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OI

Outbrain Inc. (OB)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 revenue was $224.2M, down 3% year over year, while Ex-TAC gross profit rose 5% to $59.7M; adjusted EBITDA was $11.5M, above guidance, and free cash flow was positive for the fifth consecutive quarter .
  • Management raised FY 2024 adjusted EBITDA guidance to $35.3–$38.8M and introduced Q4 guidance of Ex-TAC gross profit $67.5–$72.5M and adjusted EBITDA $15.0–$18.5M; full-year Ex-TAC was adjusted to ~$235.3–$240.3M .
  • CEO highlighted momentum in growth pillars (cross-sell branding-to-performance, supply expansion beyond feed, premium publisher renewals/wins) and the beta launch of “Moments” (vertical video), with strong early engagement; AI initiatives (creative automation, Azure OpenAI) continued to scale .
  • Management noted a continued headwind from one key partner’s bidding tech transition (completed in May) that reduced growth by double-digit percentage; excluding it, Ex-TAC would have grown mid-teens y/y. Q4 outlook was made more cautious after a slower October start tied to election uncertainty, with expectation of normal seasonality post-results .

What Went Well and What Went Wrong

What Went Well

  • Ex-TAC gross profit grew 5% and margins improved for the sixth consecutive quarter; adjusted EBITDA beat guidance and free cash flow stayed positive for the fifth straight quarter .
  • Strong adoption and cross-sell: DSP (formerly MANTA/Zemanta) spend up ~60% YTD; supply beyond traditional feed rose to ~28% of revenue (from 26% y/y); premium publisher renewals and wins (HuffPost, Meteo France; Sports 1 Germany; Reuters/Newsweek Japan) .
  • Product/AI momentum: “Moments” beta showed high engagement (40% of users watch ≥3 videos) and MediaScience study support; AI creative automation improving CTRs; expanded Azure OpenAI collaboration to enhance creative solutions .

What Went Wrong

  • Revenue declined 3% y/y to $224.2M as pricing/CPC remained pressured; net revenue retention fell to 91% (traffic pressure at a key partner) despite 98% logo retention .
  • A key partner’s bidding platform transition created volatility; management said Q3 Ex-TAC growth would have been mid-teens y/y absent this isolated headwind .
  • Q4 outlook tempered after slower October (U.S. budgets cautious ahead of election); management expects normalization now that results are known, but guided with caution .

Financial Results

Quarterly Trend (Sequential)

MetricQ1 2024Q2 2024Q3 2024
Revenue ($USD Millions)$217.0 $214.1 $224.2
Gross Profit ($USD Millions)$41.6 $45.6 $48.9
Gross Margin (%)19.2% 21.3% 21.8%
Ex-TAC Gross Profit ($USD Millions)$52.2 $56.0 $59.7
Ex-TAC Margin (%)24.0% 26.1% 26.6%
Adjusted EBITDA ($USD Millions)$1.4 $7.4 $11.5
Net Income ($USD Millions)$(5.0) $(2.2) $6.7
Diluted EPS ($USD)$(0.10) $(0.09) $0.01

YoY Comparison (Q3 2024 vs Q3 2023)

MetricQ3 2023Q3 2024
Revenue ($USD Millions)$230.0 $224.2
Gross Profit ($USD Millions)$46.4 $48.9
Gross Margin (%)20.2% 21.8%
Ex-TAC Gross Profit ($USD Millions)$56.8 $59.7
Ex-TAC Margin (%)24.7% 26.6%
Adjusted EBITDA ($USD Millions)$10.3 $11.5
Net Income ($USD Millions)$0.5 $6.7
Diluted EPS ($USD)$0.01 $0.01

KPIs and Mix

KPIQ3 2023Q2 2024Q3 2024
Supply beyond traditional feed (% of revenue)26% 27% 28%
Logo Retention (≥$10k partners)—99% 98%
Net Revenue Retention (Publishers)—89% 91%
Total Advertiser Spend y/y growth——+6%
RPM (yield) trend y/y—Growth (3rd consecutive quarter) Growth (4th consecutive quarter)

Notes: Dashes indicate not disclosed for the specific prior period in documents.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Ex-TAC Gross Profit ($M)Q4 2024—$67.5–$72.5 New
Adjusted EBITDA ($M)Q4 2024—$15.0–$18.5 New
Ex-TAC Gross Profit ($M)FY 2024$238–$248 ~$235.3–$240.3 Lowered
Adjusted EBITDA ($M)FY 2024$31.5–$36.0 $35.3–$38.8 Raised
Share RepurchasesFY 2024Intend (remaining auth.) No repurchases in Q3; not intending to resume near-term given Teads Maintained pause

