Outbrain Inc. (OB) Q4 2021 Earnings Call Transcript

Outbrain Inc. (OB -0.72%)
Q4 2021 Earnings Call
Mar 01, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to Outbrain's fourth quarter and full year 2021 earnings conference call. Today's call is being recorded, and we have allocated one hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Jason Kiviat. Thank you.

Please go ahead.

Jason Kiviat -- Investor Relations

Good morning and thank you for joining us on today's conference call to discuss Outbrain's fourth quarter and full year 2021 results. Joining me on the call today, we have Outbrain's co-founder and co-CEO, Yaron Galai; co-CEO, David Kostman; and CFO, Elise Garofalo. During this conference call, management will make forward-looking statements based on current expectations and assumptions. These statements are subject to risks and uncertainties that may cause actual results to differ materially from our forward-looking statements.

These risk factors are discussed in detail in our Form 10-Q for the quarter ended September 30, 2021, filed with the Securities and Exchange Commission as updated in our subsequent reports filed with the commission. Forward-looking statements speak only as of the call's original date, and we do not undertake any duty to update any such statement. Today's presentation also includes references to non-GAAP financial measures. You should refer to information contained in the company's fourth quarter earnings release for definitional information and reconciliations of non-GAAP measures to the comparable GAAP financial measures.

Our earnings release can be found on our IR website, investors.outbrain.com, under News and Events. With that, let me turn the call over to David.

David Kostman -- Co-Chief Executive Officer

Thanks, Jason, and thank you all for joining us. I'm pleased to report that, as we expected, Outbrain closed a record year of financial and business performance with a strong fourth quarter. Our Ex-TAC gross profit was up 17% from Q4 2020 to $76.7 million, and our adjusted EBITDA grew 13% to $23.9 million, exceeding the guidance we provided last quarter. For the full year 2021, our gross revenue exceeded $1 billion and our Ex-TAC gross profit was up by 40% year over year.

As a result, our adjusted EBITDA more than doubled to nearly $89 million. Our business continued to grow as we work with more media partners and advertisers than ever before. We continued our growth by focusing on providing open web media platforms with stronger monetization, higher engagement and better quality, leveraging our unique platform capabilities like Smartlogic for media owners and conversion beat strategy and real-time bidding for advertisers. Let's start with the supply side.

We continue to deepen the relationships with our existing premium media partners, extending our long-term deals, among others with CNN, Sky News, BuzzFeed Japan, Scripps, [Inaudible], [Inaudible] for an average of more than three years while at the same time growing our market share with new material partnerships and competitive wins such as [Inaudible], U.K.'s largest group of local publishers; Olympia [Inaudible] in Germany; and [Inaudible] in Austria. The momentum of wins continues into 2022, and we anticipate some significant wins in the coming weeks. Let's talk for a minute about some of the groundbreaking proprietary technology that is helping us win in the market, Smartlogic. This solution changes the game of feed personalization, taking publishers from the old world of serving a pre-defined user experience to everyone to a new world of tailoring the feed experience to the taste of every user.

We have deployed Smartlogic on about 70% of our mobile web feeds to date and are beginning our desktop deployment. Our media partners see significant value in this offering as it is driving double-digit yield list on average. It has been a deciding factor in how we continue to extend our deals with existing partners and win more market share as publishers are looking to offer their audiences, particularly younger audiences, personalized experiences. As an example, the head of our technology and monetization at FUNKE media in Germany worked with us to implement Smartlogic and note that they have seen a 61% increase in mobile-based monetization as a result.

He cited the higher customization to the preferences of FUNKE's users as driving increased engagement and optimized monetization. You can see this in many more case studies on our website. In addition, we are growing our business with our partners by expanding to more real estate on the property. We launched a native header bidding solution, building on the strong foundation of our superior native programmatic bidding technology called Zemanta.

This solution allows us to expand our supply relationships with our media partners by gaining incremental access to high yielding inventory, such as [Inaudible] placement. Our unique angle here is the ability to leverage data from, I'll call them, [Inaudible] publishers to improve our video win rate. It is important to mention that the optimization of these videos takes a long time. We have years of experience in accessing supply to programmatic pipes.

