The COVID-19 pandemic has permanently altered the global economy and produced a number of winners and losers. Among the big winners from the crisis has been the ad-tech industry, as brands have had to accelerate their digital transformations to meet consumers where they are, which is increasingly on screens through channels like Connected TV.

This trend has sent a number of stocks soaring over the last year, including industry players The Trade DeskMagnite, and Roku. But one ad-tech stock has been overlooked: Perion Network (PERI -2.34%), an Israeli company that connects publishers and brands through its hub-and-spoke model.

A woman looking at TV images on a glass wall

Image source: Getty Images.

What is Perion?

Founded in 1999, Perion was a laggard through much of the 2010s after its 2013 acquisition of ClientConnect failed to pay off. The company has since returned to growth with the help of CEO Doron Gerstel, who joined the company in 2017.

Perion specializes in optimizing digital-ad allocations for publishers such as Newsweek and brands such as Lexus, helping them maximize return on investment for an ad campaign across digital channels like search, social, display, and Connected TV. The AI-driven hub-and-spoke model, which connects publishers and brands, differentiates Perion from most ad techs that operate as either demand-side platforms, which work for brands, or supply-side platforms, which work for publishers.

Gerstel said in a recent interview with The Motley Fool that the company offers the most diversity in terms of channels for advertisers. This includes interactive CTV, where it can adjust features of an ad, such as the color of the product or the background, to customize it to the viewer.

Perion has a tight relationship with Microsoft's Bing search engine through its search-technology division, CodeFuel, and the company recently extended its partnership with Bing for four years through 2024 and from six to 34 countries. Gerstel noted that the crackdown on Google in some countries favors Bing and could help it expand further in the world.

Over the next four years, the company projects that it will bring in $900 million in revenue from the Bing partnership, which equals nearly half of its annual sales at its current run rate.

Growth and value

Perion posted another solid round of results in the second quarter, with revenue up 82% to $109.7 million as it lapped the pandemic-impacted quarter a year ago. Its numbers also got a bump from its acquisition of Pub Ocean last July. That beat estimates of $104.9 million. Display and social advertising was a particular standout, with revenue more than tripling in the quarter to $58 million, or more than half of the total.

That growth and the improving macro environment led to a surge in profitability as adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improved from $2.5 million to $14.3 million. The company posted generally accepted accounting principles (GAAP) earnings per share of $0.19, up from a loss of $0.08 a year ago, and edging out estimates by $0.01.

Management was confident enough in its growth rate to pull up a $500 million revenue goal by a year, saying it will now reach that mark by 2022 instead of 2023. This makes the current valuation look even more appealing, but the stock is trading for less than 15 times its trailing free cash flow -- or a downright bargain in the current market.

The market seems to be pricing Perion like its the slow-growth company it was just a few years ago, but that's no longer the case. It's riding strong tailwinds in Connected TV, benefiting from a favorable macro environment, and penetrating an addressable market in advertising that's valued at as much as $500 billion and growing, thanks to the digital transformation.

If the company delivers on its guidance of 20%-plus revenue growth through 2022, the stock has a lot of room to rise.