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3 2024)Trend
AI/Technology initiativesAI creative tools adoption rose; predictive demographics launched; CTR records; focus on contextual signals without third-party cookies Accelerating AI integration (creative automation suite, Azure OpenAI); internal AI efficiencies (+40% workload reduction in some teams); UiPath innovation recognition Strengthening execution and adoption
Moments (vertical video)Not launched yet; focus on Onyx and video formats Beta launched; strong user engagement (40% watch ≥3 videos); early publisher/brand tests; MediaScience findings support branding outcomes New product gaining traction
DSP/Zemanta performanceSpend +40% y/y in Q1; +50% 1H y/y; strategy to shift large performance buyers; margin enhancer YTD spend +60%; continued adoption; higher Ex-TAC take rates Accelerating adoption and mix benefit
Premium publisher relationshipsNew wins (News Corp Australia, Webedia Spain; Telegraph via Keystone); strong logo retention Renewals (HuffPost US, Meteo France); new wins (Sports 1 Germany, Reuters & Newsweek Japan) Continued expansion and retention
Macro/election impactsQ4’23 was softer tied to Israel war/news mix; Europe stronger than U.S. Slower October; budgets cautious around U.S. election; expectation of normal seasonal spike post-results Near-term caution, normalization expected
Key partner/bidding platformTransition began affecting Q4’23/Q2’24; Outbrain first native partner to complete transition in May; volatility acknowledged Double-digit impact to Q3 growth; ex-partner growth would be mid-teens; stabilization expected with easier comps Q4/Q1 Headwind moderating into Q4/Q1

Management Commentary

  • “We delivered Ex-TAC gross profit within our guidance range. We exceeded our adjusted EBITDA guidance, and we generated positive free cash flow for the fifth consecutive quarter.” — CEO David Kostman .
  • “Revenue in Q3 was approximately $224 million… Ex-TAC gross profit was $59.7 million, an increase of 5% year-over-year… adjusted EBITDA 12% y/y to $11.5 million… free cash flow approximately $9 million.” — CFO Jason Kiviat .
  • “Moments… brings the immersive experience of social media to the open Internet… with 40% of users watching 3 or more videos.” — CEO David Kostman .
  • “We recently expanded our collaboration with Microsoft Azure, integrating Azure OpenAI… prioritizing ad creatives with predicted higher ROI.” — CEO David Kostman .
  • “For Q4, we expect Ex-TAC gross profit of $67.5M to $72.5M… adjusted EBITDA of $15M to $18.5M… increased annual range of ~$35M to $38M.” — CFO Jason Kiviat .

Q&A Highlights

  • Teads integration: Management reiterated expected close in Q1 2025 and emphasized ~$60M synergy rationale and cross-sell upside across branding and performance .
  • Q4 guidance tone: Midpoint implies ~10% y/y Ex-TAC growth; caution stems from slower October (U.S. advertisers/agency budgets ahead of election). Expect normal seasonal spike with outcome clarity .
  • Moments positioning: Complementary to feed, full-screen immersive experiences triggered algorithmically; ~10 publishers and multiple brands testing; too early for financial impact, strong engagement/brand lift .
  • Traffic & AI overviews: Premium publisher page views “relatively flat”; no observed negative AI impact on traffic so far .
  • Key partner headwind: Excluding the partner, Q3 Ex-TAC was mid-teens y/y; comps easier in Q4 and Q1 before fully lapping by mid-Q2 next year .

Estimates Context

  • S&P Global consensus estimates for Outbrain (OB) were unavailable due to a missing Capital IQ mapping in our system at the time of retrieval. As a result, we cannot provide “vs. Street” EPS/revenue comparisons for Q3 2024 or forward periods using S&P Global data at this time. Management guided Q4 Ex-TAC gross profit and adjusted EBITDA, and raised FY adjusted EBITDA, which serve as reference points for near-term expectations .

Key Takeaways for Investors

  • Mix-driven margin resilience: Despite a 3% y/y revenue decline, Ex-TAC gross profit and margins expanded (26.6% Ex-TAC margin; 21.8% gross margin), reflecting favorable revenue mix and higher take rates; adjusted EBITDA rose 12% y/y to $11.5M .
  • Isolated partner headwind moderating: Growth would have been mid-teens y/y absent the partner’s bidding transition; comps ease in Q4/Q1 ahead of full lap by mid-Q2 2025 — a setup for cleaner momentum prints .
  • New product catalyst: Moments’ beta engagement is strong (40% watch ≥3 videos), offering premium vertical video inventory to brands; expect narrative tailwind into 2025 as roll-out scales post-Teads .
  • AI execution: Creative automation and Azure OpenAI integration are improving CTRs and ROAS, while internal AI/RPA delivered ~40% workload reductions in certain divisions — both profit and performance enablers .
  • Capital structure de-risked: Repurchase of remaining $118M converts at ~7.5% discount removed all debt; Q3 ended with ~$130.5M cash/marketable securities and no debt outstanding — enhancing strategic flexibility ahead of Teads close .
  • Guidance signals: Q4 guide cautious but constructive (Ex-TAC $67.5–$72.5M; adj. EBITDA $15.0–$18.5M); FY adjusted EBITDA raised to $35.3–$38.8M, while full-year Ex-TAC was refined to ~$235.3–$240.3M .
  • Trading setup: Near term, watch for post-election seasonal acceleration and stabilization at the key partner; medium term, follow adoption of Moments and DSP cross-sell, plus integration milestones and synergy visibility into Teads close in Q1 2025 .