In fact, Amazon, one of our top supply partners, has grown over the last couple of years to a programmatic relationship on the Microsoft Open Exchange. In addition, we've seen significant growth in the Outbrain Extended Network, which enables Outbrai's advertisers to reach and optimize access to third-party supply via integrations with dozens of SSPs on different media platforms. We recently integrated Amazon Publisher Services and Google Open Bidding that will give us access to exciting and diverse new supply environments such as new news aggregator apps. In Q4, we also continued to grow our supply in new environments beyond traditional publishers.

We thank partners such as Vivo and Huawei in Q4, and these partnerships are expected to connect Outbrain's advertisers with millions of new users. Revenue from these types of partners double year over year and drove more than 10% of our top-line revenue. Let's switch to the demand side. Our demand continues to grow and benefits from positive market momentum.

In Q4, we had a record number of advertisers directly running their ad campaigns on our platform and our highest ever average spend per advertiser. Advertisers using Outbrain increasingly realize the opportunities to grow their business and reach more customers on the open web in contrast to some of the limitations they are experiencing on walled gardens. We see an increasing number of high-end brands shifting budgets to outcome-based campaign goals. More than 40% of our business comes from brand and agency.

For example, we grow our business with Disney Plus, supporting the growth of subscribers for the streaming service across Europe. Amazon also increased their budget with those promoting Amazon Prime by leveraging our native video format. These are just two examples. More and more businesses are embracing digital customer experiences and sell direct to consumer as well as increasing their digital budget.

Further, in a consumer survey conducted by a third-party market research company, it was found that consumers trust the content and recommendations they find on news, special interest, and hobby sites significantly more than those found on social media. The same survey reported that over 20% of consumers plan to spend less time on social media in the next six months. This reinforces our optimism in the opportunity to continue to grow our recommendations on the open web. We are investing in building the operational infrastructure to support our growth.

We grew our team by nearly 200 people in 2021, and Israel and Slovenia, where we have our R&D hubs, were our highest growth regions. We're very pleased with the strategic investment to accelerate our video offering to the acquisition of premium contextual video solution, video intelligence, or vi in short. We are already seeing some of the benefits of the synergy, having launched the offering on several of our publishers in Q1. With VI, we are able to accelerate our growth in the large market of extreme video, which is very desirable for advertisers, particularly brands.

It also gives us an entry point to CPB. We plan to accelerate vi's growth by leveraging Outbrain's global footprint and deep publisher relationships. To sum up, the 40% growth year-over-year in Ex-TAC gross profit for 2021 came in large part because we are realizing the value of the investments we have made in our business over the last few years. We will continue to invest in technology, specifically in our core engine, which uses deep machine learning and AI, to personalize recommended content and ads over -- to over 1 billion users around the world.

Elise will provide more details on our guidance. You will see softer growth rate for Q1 driven by lapping a very strong Q1 in 2021, heavy with political and pandemic news consumption, as well as an impact on some timing factors on optimization and expansion opportunities. We expect to see an acceleration of Ex-TAC growth over the remainder of the year. We anticipate a lot of headroom to grow.

So overall, I'm very optimistic about the future of our business and the role we play in supporting journalism in the free and open internet. Now, I'll hand it over to Yaron.

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

Thanks, David. Before I switch my prepared remarks, I wanted to acknowledge the situation in Ukraine. As part of the video intelligence acquisition we announced earlier in the year, we now have a small R&D team based in Kyiv. The entire Outbrain team is supporting our Ukraine colleagues and we're all wishing for a speedy return to peace and normalcy for the people of Ukraine.

We don't expect any material negative impact on our business from the events in Ukraine. I want to talk today about a few important directions our industry is taking and how we're innovating and leading the way on those. The change I'll cover in more detail today is the imminent demise of the third-party cookie. I'll also talk about supply path optimization or SPO.

Now cookie started as almost a hack in the early browsers in the 1990. And while they had some neat intended uses, those unintended consequences of tracking and ad targeting that will remain their legacy and future. Now cookies themselves are not bad. When used on a specific site as what's called first-party cookies, they are immensely valuable.

For example, for those who enjoy Wordle, the game would not exist if it weren't for first-party cookies. Outbrain uses such first-party cookies to supplement or contextual data signals, driving or personalization algorithms, and these are here to stay for years to come. None of the trade organizations, browser companies, or governments have been proposing any changes to first-party cookies. Here are a couple of ways we've been pushing forward on product and technology in recent years to ensure that we leverage these market trends as competitive advantages for years to come.

