What happened

Taboola (TBLA 2.54%) shareholders had a great start to the trading day today. Shares were up 15% by 11 a.m. ET, compared to a modest decline in the S&P 500. That increase put the digital advertising platform specialist's stock back above the wider market's returns for the year, up 26% so far in 2023.

The rally was powered by positive news on the earnings front.

So what

The company revealed before the market opened that sales were $332 million for the selling period that ended in late June. While that result marked a 3% decline compared to a year earlier, it was well above management's prior outlook. That forecast had called for revenue between $296 million and $322 million.

The company also outperformed expectations on gross profit, which was nearly $100 million compared to the guidance range of between $78 million and $88 million.

On the downside, the company reported a higher net loss for the period. Yet cash flow was positive. "We had a strong performance in Q2, beating the high end of our guidance across all metrics," CEO Adam Singolda said in a press release. Management highlighted new customer signups in the period including Nexstar Media and Barstool Sports.

Now what

The digital advertising market continues to be pressured, and that explains why Taboola is predicting only modest sales growth compared to last year's $1.4 billion haul. Its outlook calls for sales in 2023 to land at between $1.44 billion and $1.47 billion. Executives did lift that forecast for the second straight time, and Taboola's forecast on non-GAAP earnings received a similar boost today.

Overall, the earnings report constituted surprisingly strong sales and earnings along with rising expectations on both metrics. It's no surprise, then, that the stock rose in response to the news. Yet investors will still be watching closely over the next few quarters for signs of a return to sales growth as advertising publishers choose to spend more aggressively on digital ads.