Why Perion Network Ltd. Shares Popped Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Perion Network Ltd. (NASDAQ: PERI  ) rose 10% Monday after the company released encouraging fourth quarter results.

So what: Quarterly revenue grew 47% year over year to $31.3 million, which translated to 53% growth in adjusted net income per share to $0.49.

For the full year, Perion's revenue grew 71% to $104.6 million, while diluted earnings increased 56% to $1.54 per share. Both figures are well above guidance provided by Perion in November, which called for fiscal 2013 revenue in the range of $102 million to $104 million and adjusted earnings per share between $1.38 and $1.45. 

Finally, Perion issued full year 2014 guidance for revenue in the range of $460 million to $470 million, with net income of $103 million to $108 million.

Now what: If that sounds like a massive increase, it's because it includes Perion's all-stock acquisition/merger with ClientConnect, the latter of which boasted 2013 revenue and net income of $325.5 million and $86.7 million, respectively.

CEO Josef Mandelbaum provided an update on the combo, saying the integration "has gone exceedingly well, even better than our expectations, due in large part to the talent and quality of the combined management team." As a result, Mandelbaum insists their "first quarter as a combined company is off to a good start, despite headwinds in the industry." Further, he says, the company has "deployed several initiatives to accelerate growth."

Even so, I'm in no big hurry to buy the stock today, especially considering the midpoint of Perion's 2014 guidance indicates the combined companies' revenue is only slated to increase 8%. Meanwhile, the midpoint of their combined 2014 net income guidance actually represents a 1.2% decrease over 2013. For now, I'm content to let the dust settle to ensure the transition continues to go smoothly before I make any long-term investing decisions on Perion stock.

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Read/Post Comments (3) | Recommend This Article (1)

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  • Report this Comment On March 07, 2014, at 12:56 PM, Fra1414 wrote:

    Thanks for the post Steve!

    I've been a PERI shareholder for a while, because like you I also am a big fan of "the little book that beats the market". I also agree with most of your take above, in fact I also couldn't fathom how growth could go from mid double digits to mid-to-low single digits as a result of the reverse merger. That would have meant that the company was better going at it alone! It's possible that Mr. Mandelbaum purposefully sandbagged guidance because there was so much that could go wrong with a reverse merger. But the announcement said that things were going even better than expected. That said, he does have two months visibility into the combined company, so who knows. Any additional thoughts appreciated!

  • Report this Comment On March 08, 2014, at 10:52 AM, TMFSymington wrote:

    @Fra1414, Funny; I was just thinking of Greenblatt's book the other day. Great, easy read...though I don't blindly buy stocks found from his formula/screen as he suggests for most investors in the end, but rather enjoy occasionally using it as a starting point to narrow the field.

    On PERI, because of ClientConnect's outsized revenue stream as part of the combined company, the slowdown is likely a combination of ClientConnect's slowing growth and perhaps -- to a lesser extent -- time and resources dedicated to efficiently integrate the two.

    That's where Mandelbaum's comment on deploying "several initiatives to accelerate growth" comes in. I know from personal experience these kinds of mergers/acquisitions don't always go as planned, so that's why I'm content keeping an eye on PERI for now and digging into the transcripts for hints on how everything's progressing.

    Thanks for reading and Fool on!

    Steve

  • Report this Comment On March 10, 2014, at 4:05 PM, Fra1414 wrote:

    Thanks for the response Steve! I guess we'll agree to disagree, I think that if a company goes from 50% growth to single digit growth in a single year exactly after a merger is complete, it strikes me as borderline illegal, and it definitely implies that PERI should NOT have gone ahead with the merger. We'll see in a few months, if the CEO doesn't raise guidance by mid-summer then I'll eat my hat :)

    Cheers,

    Fra...

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