As you may know, contextual targeting technologies don't use any cookies at all, and target ads to the current context the user is interested in. In the world of text and articles, our team at Outbrain and myself were the pioneers of contextual advertising on the internet at my previous company. Now, we've complemented that with the acquisition of vi, or video intelligence, which adds to Outbrain some deep contextual targeting technology, specifically for video. vi also allows us to serve highly relevant video content and ads to the user without any use of cookies at all.

These capabilities are very exciting for us in 2022, but will likely be paramount for us and for our partners in 2023 and beyond as third-party cookies come to their end on remaining browsers. Over the past few months, we've also been innovating at a fierce pace on the opportunities afforded to us by the demise of third-party cookies. I want to share one example here. We recently announced a technology called Engagement Vid Strategy, or EVs for Short.

EBS is a progression of a couple year old technology that we built called Conversion Bit Strategy, or CBS, which is used by thousands of Outbrain's advertisers. Both technologies are designed to automate the targeting and bidding capabilities for advertisers on Outbrain. By using these technologies, advertisers can achieve tremendous scale on their campaigns while automatically optimizing their ROAS, or return on ad spend. A breakthrough innovation on EBS is that it does not use any form of cookie data at all.

Instead, EBS connects to the advertisers analytics system, be it Google Analytics, Adobe, etc., and pulls aggregate insights from them. Then, based on our advanced data science capabilities, EBS automatically targets highly engaging ads to the right users. EBS is in its early stages with several dozen advertisers using it. We're excited about the innovation here as we believe that our technology approach is unique and should give us a great headstart in the cookie-less world as we keep pushing this technology forward.

Switching gears to another topic that has been on people's minds lately is that of supply path optimization, or SPO. You might not have heard of this acronym specifically, but you may have heard of the recent skirmish resulting from it where The Trade Desk recently announced that it would stop driving demand through Google's open bidding. This move could also affect many of the SSPs that are currently serving ads from The Trade Desk. One of the relative strength of the operating model is that we are an end-to-end marketplace without any of the ads spaghetti that you typically see between all these dueling ad tech companies.

There is no supply path optimization in our world for the simple reason that our supply path is very simple. Between our media partners and our advertisers, there's only one company, Outbrain. For the vast majority of our business, we work with both sides of our marketplace directly. This ensures not only full transparency for our partners, but also that the advertiser's dollar is used to maximize its return on ad spend and that about $0.70 of each advertiser dollar ends up in our partner's pockets.

For about 85% of our business, we don't rely on any SSPs or DSPs or other links in this daisy chain. There are several other areas of big change currently happening, which we are investing in and expect to leverage over time. For example, the shift to registered or known users on many publishers or the rise of reader revenue in the form of subscriptions and e-commerce-related revenue, which many publishers are keen to capitalize on. As with our market-leading innovations on EBS and the acquisition of vi, we are looking at these big market trends as tremendous innovation opportunities for Outbrain and for our partners who rely on Outbrain's technologies.

I'm looking forward to sharing more about our innovations we're working on in future quarters. And with that, I'll hand it over to Elise to talk about our financial results in more detail.

Elise Garofalo -- Chief Financial Officer

Great. Thanks, Yaron. We delivered another quarter of strong financial performance, beating both our Ex-TAC gross profit and EBITDA guidance for Q4. We also, again, saw very healthy adjusted EBITDA margins despite our continued investment in our people and products to drive continued innovation and market leadership.

For the quarter, revenue grew 18% or $44 million year over year to approximately $290 million. $26 million or ten points of growth came from net revenue retention of our existing supply base, which as a reminder, is equivalent to a same-store sales metric. This growth came from generating higher yields despite lapping a very strong Q4 2020, which saw a steep COVID recovery and volume benefits from the U.S. election cycle.

On a two-year stack basis, Q4 grew 53% versus Q4 2019, the highest two-year growth quarter of 2021. In addition to retention growth, we also grew by approximately seven points or $18 million as compared to Q4 2020 from the addition of new supply partners. This has been a steady source of revenue growth for us over the past two years. Mobile devices exceeded 70% of our total revenues in the fourth quarter.

Ex-TAC gross profit in Q4, which is the revenue we keep after paying traffic acquisition costs to our media partners increased $11 million or 17% year over year to $77 million. Moving to operating expenses, we saw an increase of $16 million to $58 million in the fourth quarter. Approximately $9 million was from higher personnel-related costs, reflecting continued investment in our global teams, adding nearly 200 people in 2021. In addition, this quarter, we have higher costs associated with being public and are seeing higher marketing, P&E, and facility expenses as activity gradually comes back to more normal operations.

