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Outbrain (OB) 7 Nov 24 2024 Q3 Earnings call transcript
AInvestThursday, Nov 7, 2024 8:21 pm ET
2min read
OB --

In Outbrain Inc.'s recent Q3 2024 earnings call, the company showcased a strong performance with positive trends and promising growth opportunities, particularly in light of its upcoming transaction with Teads. During the call, Outbrain's management team, including CEO David Kostman and CFO Jason Kiviat, discussed the company's financial health, strategic initiatives, and the impact of AI and innovative products on their business.

Financial Performance and Growth Drivers

Outbrain reported a solid financial performance in Q3, with Ex-TAC gross profit within guidance and positive free cash flow for the fifth consecutive quarter. The company grew Ex-TAC dollars year-over-year for four out of the last five quarters and improved Ex-TAC margin for six consecutive quarters. These results were driven by positive trends in Outbrain's core business and momentum across its growth pillars.

Expanding Share of Wallet and Innovative Solutions

Outbrain's first growth pillar revolves around expanding its share of wallet with brands and agencies. The company is gaining traction with its cross-sell solutions, which deliver on its full funnel value proposition. Notable brands like Disney, Amazon, and Betterman have invested in both Outbrain's Performance Solutions and Onyx branding solutions, demonstrating the benefits of leveraging both products to drive incremental outcomes.

On the performance side, Outbrain's DSP, previously known as MANTA, is seeing steady adoption due to its comprehensive tooling and ability to drive scale performance across the open Internet. This has allowed Outbrain to capture a larger share of wallet with a 60% year-over-year increase in advertising spend on the platform year-to-date.

Expanding Beyond Traditional Feeds

Outbrain's second growth pillar focuses on expanding beyond its traditional feed, opening new opportunities for advertisers to drive results. This revenue, which is generated from supply beyond traditional feeds, represented approximately 28% of total revenue in Q3 2024 compared to 26% in Q3 of the previous year. Outbrain has continued to grow this metric quarterly for the last six consecutive quarters, highlighting its focus on inventory diversity.

Premium Media Owner Partnerships

Outbrain's third growth pillar involves deepening its premium media owner partnerships. These relationships ensure a steady base of premium exclusive inventory and provide unique contextual and engagement insights that fuel Outbrain's performance and predictive capabilities. The company has successfully renewed agreements with important publishing partners like Huffington Post and Meteo in France, and also secured new business partnerships from competitors and launched new partnerships with Sports 1 Germany and Reuters and Newsweek in Japan.

Innovation and Product Development

Outbrain's focus on innovation is evident in its product development, particularly in the launch of Moments. This new product brings the immersive experience of social media to the open Internet, transforming traditional feeds on publisher sites into vertical video environments. Brands can extend the impact of their social creative assets from platforms like TikTok and Reels to the open Internet, creating a premium full-screen video experience. Early signs of high audience engagement, such as 40% of users watching 3 or more videos, indicate a strong opportunity for brands to compound the impact of their social strategies on the open Internet.

AI Integration and Collaboration

Outbrain is accelerating AI integration into its performance and creative offerings, improving efficiency and outcomes for sophisticated large-scale advertisers. The company's creative automation suite, which allows marketers to easily use AI to create new ad images, tailor images, and adjust headlines, has shown significant results in increasing campaign click-through rates for performance clients. Outbrain also expanded its collaboration with Microsoft Azure, integrating Azure OpenAI solutions into a range of Outbrain services, and focusing on deploying AI into its internal processes.

Looking Ahead with Teads

The call also highlighted Outbrain's upcoming transaction with Teads, which is on track to close in Q1 2025. The integration planning process is progressing smoothly, and Outbrain is excited about the revenue synergies and cross-selling opportunities. The transaction is expected to bring significant benefits, including the ability to tap into Teads' joint business partnerships with premium brands and the potential for further growth.

In conclusion, Outbrain's Q3 2024 earnings call underscored the company's strong performance and strategic initiatives, particularly its focus on innovation and partnerships. With the upcoming transaction with Teads, Outbrain is well-positioned for continued growth and success in the digital advertising space.

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