26 Comments
Aug 5, 2023Liked by Clark Square Capital

41% since you wrote this up vs, 13% for the Russell 2000, great work!

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author

Thanks, Larry! Appreciate that.

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May 16, 2023Liked by Clark Square Capital

Do you happen to know what was the equity valuation ratio between Outbrain and Taboola in the prosed merger? I tried to parse something from the press reports and got a combined value of $2B after cash $250m out, of which $833 would go in cash and stock to Outbrain side. That would give an equity value ratio of 0.58. Taking Taboola’s current market cap and Outbrain’s share count, one could ballpark Outbrain’s current share value based on that old deal.

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May 16, 2023Liked by Clark Square Capital

$850 million. $250 million cash + 30% stock of the combined entity. 2B estimated valuation, thus $600 million in stock for OB.

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So the equity value ratio of 850/(2000-600)= 0.61? And given the share counts and current TBLA price, current OB share price of about $10-11 at those old merger terms?

That’s likely an overestimate, though, as TBLA has grown their sales faster since the merger.

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Not familiar with your calculations but at $850 million it looks like a current share price of $16-17.

850/202.01 = 4.2077 * $3.95 = $16.62

(merger valuation)/(current market cap) = (ratio) * (current share price) = (estimated valuation)

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author

Just saw the headline of $850m, but not sure if it was EV or for the equity.

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May 14, 2023Liked by Clark Square Capital

Great write-up! A lot of valuable insights here.

I get this is more of a value play, but what are your thoughts on the competitive dynamics vs Taboola? This looks like a game of scale with greater data leading to greater ROAS for advertisers. With Taboola being the larger player in the market, I'm just wondering why Outbrain doesn't get squashed in the coming years.

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author

Thanks for the comments! I had a quick chat with a professional who used to work at Taboola, and he suggested that the duopoly structure will be a benefit for OB, as publishers want to keep OB around to push for better take-rates for themselves. In other words, they want two players in the industry, not just one.

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May 13, 2023Liked by Clark Square Capital

Really enjoy your thought process and each step and model. Hope this blog contributes for years.

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author

Thanks, Li. Really appreciate that!

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I've recently incorporated Saber/Huber's 3 engines of of value in my own analysis.

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May 13, 2023Liked by Clark Square Capital

Been waiting patiently for the post, and you delivered - great work

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author

Thanks, Daniel! Appreciate that!

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What do you think of Tremor TRMR, which is in a similar business and also looks very cheap?

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Oh my keyboard is doing weird stuff, sorry. My question is if you are already invested or do you wait that the price is coming down during low adversiting in 2023?

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author

Ha - funny. No worries. Yes, I own some at an average price of ~$3.76/share.

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Ah okay nice :) may i ask how much % this position got in your portfolio?

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Very cool analysis! Are you Altägyptische Invested ?

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author

Thanks, Leo! Can you explain what your question means?

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12.5 multiple sounds high. How sis you come up with the Number?

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author

12.5x multiple of unlevered free cash flow or an ~8% yield doesn't seem too high to me. Feel free whatever number you are comfortable with. Also, this suggests a ~4x EBITDA multiple, which is still at a discount vs. Taboola.

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Why not take a set of relevant current market multiples for TBLA and then use each of them to value OB?

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I'm not the biggest fan of relative valuations because who is to say that TBLA is trading at the correct price? It could be undervalued or overvalued by all I know.

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I agree that it’s not be-all end-all. But it could be useful for two reasons.

First, if the valuation difference is dramatic, then that would motivate increasing the OB position and hedging some of it with a TBLA short.

Second, if the valuation difference is not dramatic, then maybe diversifying the existing position across the two stocks makes sense.

Empirically, the former case is closer to the truth, as the market seems to give OB very little credit for the long-term marketable securities in the balance sheet. Why not short some TBLA as a hedge?

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author

I like the standalone OB exposure, but feel free to play it any way you like.

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