Adjusted EBITDA, our primary measure of profitability, increased 13% year over year to $23.9 million in Q4, which is over 30% of our Ex-TAC gross profit in the period despite approximately $1.5 million or six points of unfavorable foreign currency headwinds on EBITDA. Now, just a final comment on the P&L. In the fourth quarter, we recorded a one time tax benefit of $31.8 million through income tax expense related to the release of a valuation allowance on our U.S. deferred tax assets.

This valuation release is triggered by our conclusion that it is now more likely than not that we will realize the majority of our deferred tax assets in the U.S. as a result of our ongoing profitability. You can see this impact as well on our balance sheet through an increase in other assets. Now moving to liquidity free cash flow, which we define as cash provided from operating activities less capex and capped software, was a net use of cash in the period of $13 million.

The use of cash was the result of business mix and the timing of cash flows, as well as a jump in capex versus earlier in the year due to the timing of server deliveries. For the year 2021, free cash flow was positive, $37 million and approximately $50 million, consistent with our plan when adjusting for one time IPO, M&A, and other non-recurring matters. We ended the year with $455 million of cash and cash equivalents on the balance sheet and $236 million of convertible debt at December 31st. Of note, we closed the vi acquisition in January, and so the impact of that is not included in the year-end balances, but will be seen in 2022.

In light of our healthy balance sheet and expected continued cash generation, our board authorized a $30 million share repurchase program on February 28. The program allows us to repurchase our shares at our discretion and reflects the board's confidence in Outbrain's strategy and long-term growth prospects while showcasing management's ability to be strong stewards of capital. We believe there is meaningful misalignment between our value in our stock price and must believe this buyback program provides an opportunity to drive value back to our shareholders while continuing to invest in growth. The timing and amount of any repurchases will, of course, depend on market conditions, share price, applicable legal requirements, and other factors.

Last, turning to our guidance. We're introducing full year 2022 expectations for Ex-TAC gross profit of $324 million to $332 million or approximately 21% growth year over year at the midpoint and adjusted EBITDA of $94 million to $103 million or approximately 11% growth year over year at the midpoint, representing a healthy 30% EBITDA to Ex-TAC margin. We are confident in our growth for 2022. A few factors of note, we have strong visibility into expected sizable new supply for Q2 and into the second half of the year, including an expected top 10 sites publisher win, and we have the planned expansion in article placements through header bidding, which will continue to scale over the course of '22.

We also expect to drive yield through the continued adoption of Smartlogic and ongoing tech and algo advancements. And last, of course, and importantly for us, is our acquisition and investment in vi. As a reminder with vi, we gained immediate access to the in-stream video market, significantly increasing our video TAM. Integration is underway, and we are very encouraged by the initial receptivity from our publishers and expect to invest and drive scaling throughout 2022.

So overall, our expectation for the Ex-TAC spread over the year is that half one share of Ex-TAC will be in the low 40% contribution-wise and half two in the high 60% contribution-wise. For the first quarter, we expect Ex-TAC gross profit of 63.5% to $64.5 million or approximately 6% growth year over year at the midpoint, and adjusted EBITDA of $8 million to $9 million, which is lower year over year given our Ex-TAC expectation and with respect to our investment in growth in the cost of becoming public. For Q1, we are lapping a very strong comp versus last year. Recall, Q1 '21 had a very strong news cycle due to COVID, vaccines, and political events, which drove higher pages for our partners.

In addition, we're facing a few additional headwinds in the quarter. First, the unfavorable impact of timing of certain optimizations and expansion opportunities on existing publishers. As well, we're experiencing an unfavorable and favorable revenue mix for media partners in the period. And last, we had notable headwinds on growth from moves in foreign currency.

As a data point, in January, we saw three points of headwind on Ex-TAC and over ten points on EBITDA growth. And an early review of Ex-TAC movements in February suggest continued headwinds for the quarter. We saw some of this in Q4, as I mentioned earlier. So in summary, even with the slower growth in Q1, we're confident in our expectations for the year as outlined and we'll continue to invest in the many areas of opportunity, both David and Yaron touched upon today.

Now, I'll turn it back to the operator for Q&A.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Andrew Boone with JMP Securities. Please proceed with your question.

