Things You Need to Know
- Perion reported substantial YoY growth in several key areas, including a 75% jump in Retail Media revenue, a 42% increase in CTV advertising, and a 41% climb in DOOH.
- Overall revenue decreased by 39% compared to the previous year, largely due to a 66% decline in Open Web video revenue and a 57% drop in Search Advertising revenue, largely attributed to Microsoft’s Bing marketplace changes.
- Maoz Sigron will be promoted to Chief Operating Officer (COO) as of August 1, 2024, while Elad Tzubery will become the Chief Financial Officer (CFO).
Thesis
Despite losing a key partnership with Microsoft, Perion Network remains an attractive investment opportunity due to its diversified advertising solutions and continued growth in emerging markets. The company is expanding its presence in the Connected TV (CTV) and Digital Out-of-Home (DOOH) advertising segments, with CTV revenue growing 42% YoY and DOOH increasing by 41% YoY in Q2 2024. Additionally, Perion’s investment in proprietary AI technology, such as SORT 2.0 and WAVE, positions it for sustained growth, enhancing its business fundamentals and intrinsic value over the long term.
Perion Network’s current market valuation presents a compelling opportunity, as traditional metrics indicate significant undervaluation. The company’s low P/B ratio of 0.53 and a P/E ratio of 5.18 suggest a substantial margin of safety for investors. Even in a worst-case scenario where search advertising diminishes, Perion’s advertising solutions segment alone justifies a higher valuation, with a DCF model indicating a significant margin of safety. With a diversified business model and strong financial position, Perion is poised to overcome short-term setbacks and deliver long-term value to shareholders.
Business Catalysts
- Growth in CTV and DOOH Advertising: Perion is experiencing strong growth in Connected TV (CTV) and Digital Out-of-Home (DOOH) advertising, with YoY increases of 42% and 41% respectively, positioning the company well for future market expansion.
- AI-Driven Advertising Solutions: Perion’s proprietary AI tools like SORT 2.0 and WAVE enhance targeted advertising and consumer engagement, offering advertisers competitive advantages and driving demand.
- Attractive Valuation and Financial Strength: Perion’s stock appears undervalued, with a low P/B ratio and a significant margin of safety, supported by strong cash reserves and diversified revenue streams.
Financial Overview
In Q2 2024, Perion Network reported a total revenue of $108.7 million, reflecting a 39% decline compared to the same period last year. This drop was largely due to a 66% decrease in Open Web video revenue and a 57% decline in Search Advertising revenue following changes in Microsoft’s Bing marketplace. Despite these challenges, Perion saw substantial growth in its key advertising segments: Connected TV (CTV) advertising revenue increased by 42%, Digital Out-of-Home (DOOH) advertising grew by 41%, and Retail Media revenue surged by 75%.
Perion Network’s Q2 2024 results reflect a challenging period due to the loss of a major partner and declining revenue in core segments. However, the company’s ability to achieve substantial growth in emerging markets such as CTV and DOOH advertising showcases its resilience and strategic focus on diversification. While the immediate financial performance indicates vulnerabilities, Perion’s investments in innovative solutions and financial strength position it well for long-term growth and recovery. The company’s leadership changes and share repurchase program demonstrate a proactive approach to navigating current challenges and capitalizing on future opportunities.
Points of Criticism
- Loss of Microsoft Partnership: The loss of Microsoft as a key partner significantly impacts Perion’s revenue, dropping search advertising income from 34% to less than 5% of total revenue.
- Decline in Search Advertising: Search advertising revenue fell by 57% in Q2 2024, raising concerns about Perion’s ability to sustain this segment’s competitive edge.
- Challenges in Open Web Video: Open Web Video revenue declined by 66%, highlighting potential weaknesses and difficulty adapting to market trends in this part of Perion’s business.
Notable Updates in Q2 2024
- 05/15/2024: Perion Network has launched Hivestack’s ‘Green Curated Deals’, a new solution for Digital Out-Of-Home (DOOH) advertising that uses Scope3 emissions data to offer lower carbon ad inventory globally. This initiative, integrated within Hivestack Curate, aims to reduce the environmental impact of DOOH campaigns by optimizing ad delivery for lower emissions while enhancing campaign effectiveness.
- 03/11/2024: Perion Network Ltd. has partnered with Way.io to integrate its Hivestack platform with Way.io’s DSP in China, expanding access to programmatic digital out-of-home (DOOH) advertising. This collaboration enhances Way.io’s capabilities to manage DOOH campaigns domestically and globally, leveraging Hivestack’s extensive network of over 1 million screens and offering new opportunities for brands in China and beyond.
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