps businesses basically grow their businesses on the open internet. Open internet means web browsers, desktop, mobile, apps, basically all of the different places that you spend time outside of social and search. That's kind of our home, and we help performance advertisers grow their businesses there. We also work with thousands of publishers to help them grow their business by growing their audience and also monetizing more effectively. Kind of a two-sided business. In terms of how we win performance and what gives us the right to win, we've spent a decade basically winning the native advertising space. That's bottom of article on publisher websites.
I think that having won that space now, think of it as land and expand. We think that that gives us some really unique assets now to go out and win performance advertising more broadly. First is our scale. We see 600 million daily users. We see people all the time. We know what people are reading about. We know what they're clicking on. We even know what they're buying because we see all the way down to the end of the funnel. We have really unique data. If you combine that with our, sorry, really unique scale, really unique data in terms of what people are reading about, what their interests are, combine that with our AI that we've developed, we think that gives us an opportunity to really win that performance advertising market.
OK. Realize was the big product announcement last quarter. One, just frame Realize, right? What is it? Then how does it evolve Taboola's advertising toolset?
Yep. I mentioned historically we've been native advertising. Native advertising is basically where you have a thumbnail, image of some sort, a headline, and then some attribution text. It looks like articles on a publisher website. That's why we call it native, because it looks like another article. I think what Realize is about is really about moving from being just native to being all performance advertising. All performance advertising can include display advertising. It can include social advertising. It can include performance video. There are other types and other formats of display. I think that's where we're kind of expanding into now to accept kind of all those different formats, also to move into other placements on the page.
We'll be doing a lot more now bidding on display spots and other spots on publisher websites that we get kind of other placements on the page as well. Think of it as new types of demand, new types of supply in terms of that bidding on other places, but all of it tied together by bringing all of the data and knowledge that we have from being on the publisher website. Because one thing that's unique about us is we're coded on the publisher website. We have first-party cookies. We get to kind of track what people are doing over time, bringing that really unique data set to drive performance throughout the page, not just bottom of article anymore.
Very specifically, right? You said display, social, performance video. Talk to me about what needs to happen for you guys to cover some of these other places. Is this now more of an ad manager offering where you guys are going out and buying Twitter inventory? Help me understand performance video and what has to happen for that to take place. Just walk me through the evolution of what this looks like over the next probably what, two years? What's the time frame?
I mean, so it's rolled out now. Now if you're going to go buy an ad from Taboola, you will go through Realize. Realize has replaced Taboola ads as our primary interface for all customers coming to us. I think in terms of what needs to happen, obviously one thing is we needed to support these new formats. We now support that. If you come and set up an account on Taboola and you want to advertise with us, it's not going to say, give us your thumbnail and headline and attribution text anymore. It's going to say, what type of campaign do you want to set up? Display, social, style, format, native, whatever you want to do, you can set it up on our system. We had to support that.
We also had to, and we've been building this over time, build out our capability to bid on those other spots and get really good at acquiring inventory on publisher websites beyond just the bottom of article, which is our bread and butter, which we have today. We had to develop that capability. We also, frankly, we reimagined the whole interface of the ad console and everything. We are making it easier to use. We are bringing Abby, who we announced last summer. It is our AI, generative AI assistant. Think of it as our best account manager available 24/ 7, 365 days a year. Abby is now on every page. There is a lot of just kind of setting up the whole system to say, what are your performance goals? What are you trying to do? Then giving advertisers the capability of doing that on our system.
Formats, being able to buy different inventory. It was basically a whole rethinking of our ad platform.
It would actually be helpful to have me understand Realize a little bit better in terms of just talking through maybe a potential campaign, right? If I come on, am I coming on and giving Taboola an ad objective? Or kind of talk me through the setup in terms of understanding what that looks like.
If you showed up as a self-serve advertiser today, you get Abby. That's our generative AI. Abby would ask you, what's your goal? You might say, oh, my goal is I've got this—I will use Adam's for example since his wife owns one—I've got a flower shop. I want to sell flowers to consumers. Abby would say, great. Do you know how much you're willing to pay for every sale you make or every consumer that you acquire? You could say, I don't know. How much should I be paying? Abby will give you an idea. Other similar businesses tend to be able to pay $25 for a purchase. Does that sound right to you? You say yes. Abby would say, do you have any campaigns that you use elsewhere? Display campaigns, social campaigns. Oh yeah, actually, I've been advertising on Facebook.