Andrew Boone -- JMP Securities -- Analyst

Hi, guys. Good morning and thanks for taking my questions. The first is just on Microsoft. So Taboola updated their agreement with Microsoft and talked about kind of a change in the bidding strategy.

Can you guys help us unpack that? What does that mean for Outbrain? And then secondly, going back to kind of a longer term initiative just on the quality score, I think you guys began testing last year and now into 2022, can you talk about where you are and share any early results? Thank you so much.

David Kostman -- Co-Chief Executive Officer

Andrew. Hi, it's David. Thanks. I'll take the Microsoft question.

So on Microsoft, we've been working with Microsoft for over 10 years now and for the last couple of years of any, we have worked with them very closely in the programmatic environment. So the strategic relationship we have with Microsoft goes way beyond MSN, and we over the last couple of years collaborated very closely in several other areas, and specifically on the announcement you referred to on Microsoft Open Exchange. So we've been scaling our revenue on that exchange for the last couple of years, and it's really leveraging the deep expertise in bidding and third-party supply. And we work very closely with them to continuously improve our bidder capabilities.

This is a continuous long-term effort. In terms of the change that was announced, we were obviously very pleased with it and with the change announced at the end of the last year because it basically eliminated certain advantages that other players have in the auction and this will lead to significant new inventory available on the Open Exchange in 2022. And so that's -- and we believe that we have a good chance of winning a share of these impressions since we've been bidding in this environment for four years. And developing a bidder and improving it takes -- it's a long time.

So very excited about this and we think that this will lead to further growth with Microsoft, which is a strategic partner for us. Yaron, you want to take second question?

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

Yes. Thanks, Andrew. Yaron here. So in regard to quality rating, as we've said in the past, this will be a multi-quarter effort.

It touches a lot of parts of our products and algorithms, so there's a lot of work going on under the hood. Last quarter, we shared that we were working with two major U.S. publishers on the first phase of quality rating, which is the -- enabling the data signals on those publishers. We're currently up to 12 publishers in the U.S.

that have enabled the data signals required for a quality rating. And so we continue to roll this out and work on it. There's a lot more progress to be done and we'll keep updating in future quarters as we go.

Andrew Boone -- JMP Securities -- Analyst

Great. Thank you.

Operator

Our next question comes from the line of Shweta Khajuria with Evercore. Please proceed with your questions.

Shweta Khajuria -- Evercore ISI -- Analyst

OK. Thank you very much. Let me try two, please. One is, could you please talk about growth in supply and your strategy going forward in terms of driving growth from perhaps long-tail media partners? And then the second question is help us with the Q1 guide and full-year guide for both top-line and EBITDA.

I guess I understand there are some headwinds that you pointed to, but is there anything else in addition to that, perhaps certain verticals that you saw headwinds from and why the EBITDA margin contraction for full year '22?

David Kostman -- Co-Chief Executive Officer

Thanks, Shweta. It's David. I think take the first part and then I'll turn to Elise. So regarding the supply expansion, so this we've highlighted also in this quarter, we have a very strong momentum on the on the premium supply.

We normally announce a material relationships. We refer to some of them here and we have a few in the pipeline that Elise referred to. So we feel very good about market share gaining and obviously deepening and extending relationship with existing premium publishers. In terms of mid and long tail, what we did, we, in the last year, have effected a hubbing of those, so we have a much more effective operation.

We generate leads for those. We have them an automated way of onboarding them. So this is again a big growth vector for us. And on top of that, the new environment that we talk about, like lock screens, mobile carriers, we signed in Q4 Huawei, which is a big one, Vivo, and a few others.

So we see good growth on -- generally on supply. And within existing partners, we have header bidding. I mean, we have tens of partners already adopting our header bidding platform that we announced. So we are very comfortable in terms of the growth with supply, new, and existing, and you see this in the annual guidance that we gave above 20%.

Elise Garofalo -- Chief Financial Officer

Great. And, Shweta, I'll pick up on the balance of the questions. So just generally speaking at the year and some of the drivers that David just mentioned, we do expect a higher ramp up as the year progresses based on the visibility, it's the high confidence with supply, the timing of the scaling of certain product and optimizations, and of course, the scaling of our vi acquisition. In terms of how the year pans out, we did share in the prepared remarks, but I think worthy of repeating here is that for Ex-TAC, we expect the spread over the year in half one will be in the low 40% contribution-wise and half to in the high 50% contribution-wise.

