What happened
Shares of adtech specialist Taboola (TBLA +24.67%) absolutely soared on Monday after the company agreed to a huge long-term deal with Yahoo!. As of 10:30 a.m. ET, the stock was up 56%.
So what
Taboola and Yahoo! have signed a 30-year deal -- yes, three decades -- that the former believes will add $1 billion in annual revenue to the top line. For this reason, in its presentation of the deal to shareholders, management said it was the "most strategic publisher and advertiser partnership in Taboola's history."
NASDAQ: TBLA
Key Data Points
It's important to note that Taboola is guiding for about $1.4 billion in full-year 2022 revenue. However, like many adtech stocks, it has traffic acquisition costs (TAC) that distort its total revenue figure. When management says it expects $1 billion in annual revenue from its Yahoo! deal alone, it's including these traffic acquisition costs.
Many adtech companies exclude traffic acquisition costs (revenue ex-TAC) in their reporting. For its part, Taboola is on pace for about $600 million in 2022 revenue ex-TAC. And it's still hoping to reach $1 billion in revenue ex-TAC by 2025. Revenue from Yahoo! won't get Taboola across the finish line because it still comes with traffic acquisition costs, but this deal will play an important role in helping the company achieve its 2025 goal nonetheless.
Now what
For Taboola, its deal with Yahoo! greatly expands the reach of its advertising. However, it does come at a price to shareholders. This is an atypical partnership in that Yahoo! will received a roughly 25% equity stake in Taboola, diluting existing shareholder value. And because shares will be issued, its partnership with Yahoo! isn't a done deal yet -- it still has to clear shareholder and regulatory approval.
As a result, today's announcement doesn't immediately benefit Taboola. It's not expected to close until next year and management says things will materialize "gradually" in the back half of the year.
Taboola stock was down almost 90% from its high prior to today's announcement, suggesting few investors believed this small company could survive in the competitive advertising space. Its deal with Yahoo! suggests it can indeed survive -- and perhaps even thrive.