Great. Click here and we can import those for you. We actually now have an import tool that'll pull in the Facebook campaigns. No, I don't have anything. Great. Let's create that for you. We actually do generative AI image creation to create campaigns for people. It is really very much a walk you through what's your goal, what are you trying to get, give us whatever assets you have, display, social, native advertising campaigns that have worked for you, and then set targets. Really, we'll get it up and running for you at that point immediately.
From there, it's the equivalent of, say, a Performance Max where it then allocates dollars across all of the various formats effectively.
Correct. Exactly. So that you do not have to worry about, is this display campaign better than that social campaign or better than that native campaign? We will make those determinations. We are going to spend the money where you get the best cost per acquisition.
Just be clear, right? Longstanding, there's been Taboola's relationship with your group of publishers that are exclusive bottom of page. This is now expanding beyond that into the entirety of the open web? How do I think about the delta between what may be RTB versus proprietary Taboola?
No, that's a really good question. We will not bid except in places where we have an advantage. What that means is we will bid on all of the placements on our existing publisher sites because we have an advantage. We're on the page. We've got first-party cookies. We know what people are reading on that site. We'll be looking at BD relationships with other entities like Apple that we announced last year. We just announced a company called Line in Asia-Pacific. They're basically like the WhatsApp for a lot of Asia-Pacific countries. They also are giving us kind of an advantage data position. We'll only really bid where we have an advantage data position. If we're not on a publisher site, we won't bid on that.
That is, I think, what is a little bit different than us than, say, a standard DSP, which they will say, yeah, sure, we will help you bid anywhere, but it is always based on third-party cookies. I think for a true performance advertiser, the impact is limited. With us, I think you know you are always getting kind of a data advantage when you bid with us.
The question that brings to mind then is, how does that open up the supply side further? It sounds like the expansion from off the bottom of the page into something that's much more broader. Talk about the evolution then of publisher relationships and what needs to evolve to fully realize the potential of Realize.
I do it all the time. It's like, oh, damn it. Yeah. Yeah, so it's interesting. On the supply side, I think the way we think about it is, again, we want to go where we have a data advantage. It does open up a whole new set of supply because historically we've said we won't work with someone unless they give us fixed dedicated positions that are ours for a long period of time. Now we're saying, hey, if you'll work with us and give us some sort of access, data access, we'll bid. We'll be a bidder. That's OK. That actually opens up a lot of supply. Part of that was because we've been having these BD relationships where a lot of these companies are saying, we'd love to have you.
We know you have unique capabilities and everything, but we're not going to give you dedicated placements. We want you to compete because sometimes whoever, Google has a better day than you, or sometimes somebody else does. We want the best data to win. That opens up a whole new set of supply that we'll now get into with Adam called it advertising in a box, where we maybe start working with some of these more utility app companies and things to bid on their supply.
OK. Let's talk about performance in terms of just competition. Clearly, Facebook and Google are something that everyone thinks about for performance. How do we think that those players in terms of the competitive dynamic of Realize acquiring more budgets versus what they're able to do?
Yeah. I think about the competition in three buckets, basically. You have the ad tech players today. You have all the SSPs, DSPs, et cetera. They all have a lot of budgets. Some of them are performance-oriented campaigns where there is a very specific objective in mind. We think we can take a lot of that because, to be frank, in most cases, they all share the same data. It is third-party cookies. There is not a lot of advantage to it, except in very specific cases like Criteo's retargeting. That is huge. That works well. In most cases, there is not a big data advantage there. We think we can help, again, where we have that data advantage on our publisher websites and other places. We think we should be taking most of those campaigns.
When you look at Google, so Google is, as a lot of people know, is the frenemy that everyone loves to hate. I think they do a PMax does a very good job, but it really frustrates advertisers because at the end of the day, they put in a budget and Google does with it what they want. They always have anecdotes where they say, I have a campaign running. I go and I'm looking at YouTube and it comes up on a video site that has nothing to do with my product. Or worse yet, I'm watching connected TV and it comes up. Unfortunately, that's what Google does. They don't give you visibility into where your budgets are going. Even if the average performance is pretty good, you know that you're wasting money there.
I think we are going to give complete kind of visibility into where your campaigns are going and why and what the performance is of various channels. I think that'll help us win some of those budgets from Google. With Facebook, and we've talked, by the way, we've talked to hundreds of advertisers about this. This is kind of where all this is coming from. With Facebook, I think what we hear most is that first $100,000 I spent with Facebook did really well. But man, the last $20,000 I've been spending, I'm hitting the wall. I'm not getting anything new, diminishing returns. It's getting really expensive. I think our pitch there for advertisers is going to be, don't spend another $20,000 with Facebook. You're just throwing good money after bad or bad money after good, whatever.