Now for the year, we have an expected 30%, so still healthy EBITDA margins, but Q1 is under pressure because of the factors we spoke about on the Q1 top line. But also important to remember that we've made this investment in capex, right, people plus public company costs, plus the return of some COVID expenses. None of these are new. We've been talking about them for a few quarters, but they are steadily in the Q1 expenses and lapping a period last year, where they weren't.

This, combined with the FX headwinds that I outlined, are converging on favorably on the quarter. So again, I think you'll see EBITDA ramping probably more steeply than Ex-TAC. But again, we do believe in embedding our forecast to be at 30% EBITDA margins for the year.

Shweta Khajuria -- Evercore ISI -- Analyst

OK. Thank you, Elise. Thanks, David. If I can quickly follow up on that.

Help us with your confidence level and accelerating growth. Through the year, you you talked a little bit about visibility. Give us some sense of what gives you confidence with the guide. Thanks.

David Kostman -- Co-Chief Executive Officer

OK. I'll maybe take that. Sorry, Elise, you want to take it?

Elise Garofalo -- Chief Financial Officer

Go ahead and I can top off on any [Inaudible]

David Kostman -- Co-Chief Executive Officer

So we have strong -- I mean, we see -- we have visibility into a sizable new supply that's coming in Q2 with with some wins. We're seeing a very good trajectory of expansion of in-article placement. We're seeing -- I mean, we have -- we talked about the adoption of -- Smartlogic was, again, continues to be a game changer. We see an increasing adoption in mobile and we just started this year to deploy it also in the desktop environment, so we see those advancements.

And then, it's -- vi, I mean, we just closed the deal in January of this year. And it gives us access to in-stream video, we're starting the integration. We have already more than a handful of partners from our publishers that are deploying. We are also very excited about that.

So these, I think, the main factors that give us good confidence.

Shweta Khajuria -- Evercore ISI -- Analyst

OK. Thanks a lot, David.

Operator

Our next question comes from the line of Ross Sandler with Barclays. Please proceed with your question.

Ross Sandler -- Barclays -- Analyst

A question for Yaron. We've seen some headlines recently that a lot of Tier 1 publishers are ditching Google's AMP. I think you guys even may work with some of these folks. So just how do you view -- that was good color on the third-party cookies earlier, but how do you view this potential change going on, on the publishing landscape as an opportunity to pick up additional inventory in '22? And do you think given some of the hot water Google has gotten into as far as their display Exchange business, any thoughts on picking up shares, folks move away from those services? Thanks a lot.

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

Thanks, Ross. So about the first question, the Google AMP. We've been an early Google AMP partner. We were one of the first to launch there, and so we support that format and we do their publisher support at Outbrain.

We're typically are powering the recommendations on every media they have, and that does include Google AMP. I think the opportunity with some of those publishers, as you mentioned, starting to ditch Google AMP is that they kind of take back their sovereignty over the the user interface, the amount of recommendations they want to place on there, the split between content and ads, all those things are now going to be back in the publisher's control and they're not going to just be tied to the to the prescribed template by Google. So I think that is an opportunity to pick up more inventory in a way to grow those mobile ads that we shared with our partners on the -- in the Google environment, so definitely that. As in regards to the second Google question and the regulatory scrutiny they're undergoing, I think some of the revelations there were quite surprising and I think many publishers found out that the amounts that they're getting from that -- from the Google ecosystem is not necessarily what the advertisers are paying.

There's kind of different prices on different sides of the Google auction, and I think that just goes back to the comment I made before of we are into and marketplace with only a single player between us and the advertiser and the media owner or the publisher. That provides our partners with great transparency so they know exactly what the advertiser are paying and they get their cut. And that's why also, I think when we compare it to the broader ecosystem, on a percentage basis, our partners make a lot more. They make about 70% of every dollar that the advertiser spends while in ads it's generally assumed that it's about 40%.

And so I think that too is a new revelation, which should give them even more comfort in running more real estate that's out there.

Operator

Our next question comes from the line of Laura Martin with Needham. Please proceed with your question.

Laura Martin -- Needham and Company -- Analyst

Hi, there. Great numbers, you guys. Congratulations. Yaron, I would love for you to give us a little more on this big trend you talked about in your comments, the rise of reader revenue, subscription and commerce revenues as a big market trend.

Could you -- I would love to hear you talk more about that and how you see that shift affecting the Outbrain business. It is a big trend that you see. Let's start there.

