What happened
Shares of online advertising expert Taboola (TBLA 0.71%) surged higher on Wednesday, thanks to a stellar first-quarter earnings report. The stock rose as much as 38% in the early morning, settling down to a roughly 24% gain by the time markets closed.
So what
Taboola's top-line sales fell 7.6% year over year in the quarter, landing at $330 million. On the bottom line, the company reported an adjusted net loss of $0.01 per diluted share. Analysts expected much steeper drops across the board, setting their consensus revenue estimate at $312 million while expecting a net loss of $0.06 per share.
Moreover, Taboola's first-quarter results exceeded the top end of management's guidance range thanks to a solid collection of big-ticket ad publishing deals. By the end of this reporting period, Taboola boasted more than 8,000 ad publishers and 18,000 active advertisers.
Now what
The revenue drop was smaller than the 8.9% decrease Taboola reported three months ago, ending a streak of three fiscal quarters with deeper and deeper growth cuts. Investors are breathing a sigh of relief today. This release suggests that the inflation-inspired downturn in the digital advertising market may be on the road to recovery already.
Looking ahead, Taboola recently signed an exclusive 30-year advertising partnership with Yahoo! That deal will roll out over the next few quarters, aiming for a functional completion in 2024. Investors should keep a close eye on how this potentially game-changing agreement feeds into Taboola's top and bottom lines over time.
This breath of fresh air is a welcome break from the tons of market pressure Taboola has experienced since joining the public market in the fall of 2020, but it's far from a full recovery. We're still talking about an unprofitable growth stock, whose long-term sales trend made a 7.6% revenue drop look like good news. To put this analysis in context, here's how Taboola's trailing financial figures entered this week's first-quarter update:
TBLA Revenue (TTM) data by YCharts
The stock price is down by 29% in 52 weeks, even after today's surge. While this earnings report provides a glimmer of hope for Taboola, investors should remain cautiously optimistic. The company's long-term viability still hinges on its ability to turn a profit and consistently generate revenue growth. As the digital advertising landscape evolves, serious investors will want to monitor Taboola's progress.