Spend it with us because we can actually, we'll get you to a new audience. We don't have the same diminishing returns. We'll be out on the open internet and we can get you that at a better cost. All of those messages kind of resonate. I think most advertisers will tell you that the ad tech space is confusing and fragmented. They'll tell you that, yes, I'm frustrated with Google about the fact that I don't get visibility. They'll tell you, yeah, I'm hitting diminishing returns. I think we've got a pitch for all of those.
All right, Mr. CFO. Let's talk about the 2025 guide in terms of kind of mid-single digit growth versus double digit, which has historically been the target at least.
Yep.
Is this a J curve where Realize is coming in? Or just explain that delta to us.
Yeah. I think, first of all, we tried to de-risk that guidance as much as we could because we knew it wasn't going to be what we wanted it to be. We wanted to de-risk it, give Realize a chance to get some traction, give our team some breathing room to basically get that working before we really started to guide. What we did on that guidance is that guidance is basically the organic growth rate of our core business without upside from Realize or other things that we think we could provide upside over time. That's kind of the philosophy behind the guidance. I think in terms of the growth rate itself, we feel like, first of all, we got plenty of supply. We've talked about that a lot of times. We know Yahoo can do more. We know that Apple can do more.
We've got lots of good high-quality supply. The key to growing faster now is getting the demand. We really learned two things really recently in the last quarter or so that made us realize, did it, that made us realize that we needed to change what we were doing. One was we were talking to the Yahoo advertisers who came over, the Hulus, Verizon, Samsungs of the world. We were saying, I think we talked about this last time we spoke, we expected them to start spending on the rest of our network. We thought that would drive really good growth on the rest of our network. They spend hundreds of millions of dollars with us today on Yahoo. They spent $15 million in Q4 on the rest of our network. The rest of our network is twice as big as Yahoo.
We started talking to them about why. Why won't you go there? What we realized is what we came to understand is that they just said, we just don't want to be in that feed. It's Hulu. Our brand matters. We're not going to be in that feed. If you can give us more supply like what we get from Yahoo, we'll expand with you because we like the performance. We need to have different placements. That was one of the things that led us to realize that we needed to really be focused on different placements on the page. The second thing was we started talking to the advertisers who were like those advertisers. I'll use Netflix as an example. I don't even know if we spoke with them, but it's just an example.
We said to Netflix, hey, Hulu's doing really well advertising on Yahoo and on our network. You should come advertise with us. Even if it's just on the Yahoo inventory, which Hulu loves, you should come advertise with us. They said, well, you know I don't know. I just don't want to spend the time learning native. It's kind of a more niche-y format. I've got big budgets already running on social and display and on search. I have enough to manage. I just don't want to spend the time on that. That was also kind of a realization for us that we needed to accept whatever they wanted. Adam, for many years, said he expected native to take over display, that every display ad would become a native ad. I think we realized we were wrong about that now.
I think the biggest reason for that was these advertisers telling us, I just don't want to learn that format. Ultimately, that all led to we need to push. Fortunately, we started working on Realize earlier. We realized we needed to really push it out, get the advertisers the formats they wanted, get them the placements that they want, not assume that we could take over the rest of the web, but really kind of play in that infrastructure.
You mentioned this in the last kind of response, but that you guys have plenty of supply right now. How do we think about supply acquisition in terms of 2025 and honestly, maybe going forward as Realize changes the strategy?
Yeah. I think, like I said, I think we think about it as if we can get a significant, we'll still go after new supply. If you ever want to see Adam face Twitch, tell him that we should stop going after new supply. We'll still go after new supply. We want it to be new supply that we think brings a data advantage and hopefully attracts a new set of advertisers. For instance, Yahoo, frankly, we've talked about this. I think we're going through a bit of what I call supply shock right now, which means that we have too much supply, not enough demand. Yahoo is the primary driver of that. Yet Yahoo is amazing because they brought a whole new set of advertisers. They bring a really unique and high-quality type of supply.
They obviously attract a different type of advertiser in general. Plus, the data they bring is unique. I think if it is that type of supply source, we will still go after it for sure. We will be a bit more selective, and we want to make sure it really brings something unique to the table.
Let's talk about generative AI within advertising. You brought up Abby earlier. Talk about what you're seeing with generative AI tools. Just what's kind of the expectation of that evolution over the next couple of years?