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

Sure. Thanks, Laura. So we're obviously, I think as everyone else looking at those trends and seeing the efforts that many publishers are putting into diversifying their revenue, putting up registration walls, subscription walls, etc. And there are a few ways this affect us.

So on the immediate level, it does make some of these publishers that are now benefiting from reader revenue, it suddenly turns them into also potential buyers. Now they can suddenly drive user acquisition efforts on our Amplify side and become buyers of traffic and audiences because they can start tracking their customer acquisition costs and the LTV that they get from those consumers. The second thing was, I just think is a very healthy thing in general for the recommendation players like Outbrain, is when you have reader revenue, it means that you need to provide a great user experience to the readers. You need to provide them with very engaging content, keep them engaged on your properties.

You can't just kind of slap a paywall and hope that people pay for it. And so the most important kind of user experience tool that publishers have to increase user engagement, getting people to consume more pages, and hitting those paywalls, especially the metered paywall, is the recommendation partner that they have, and it goes way beyond ads. We've been talking about this since our IPO. It's not just about the ads that Outbrain serves.

It's an important piece of our business, but it's really about being the operating system for everything the publisher recommends, their own videos, their articles, their e-commerce offers, whatever it may be. And the core of that is our sort of operating system for managing the feed of recommendations. So we see that as a great opportunity to kind of really shine beyond just the ad real estate that we take, and we're investing a lot in the R&D. Again, too early to share here but in future quarters, I'll talk about this more, about how we're going to leverage these trends in the market.

David Kostman -- Co-Chief Executive Officer

Maybe I'll add, Laura -- hey, it's David. Just on e-commerce, I mean, specifically on e-commerce, so we currently have a very strong e-commerce demand in our feed and in different places, placements on publishers pages so -- and we're adding features that are more friendly, allowing better capabilities for e-commerce buyers. I mean, the -- one of the biggest growth categories of the demand, we don't break it down, but is the direct-to-consumer brand. So we are big believers that we want to ensure quality.

So direct relationship directly with the advertisers is important for us and we hear that also actually from publishers. I mean publishers, when they look at those, they prefer that to have the direct relationship. And by the way, they also try and go directly to large retailers and others that use other platforms and build direct relationship with them. So we believe that, again, like we can generate all types of demands.

We only need to own a demand channel of a kind, and we have a very strong sort of e-commerce offering. And we're focusing also on and business a little bit more in the future, but integrating more intense data to drive better performance for them but that's on the e-commerce front.

Laura Martin -- Needham and Company -- Analyst

Super helpful. That's great. My second question and my final question is I'm very excited about vi, which you just closed in January. My question is this if you -- perfect situation, clean piece of paper, what do you want to accomplish with vi by year end 2022? And is the growth -- I understand the big picture idea that it's TAM growth, right, but I'm very interested in how you think it drives the revenue line in 2022.

And is that because it integrates into your old products, what is essentially its stand-alone new product that is the primary growth driver? Thank you.

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

So I will take that. So we're very excited about -- again, we closed early January. We're seeing already the fruits of the potential synergy with us. So it's actually -- it's an old -- it's on all the fronts that you mentioned.

So, first, we are integrating it into our feed as another card, another offering of contextual, relevant video. We see some acquisition opportunities. Then it's growing their in-article, top-of-page contextually relevant video content into our publishers. So it's really leveraging the global footprint, the relationships we have with publishers to bring them there.

And then they have a foothold in CPB. The team is very experienced on CPB and we are investing right now a lot of resources more than they could have done themselves into leveraging their platform to offer, which we call a cross-channel alternative for brand buyers, both digital and connected TV. And so we're very excited about it. We think it's, again, extension of the TAM, leveraging our current global presence and relationships, entrance into CPB.

In terms of the contribution, I mean, we didn't disclose the numbers, but I can tell you that from our guidance, it's very low and sort of it's a big spec this year but we're very excited about the strategic value and the growth it will provide in years to come.

Laura Martin -- Needham and Company -- Analyst

OK. And CTV, as defined by the IAB as over 50-inch screens. I assume that is not what you mean by CTV when you use the word, right?

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

I mean, by CTV sort of they are selling into Samsung TV plus, [Inaudible] TV, its applications that are on -- displayed on connected TVs and they're using contextually relevant technology to place contextually relevant ads there. I hope this answers your question.

Laura Martin -- Needham and Company -- Analyst

Yeah. Yes, yes. Thank you very much.

