A scale story: TechCrunch’s parent company links up with Taboola

Folks often ask if Crunchbase and TechCrunch are still the same company (nope). Many express surprise that AOL was once this publication’s sole parent (yep). The saga of Who Owns TechCrunch is actually somewhat interesting. Various corporate developments over the last decade saw TechCrunch trade hands several times, including our most recent ejection from Verizon (long story) into the arms of private equity (shorter story).

Today we’re part of a reconstituted Yahoo, an entity that combines its historical assets — sans Alibaba — with AOL and other properties including this publication. I bring all that up because our parent company is in the news today. So much so that we’re pushing the value of a public company sharply higher by dint of our partnering with it and taking a sizable stake in its equity at the same time.

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Because my employer is about to own just under a fourth of Taboola, I want to rewind the clock a bit today and recall how we wound up in a world where both Taboola and Outbrain — online advertising companies that you are familiar with and have at times collected criticism — are public companies.

This should be lightweight and fun. Frankly, before today, I had never read a Taboola or Outbrain earnings report. We will explore together! Into the numbers!

A merger that didn’t

If you want to build an advertising network and have a shot against the giants of the industry — your Facebooks, Googles, Amazons, etc. — you need to accrete scale. The more scale you have, the more eyeballs you can reach. The more you know about the heads and bodies attached to those human viewports, the more attractive you are to advertisers.

Large, understood audiences are good. Large, understood audiences that you alone can reach are even better from a business perspective.

That’s too curt a summary for any nuance, but it’s not a radical thought. Verizon once bought a bunch of digital assets hoping to build its own giant advertising network. In a similar hunt for scale — and, therefore, increased vitality — Taboola and Outbrain once tried to merge.

Both occupy a similar part of the web’s advertising landscape: They fill online pages with a grid of eye-catching content boxes. Users, beguiled by the interesting, confusing or strange content, click and the online economy generates digital GDP. Love them or not, the Taboola and Outbrain boxes are well known because we’ve all seen them.

You can imagine why they wanted to tie up. Instead of fighting one another, a union could have given them more scale and therefore more clout — clout that the two companies figured they could turn into gold. Sadly for the pair, it didn’t work out. As TechCrunch reported back in September 2020:

Online advertising is a game of scale, but one attempt to consolidate two competitors to better take on Google and Facebook has fallen apart. Taboola and Outbrain, startups that each provide publishers with ad-based content recommendation platforms, have called off a planned $850 million merger that would have valued the combined company at more than $2 billion. [ … ]

The deal had been years in the making — we first reported on the talks in 2015 — but was only finally pulled together about 11 months ago, in October 2019. However, between then and today, a combination of factors got in the way of it progressing.

From that point, the two companies were facing both a COVID-impacted economy and solo status. So they went public. Taboola went public via a SPAC, while Outbrain pursued a more traditional IPO. By mid-2021, both companies were public, still competing for scale.

How did they do? Here’s a condensed Q3 2022 earnings update from each:

  • Taboola: Revenues of $332.5 million, gross profit of $102.7 million, a net loss of $26.0 million and free cash flow of $11.0 million. Revenue growth was down around 2% compared to the year-ago quarter.
  • Outbrain: Revenues of $229.0 million, gross profit of $41.9 million, a net loss of $4.6 million and free cash flow of negative $15.8 million. Revenue growth was down around 9% compared to the year-ago quarter.

Growth at both companies is poor, and they lost money in the most recent quarter. Plus, Outbrain was free cash flow negative in Q3. (Note that we’re not trying to be rude here, those are just the numbers as they are; please direct complaints to Taboola and Outbrain IR.)

This is where, largely, Yahoo comes into the picture. The opening to this column was something of an inside joke; there are often large digital assets that the digerati do not touch and therefore do not understand. Bing matters, in other words, just as many core Yahoo properties matter because they are simply massive. This is not me trying to flatter my employer in hopes of a year-end raise that competes with recent rates of inflation. It’s just true.

I learned this intimately when we were part of AOL, actually, and got around to understanding how it was still in business after all that time. Major dot-com-era properties are very hard to kill and often are owners of massive traffic streams. Scale, in other words.

Which is what Taboola and Outbrain want. So, it’s big news that Yahoo and Taboola are teaming up. How big? Shares of Taboola are up around 54% as I write to you. Here’s the deal, squeezed into two bullet points, stealing from the official deal release:

  • Yahoo offers a “30-year, exclusive commercial agreement” in which “Taboola will exclusively power native advertising across all of Yahoo’s digital properties,” which reach “900 million monthly active users worldwide as a top-ranked internet property across mail, sports, finance and news.”
  • Yahoo receives a stake in Taboola of “just under 25 percent of the pro forma equity,” allowing it to “enhance its own unified advertiser offerings” and “participate in significant shared value creation as Taboola’s largest single shareholder.”

If you are a Taboola shareholder, how happy should you be that Yahoo is showing up, taking a huge stake and offering a simply massive bloc of online attention to work with? Very. Per the deal terms shared publicly, Taboola writes that it expects the agreement to “be highly accretive to Taboola Revenue, Adjusted EBITDA and Free Cash Flow.” Those are Very Good Business Words that mean that Taboola expects to get bigger, more profitable and more self-sustaining than before thanks to Yahoo.

It will be somewhat easy to track Taboola’s trajectory after the deal closes and a chunk of Yahoo’s inventory becomes its domain. Through Taboola’s results, we will be able to infer how Yahoo is doing along a single vector of its business. Sadly, Taboola and Yahoo are not sharing the revenue split between them, so we won’t be able to get as close to reality as we’d like. Still, with TechCrunch’s parent company now private, it will be nice to get some sort of numerical insight into its performance, no matter how limited.

So, scale. That’s what the internet has always been about. Scale is just a fancy way of saying reaching lots of folks thanks to zero marginal-cost distribution made possible by the internet, right? In the end, this is a story in which TechCrunch winds up being a part of the very business trends that it covers. Now, we’re somewhat back in the news as one technology company teams up with another. Such is the digital publishing industry.

Thank you for reading TechCrunch and contributing to our scale.