Meet the Investor - Veddis - Sudhanshoo Maroo
Learning to analyze Taboola with Sudhanshoo Maroo
On 11 October 2024, we had to opportunity of meeting Sudhanshoo Maroo in person. Sudhanshoo is a Portfolio Manager at Veddis, a single-family office focusing on long-term growth by investing across a diverse range of public and private assets globally.
Before the session, Sudhanshoo told us to research on Taboola, a publicly traded advertising and technology company that focuses on native advertising and content discovery.
Please read the takeaways from two of our members who attended the session.
I felt that the Meet the Investor (MTI) session with Sudhanshoo on 11 October 2024 was extremely insightful and interesting. During the session, we mostly discussed the business model of Taboola (NASDAQ: TBLA) and the industry it operates in. I learnt that it is of supreme importance to truly understand the business and its industry when deciding whether to invest in a company. Below are some of the key takeaways which I had from the session:
Taboola primarily runs native ads below their publisher partner website articles.
At the very core of native ads is the concept of placing ads in a relevant and unobstructive context where they natively fit. As a result, native ads are most likely to look just like all other articles and pieces of content around it (Fig. 1). Taboola primarily runs native ads below their publisher partner website articles (Fig. 2).
Figure 1. Examples of native ads run by Taboola
Figure 2. The different types of ad placements on a publisher's website
Taboola primarily makes money when users click on or view ads which they run on their publisher partner sites.
Advertisers pay Taboola on a CPC (Cost per Click) or CPM (Cost per one thousand impressions) basis. CPC is a measurement of the amount of money advertisers pay when a consumer clicks on their ads. On the other hand, CPM is the cost advertisers pay per 1,000 ad impressions — or 1,000 loads of a page with their ads on it.
Taboola then shares a portion of the revenue with the partner publisher sites displaying the ads. This portion paid to the publishers is known as Traffic Acquisition Costs (TAC).
Taboola is a big fish in a “small” pond.
The “Below Article” native advertising industry has a smaller market size as compared to the “Publisher Homepage” and “Mid Article” markets due to its lower visibility and viewability. Currently, as of 2024, the market size for this “Below Article” industry amounts to revenues of around $3 billion. Taboola, after its partnership to run ads on Yahoo’s platforms, has access to around $2 billion of this revenue. This makes it the dominant player in this market, with around 2/3 of the market share.
The industry also operates as a duopoly, with Taboola and its rival Outbrain (NASDAQ: OB) dominating around 90% of the market share in the industry.
Some key risks to Taboola’s business which came up in the discussion:
Rise of Adblockers
Possible increasing use of adblockers by users of the openweb to block out ads when browsing the web may negatively affect Taboola’s revenues.
This is because some Taboola ads may be perceived as “sleazy” or “scammy” in nature (Fig. 3).
Figure 3. Some of the ads which Taboola runs which may look “sleazy”
Artificial Intelligence (AI) may alter the way people browse the openweb
With the rise of generative AI, it may make it easier for people to use generative AI chatbots to get their news and information as opposed to surfing the openweb for such information.
This may negatively affect traffic and engagement on Taboola’s publisher partner websites, affecting Taboola’s ability to reach out to end users for its ads.
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Main Key Takeaway: Important to understand how a business makes money – what is the business model, industry etc
Taboola’s Business Model Overview:
Customers of Taboola: Primarily small businesses and corporations etc
Taboola functions as a demand and supply-side platform for digital advertising.
Taboola uses a reverse search process, ensuring the most relevant ads are shown to viewers.
Unlike traditional, less personalized ads, Taboola's targeted approach leads to more effective ad performance.
Industry Context:
The advertising industry has evolved significantly, with increased personalization through platforms like social media.
There are two main advertising ecosystems: walled gardens and the open web
While walled gardens ads are growing rapidly, open web ads are growing but at a slower pace.
Ad Types:
Brand ads: Less personalized
Direct Response ads: Highly targeted, leading to higher engagement
Why Publishers Use Ads:
Ads are a significant revenue stream for digital properties.
Digital ad pricing is dynamic, fluctuating with demand (e.g., higher rates during holidays).
Taboola's Position:
Focuses on ads placed at the bottom of articles (a smaller, ~$3 billion market).
Has a unique business model, paying publishers upfront and retaining ad revenue—unlike competitors that split revenue.
Key Competitors: Taboola and Outbrain dominate this niche, with limited competition. Used to have 3 key competitors but Taboola acquired Yahoo’s ad platform thus strengthening its position.
Taboola's Strategy:
Exclusive long-term partnerships: A 30-year contract with Yahoo ensures predictable revenue. Yahoo gets a 25% stake in Taboola as part of long-term advertising deal.
Flywheel effect: More publishers lead to more ads, which leads to more data, improving ad performance and driving more revenue.
Should We Consider Indirect Competitors?
Ads at different placements (top, middle, sides) have different pricing structures.
Return on ad spend is crucial—Taboola’s model relies on performance marketing (advertisers only pay when ads are clicked).
QGLP Model – Quality, Growth, Longevity & Price
Quality of Business: Advertising is a growing, essential industry. Taboola operates in a duopoly with high barriers to entry.
Growth: The open-web ad space is expanding.
Longevity of Growth: Long-term contracts, like with Yahoo, ensure sustainable growth.
Price: How does the stock's current market price compare to that of other stocks?
AI’s Role in Taboola’s Future:
Consider business revenue then its cost impact
Revenue Impact: AI increases ad relevance and targeting, but there’s a risk if users don’t scroll to the end of articles, reducing clicks.
Cost Impact: AI may reduce ad creation costs while improving engagement. Increased R&D is necessary, similar to platforms like Facebook.
Concerns: Negative public perception due to Taboola ads being seen as intrusive (rise in ad-blockers).
Need to think of both sides – Positive + Negative
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