Outbrain reports Q3 growth in profits despite revenue dip, Teads merger on track
Digital advertising platform Outbrain sees 5% increase in gross profit while advancing new video product and AI initiatives.
Outbrain Inc. (Nasdaq: OB) reported its third quarter 2024 financial results on November 7, showing resilience in its business model despite challenging market conditions. According to the company's earnings release, while revenue decreased 3% to $224.2 million compared to the same period last year, gross profit increased 5% to $48.9 million.
The company's Ex-TAC gross profit, a key performance metric that adds back traffic acquisition costs, grew 5% year-over-year to $59.7 million. According to CEO David Kostman, this marks the fourth quarter out of the last five where Outbrain has grown Ex-TAC dollars year over year.
Adjusted EBITDA showed significant improvement, increasing 12% to $11.5 million compared to $10.3 million in the prior year period. The company also generated positive free cash flow of $8.7 million, marking its fifth consecutive quarter of positive cash generation.
Strategic developments
New Video Product Launch
A significant development in the quarter was the beta launch of Moments by Outbrain, a new vertical video product that brings social media-style experiences to traditional publisher websites. According to Kostman, early data shows strong user engagement, with 40% of users watching three or more videos.
AI Integration and Automation
The company has accelerated its AI integration efforts, particularly in performance and creative offerings. Through collaboration with Microsoft Azure, Outbrain has integrated Azure OpenAI solutions into its services, focusing on enhancing creative automation tools for advertisers.
Expanding Beyond Traditional Feeds
Revenue generated from supply beyond traditional feeds represented approximately 28% of total revenue in Q3 2024, up from 26% in Q3 2023, marking six consecutive quarters of growth in this metric.
Teads acquisition progress
The pending acquisition of Teads remains on track to close in Q1 2025, with regulatory clearances already obtained in the United States and several other countries. According to Kostman, integration planning is progressing smoothly, reinforcing confidence in achieving projected synergies of $50-60 million.
A shareholder meeting to approve the deal is scheduled for December 5, 2024. The company has successfully cleared necessary regulatory reviews in multiple jurisdictions, though some approvals are still pending.
Market position
Looking ahead to Q4 2024, Outbrain expects Ex-TAC gross profit of $67.5 million to $72.5 million and adjusted EBITDA of $15.0 million to $18.5 million. The company has increased its full-year adjusted EBITDA outlook to approximately $35.3 million to $38.8 million.
The company maintains strong relationships with premium publishers, securing renewals with significant partners including Washington Post and Metronews in France, while adding new partnerships with Sports1 in Germany and Reuters and Newsweek in Japan.
Key Facts
- Q3 2024 revenue: $224.2 million
- Gross profit: $48.9 million (5% increase year-over-year)
- Ex-TAC gross profit: $59.7 million (5% increase year-over-year)
- Adjusted EBITDA: $11.5 million (12% increase year-over-year)
- Free cash flow: $8.7 million
- Total advertiser spend: 6% increase year-over-year
- Non-traditional feed revenue: 28% of total revenue
- Cash and investments: $130.5 million as of September 30, 2024
- No remaining debt after convertible notes repurchase
- Expected Teads acquisition closing: Q1 2025