Yeah. I would say that I think I mentioned Abby. Abby is basically our account manager who's available all the time. It'll chat with you on our site. It'll help you through things. I think the next evolution of generative AI will be either us helping or advertisers on their own figuring out how to use generative AI to have their landing pages much more customized to the individual user. Rather than you're selling a credit card, a person clicks on the credit card ad. They end up at the whatever Citibank site. They see one landing page. That makes no sense. In today's day and age of generative AI, you should be figuring out at least how to test a lot of different variants of that constantly and figure out what works. Or even better yet, personalize it.
Figure out what you know about that consumer and make it more specific to them. I think that's probably the next iteration.
Is that on the roadmap?
On our roadmap, we haven't announced anything like that yet. I think it's something that Adam has said he thinks makes sense. I think we'll get there over time. I think beyond that, by the way, down the road, you're kind of seeing this in a lot of different applications. Whereas you used to go read things on the web, now you chat with an AI. I think that's the future of advertising too. You get to the Citibank site. Why are you even bothering to read? Just chat with the AI assistant. What is it that you need? What type of credit card are you looking for? Is it credit limit? Is it miles? What do you want? Let's talk to you about your needs. I think that's probably part of the future too.
You talked about a new metric that's basically you guys are going to preview at analyst day. You guys gave us some information this last quarter but of scaled advertisers. Within the framework of performance, talk about that kind of $100,000 advertiser. Why is this the right metric as you guys think about just the evolution of the business with Realize?
Yeah. I think the reason that a scaled advertiser matters is because if you, there's a lot of advertisers who will come on. They'll spend a few hundred thousand dollars a month. They'll kind of constantly play with things. They do not move the needle a lot. Those scaled advertisers above $100,000 is 85% of the revenue on our network. Everybody else makes up 15%. One thing we realized is what you really want to be doing is trying to get more and more of those advertisers above that threshold. By the way, we do find they're stickier then. They stick around more. That's one reason it matters is because it's really what drives the revenue on our network.
I think the other thing, we released it intentionally because we think it's going to be helpful as we talk about what's going on with our business. If you look back at the historical metrics that we released and you look at the number of scaled advertisers and the average revenue per scaled advertiser during the 2022 kind of advertising slowdown, what you see is that our number of advertisers stayed relatively stable. In fact, actually grew a little bit. The average revenue per advertiser came down. I think you probably remember this from covering us. We said at the time, we're not losing advertisers. We're losing budgets. Budgets are coming down. I think this metric can help show people that in a time like that, what's happening. Last year, if you look at our metrics, our number of advertisers was way up.
The budgets per advertiser was way up because we were just bringing on a lot more. They were growing with us. I think it helps us to describe what's going on. Now, frankly, and Jessica and I have talked about this, I don't expect them both to be up and to the right all the time. In fact, in some ways, they're inversely correlated. If I add a ton of new advertisers to that scaled bucket, so I get them above that, it actually brings our average down. That's OK. Then I can explain to investors, yeah, we added 30% more advertisers last year. Our average came down 10%. We only net-net grew 20%. That's great because think about when I can grow those to the next level.
When I get the average back up to where it can be over time, that's just a growth trajectory. Or frankly, let's say the 85% becomes 80%. Now the scaled advertisers only drive 80% of our revenue. Maybe at that point, I start talking to you about how Abby is helping us be more successful with smaller advertisers. We think it just helps give more visibility into what's going on in the demand side of our business.
All right. Last question. Just given the transition with Realize, talk about the key investments needed in the business over the next, call it, two years.
Yeah. For this year, for sure, most of our—so we invested in Q3 and Q4 last year in sales teams that were kind of gearing up to be ready to roll out and run with this Realize release. I think we're pretty—we feel like we're in a pretty good place with sales and marketing right now. R&D, we will ramp up R&D a bit right now because really a lot of the work right now is on developing product and developing the Realize platform. We released—one of our advertisers said that he's never seen a company release that many features at one time when we rolled out Realize on the 26th. There's still a lot more to do. There's a lot more capabilities we want to build into that. We'll be ramping up R&D a bit. It's not going to be huge.
You can see from our guide that we're still going to keep our 30%+ EBITDA margins. We will be investing there. G&A will actually come down a bit. That will help as well to help us to invest. I think for this year, that's what I expect. If we're successful, if we see the traction from Realize that we expect, I think next year we'll probably be investing more in sales resources again because I think at that point, hopefully, we're seeing the productivity we want. We can invest in growth that way. That's actually more speculative at this point.
Yeah. One hopes that happens.
Yes, exactly.
All right. We're at time. Thank you so much for participating. Appreciate the conversation.
Thank you.