Perion Network Reports Another Beat And Raise Quarter - Buy
Summary
- Company reports Q1 results ahead of recently raised expectations and increases full-year guidance for a second time this year.
- Recent follow-on offering and strong cash flow generation resulted in the company's cash position increasing to $128 million with the company being debt-free for the first time in years.
- Guidance remains conservative with potential further upside from a rebound in travel-related advertising.
- Management is confident of achieving its $500 million sales goal originally targeted for 2023 ahead of time.
- Raising price target to $24 for approximately 50% upside from current levels. Investors should use the recent, broad-based weakness in technology stocks to scale into the shares or add to existing positions at a measured pace.
In late 2020, I urged investors to consider a long position in shares of Perion Network (NASDAQ:PERI) or "Perion," an Israel-based provider of digital advertising solutions after the company raised H2/2020 guidance for the second time in two months.
Within two weeks, the shares hit my $15 short-term price target and reached a new 52-week high on December 23 with shares peaking at $17.85.
I reiterated my bullish stance on January 20 after the company raised H2/2020 expectations again and surprisingly announced a $50 million follow-on offering which was oversubcribed 7 times and ultimately ended up being upsized to $66 million.
On February 9, Perion finally reported Q4 and full-year 2020 results above its January 20 projections and provided constructive guidance for FY2021, sending its shares up by 13.5% for the day.
Source: Company Press Releases
The stock ultimately peaked at $28.32 on March 2 after the company raised Q1 and full-year 2021 expectations before succumbing to the ongoing change in market sentiment for technology stocks.
On Tuesday, the company reported Q1/2021 earnings ahead of its recently increased projections and raised full-year guidance substantially again.
Source: Company Press Releases
Thanks to the recent follow-on offering and strong cash flow from operations, the company's cash position increased to $128 million and for the first time in many years, Perion ended the quarter without debt.
Subsequent to the earnings release, management delivered a near-flawless conference call and hinted to potential further upside:
To provide a cushion of confidence, I want to note that our 2021 guidance does not anticipate a material rebound from travel-oriented advertisers, nor does it assume any additional acquisitions. Both would represent upside to our guidance. And the fact that we are not including any projections of this incremental opportunity demonstrates the confidence we have in this expected performance.
Management also expressed confidence in achieving the $500 million annual sales mark originally targeted for 2023 "sooner than anticipated."
During the question-and-answers session, management stated to have "great visibility" into the current quarter and to some extent already for the second half of the year but nevertheless prefers to take a conservative approach to guidance.
With regards to the upcoming end of the cookie era, management made clear that Perion's business model is not really dependent on cookies:
So first and foremost, I think that we need to look about those companies that their business model is very much performance, but it’s based on retargeting. They are -- very, very much depend on cookies, allowing them to track potential consumer along the journey, and I think that their model is going to face definitely some challenges. We are very much on -- our performance is quite different. We’re not depending on cookies because we are very much based all of our performance advertising on what’s called the search advertising that has to do with our partners, Bing and also Yahoo!. So, to that extent, this change is not impacting the performance part of our business.
And as far as the other part, which it has to do with display advertising, we need to distinguish between advertising, which is based on a publisher, which is on the network or a publisher that is part of our network. Publisher, this is our network, publisher that we owned and operated or publisher that we are monetizing, their content is completely in a different category. And for us, we definitely recognize it as the first-party data.
The company also saw good initial traction on its recently launched SaaS offering Paragone.ai which helps brands manage and improve social advertising performance with seven "very, very large" clients joining the platform in the first quarter.
Perhaps the only slight disappointment was the 70% sequential decrease in Connected TV ("CTV") revenue from $6.5 million in Q4/2020 to just $2 million in Q1 but management was quick to explain that the company's CTV offerings are primarily serving as a driver for expanding the customer base and a contributor to an increase in average deal size:
And as I mentioned, the most -- first of all, the focus was for us since we are offering a multi-screen, especially when it comes to new account, is to very much focusing on having a CTV as part of the offering. And as I mentioned on the press release and on the call, we’ve seen it as a key driver of our ability to acquire new customer by adding the CTV element and a big screen capability into our holistic multi-screen type of offering. That was -- it was more important for us to use it as acquiring new deals than to have CTV dollars by itself, which is on the neighborhood of $2 million in the quarter.
Management also hinted to potential M&A activity likely within the next couple of quarters.
Finally, CEO Doron Gerstel addressed some of the lingering market concerns about the long-term sustainability of the current digital advertising boom in a post-pandemic world:
Finally, a lot of you are wondering about the extent to which some of the new consumer behavior will stick and which will revert to the way it was. Let me tell you, we continue to see a meaningful shift in consumer behavior as the pandemic has accelerated the digitalization of nearly all aspects of our lives.
(...)
While the pandemic is declining and life is starting to resemble, what we remember as normal, it is clear that consumer behavior will be forever changed. Digitization is here to stay and the brands that do not respond will face an extinction level event. What that means is our clients, brand and advertisers are intensively monitoring consumer behavior and adjusting their spend on platforms that are winning the war for attention. Perion is positioned perfectly for this data-driven advertiser insight. Wherever and however advertisers seek to invest to attract consumer, Perion has a solution. Our diversification strategy lets us pivot our marketing and sales efforts to where digital advertising dollars are shifting.
Bottom Line
Perion Network continues to execute well ahead of expectations and even after the most recent FY2021 guidance increase, projections still look conservative.
Personally, I wouldn't be surprised to see Perion Network finishing the year with almost $450 million in revenues and $45-$50 million in adjusted EBITDA.
Given the materially increased growth rate, I am raising my targeted EV/EBITDA multiple to 20 which still represents a massive discount relative to advertising pure plays The Trade Desk (TTD) and Magnite (MGNI) for a new price target of $24 (or $28 in case my best case scenario laid out above plays out).
A number of analysts are looking for an even better performance with Roth Capital having raised its price target to a Street high of $34 while Oppenheimer reiterated its $30 target after Tuesday's earnings release.
With technology stocks currently experiencing broad-based selling pressure, investors should consider scaling into the shares or adding to existing positions at a measured pace.
This article was written by
Analyst’s Disclosure: I am/we are long PERI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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Comments (31)
Is PERI really the best of the breeds in this space? Please share your views? Thanks
I agree their overly conservative guidance is a fault.
It is hurting the stock too. That was a mistake.
Great execution, relatively cheap valuation metrics, and solid balance sheet all make it for a heads win and tails not lose set-up.
Why not chipping in?