Teads faces collapse as stock loses 90% of value this year
CEO David Kostman, who orchestrated Outbrain’s reverse merger with Teads, juggles multiple high-profile roles as investors question the ambitious deal.
The plunge of Teads (formerly Outbrain) shares by more than 40% in one day last week attracted significant attention. Yet the particularly poor third-quarter reports that triggered the drop were just the final nail in the company's decline, which began over a year ago and has now erased 90% of its value since the start of the year.
The Israeli company Outbrain was not ready for a Wall Street IPO in the first place. Even in 2021, when market conditions were favorable, it faced difficulties and reduced its valuation to $1.1 billion. Since that summer, the stock has only fallen, landing at $74 million at the end of last week.
Today, known as Teads following a reverse merger completed last February with a larger company, the content recommendation business teeters on the brink of collapse. Its troubles stem not only from poor performance but also from an explosive combination of declining revenue, negative cash flow from operations, and a $628 million balloon loan at 10% interest due in 2030. The company now holds only $138 million in cash, and its stock, trading below a dollar, prevents it from raising capital on reasonable terms. Despite this, the company still employs nearly 2,000 people.
All the Possible Mistakes
How did Teads deteriorate from a mediocre company that consistently failed to meet Wall Street expectations to one whose very survival is uncertain? The answers lie primarily with David Kostman, the CEO. Kostman is a prominent figure in Israeli high-tech; boards across the sector court him, and he reportedly finds it hard to refuse most of them. This has resulted in a situation where Kostman has served for seven years both as CEO of Teads, a challenging company even before the ambitious merger, and as chairman of Nice. While Nice’s situation is not directly comparable, the enterprise software firm has also faced difficulties, especially since CEO Barak Eilam stepped down at the end of 2024.
During the height of the Teads merger due diligence process, Kostman was simultaneously searching for a new CEO for Nice in his role as chairman. Six months after completing the Teads acquisition, Nice executed its largest acquisition ever, a nearly $1 billion deal for a German startup intended to expand its AI capabilities. In the meantime, Nice’s stock fell sharply amid concerns about disruption in its customer relationship management systems from simple AI-based software. Over the past year, Nice’s stock lost 35%, dropping to around $8 billion, down from $20 billion at its peak.
And if juggling two roles wasn’t enough, until April 2025, Kostman also served as a director at Unity, the gaming company, a position he inherited following the sale of Israel’s ironSource. Previously, he held board positions at Retalix until its sale to NCR, and he led Delta Galil’s American operations. Most of his career, however, was spent as an investment banker at Lehman Brothers, where he experienced both the dot-com bubble and the bank's collapse in 2008.
Kostman (60), who has lived in the U.S. for many years, is considered fluent in Wall Street language, capable of handling investor expectations, and skilled at crafting complex deals. Yet even a seasoned operator like him struggles to manage multiple demanding roles, especially during crises. While he is not alone in serving on multiple boards, the CEO role is uniquely demanding. By comparison, Nadav Zafrir, CEO of Check Point, previously served as chairman of SolarEdge during its crisis but eventually resigned to focus on his primary responsibilities.
Kostman had several easy exit options from Outbrain but remained determined to hold all his positions. Until February 2024, he shared the CEO role with Outbrain co-founder Yaron Galai. After Galai’s retirement, Kostman became sole CEO and, six months later, led the ambitious Teads merger. Outbrain, then valued at under $200 million, acquired Teads from Patrick Drahi for $1 billion, paying $725 million largely in debt and granting Drahi a 40% stake in the merged company. Even after the merger, Kostman insisted on remaining CEO.
In a recent conference call with analysts, it became clear that patience was running thin. Teads missed revenue expectations ($319 million vs. $340 million) and posted a loss of 17 cents per share compared to 10 cents expected. The company had not issued a profit warning, and Kostman attributed weaknesses to the broader online advertising market, despite competitors posting solid results. Teads also stopped giving forecasts, though Kostman had promised a three-year growth plan during an upcoming investor day.
More Layoffs on the Way
The Outbrain-Teads merger raises multiple questions, and shareholders - increasingly frustrated - may demand deeper scrutiny, including of the due diligence conducted. The primary reason for Teads’ collapse appears to be weaker-than-expected performance from the merged entity. The whole has turned out to be less than the sum of its parts, the opposite of Kostman’s vision. Revenue declines in 2023 foreshadowed trouble, with Outbrain’s content recommendation business performing steadily while Teads’ video ad platform began losing value due to regulatory changes that lowered its revenue potential.
Some suggest that Galai’s departure was linked to reluctance to acquire Teads. Sources say the negative surprise stems less from Teads’ products and more from its business model, which focuses on large clients rather than the advertising agencies controlling budget allocations. The company recently engaged a strategic consulting firm to determine how to salvage the merger, which is increasingly seen as a black mark on Kostman’s resume.
Today, Kostman is concentrating on the connected television (CTV) advertising market, expected to generate $100 million by 2025 after 40% growth. However, this is insufficient to sustain a company with over 2,000 clients and projected annual sales of over $1 billion. While Teads emphasizes operational efficiency, the layoffs announced post-merger (10% of staff) are likely just the beginning, and this time, cuts will likely affect Israel as well.
Kostman declined to comment.