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

Thank, Laura.

Operator

Our next question comes from the line of Brent Thill with Jefferies. Please proceed with your question.

Unknown speaker -- Jefferies -- Analyst

Hey, guys. This is James on for Brent. Thanks for the questions. What impact, if any, did you see from omicron hitting at the end of December and into January? Were there any ad verticals that slowed down materially and is that slowdown impacting your Q1 guide at all? That's my first question.

And my second one is how should investors be thinking about your uses of cash over the next few years? You've now -- repurchase and done some M&A, but can you just remind us again of your big strategic plan that you're prioritizing in the short to medium term? Thanks again.

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

Hi, James. Maybe I'll take the first one. On the vertical impact, I mean, we've seen and we said it in the last quarter, we have a very good mix of advertisers. It's very balanced.

Even if we see an impact in certain verticals, it doesn't really impact us in the overall network. We've seen some slowdown in the other category. Our auto categories is a good one for us. I mean, we generate a lot of leads for top brands in the world, people who want to come in and visit the dealership.

I mean, there's been less cost or less money spent on it, trying to create leads to visit dealerships, but it really did not have any impact on us. We're following these trends, around verticals that -- we are very diversified. We're very strong in financial, health, entertainment, and others. And so it really did not have any impact.

Elise, you want to take the cash?

Elise Garofalo -- Chief Financial Officer

Sure. Hey, James. So, right, on the cash front, a few things. One we did share with you details in and around our buyback program.

It's $30 million program. We think it's -- with our healthy balance sheet and expect to continued cash generation, this is fairly modest, and of course, doesn't impact any growth initiatives for us, but we think it's a prudent use of capital at this time. Beyond that, we're being very thoughtful on the M&A front and you saw the recent vi acquisition and we'll continue to manage and assess that pipeline. I mean, we're very keen, just like we said over the past few quarters, drive -- how do we drive shareholder value, looking at accelerating growth through business and technology and product as well? We think M&A is a strength of ours and we're an attractive strategic partner for many of the opportunities we see.

So we'll continue to be active on that front, but nothing at this stage to announce.

Operator

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Elise Garofalo -- Chief Financial Officer

Sure. And, operator, we just want to maybe make one clarifying point on some of the Q1 drivers, specifically with respect to FX. We had some investor inquiry offline and we thought it would be beneficial to share with this group. So in addressing the Q1 guidance, we talked about headwinds from foreign currency.

So the way to think about that we're seeing it on Ex-TAC and we're seeing it on EBITDA. So when we look at in Q1 results and we're comparing them to Q1 2020, it's very common to look at things on a constant currency basis. And so when we look at Ex-TAC gross profit, constant currency Q1 2021 to this quarter, we see about three percentage points of growth headwind. If I translate that to dollars, last year, we had $60 million of Ex-TAC.

If we record it this year, it would be $2 million less. OK, just FX moves along. So that's a headwind without anything being different. And on EBITDA, same thing, but more pronounced.

Last year, we had $20 million of EBITDA. This year, if we report it, it would be $18 million on a constant currency basis. So $2 million less or 10% -- 10 points of growth headwind. So it is putting a headwind on our business.

We are global, we operate in multiple currencies, and so these things happen often. There's puts and takes all the time. The way it's converging this quarter, mainly on the euro and the shekel is producing notable pressure on the year-over-year comps. So we hope that additional color helps, if not, of course, we're available for any follow-up questions for the group.

With that, I'll put it to Yaron for some closing remarks.

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

Thanks, Elise. Thanks. So, we want to thank you all for the time today. We're excited with our Q4 and the full year 2021 record breaking results.

We're really looking forward to sharing with you over the next months the progress we're making on our innovative breakthrough products or Smartlogic, CBS, EBS, header bidding, as well as our vi integration and new partnerships. Thank you, everyone.

Operator

[Operator signoff]

Duration: 50 minutes

Call participants:

Jason Kiviat -- Investor Relations

David Kostman -- Co-Chief Executive Officer

Yaron Galai -- Co-Founder and Co-Chief Executive Officer

Elise Garofalo -- Chief Financial Officer

Andrew Boone -- JMP Securities -- Analyst

Shweta Khajuria -- Evercore ISI -- Analyst

Ross Sandler -- Barclays -- Analyst

Laura Martin -- Needham and Company -- Analyst

Unknown speaker -- Jefferies -- Analyst

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