Advertising technology, or adtech, companies have largely thrived during the pandemic, and Perion Network (PERI -1.73%) is no exception.
The Israeli small-cap stock known for connecting publishers and brands through its intelligent hub platform is up more than 250% since the start of 2020. Those gains have come as it's delivered strong growth on the top and bottom lines, made several acquisitions, and built out its video and connected TV (CTV) business.
The company topped estimates in its fourth-quarter earnings report, posting 38% revenue growth to $158 million, ahead of expectations at $145 million, and adjusted earnings per share was also up to $0.62, beating the consensus at $0.39. Perion also raised its guidance for 2022, calling for 30% revenue growth to between $610 million and $630 million. The 2022 guidance also projects a similar increase in adjusted earnings before interest, taxes, depreciation, and amortization to between $88 million and $92 million.
Those results were enough to give the stock a bump of 3.5% on Wednesday, but there are plenty of reasons to believe that the adtech stock can continue to beat the market. Here are three reasons why 2022 should be another banner year.
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1. Technology is differentiating the company
Perion has improved its technology over the last couple of years and is differentiating itself from other adtech players in a number of important ways.
It launched SORT, its cookieless tracking technology, in October and the early results are promising. It said on the earnings call that it has 42 advertisers using SORT already, including brands Walt Disney and Align Technology, which makes Invisalign braces. SORT also offers enhanced privacy, something 74% of consumers say they prefer, but CEO Doron Gerstel said that the main advantage of SORT is that the technology is simply better than cookies, helping deliver better click-through results for advertisers that offer a better return on investment. SORT ads have a logo attached that Gerstel hopes will eventually be recognized by consumers so they know their privacy is being protected.
Separately, the company is also developing high-impact ads that are synchronized through multiple channels like mobile, desktop, and CTV. In the presentation, it shared an example of an ad for Advil, which includes a QR code that automatically connects the consumer to a retail site like Walmart or Target where they can buy the product. Perion calls this technology the "connected cart." The next step in its development is to be able to automatically adjust the SKU if the linked product is out of stock, something Gerstel said advertisers are very excited about and which further differentiates Perion.
2. More acquisitions are likely to come
The fourth quarter was the first period to include Perion's $93.5 million acquisition of Vidazoo, a video-publishing platform that has helped drive growth in CTV. Management has been very pleased with that acquisition, and the company seems to be in the market for more acquisitions to fold into its intelligent hub platform.
The company raised around $300 million in December in order to pursue acquisitions, and Gerstel said that valuations had gotten more appealing with the recent pullback in the market.
Although acquisitions alone aren't a reason to buy a stock, Perion has used the strategy effectively before. And in a fragmented industry, acquisitions can help accelerate growth, improve its technology, and open up new markets. Perion stock has been a victim of compressing valuations, but there's a silver lining there as the company can take advantage of falling prices for potential targets.
3. The price is right
Despite Perion's strong performance and the momentum it's carrying into 2022, its valuation indicates the market is still skeptical of the growth story. Perion stock crashed once before, in 2014, but that was under a different management team, and the business is much different today.
Based on its adjusted EPS in 2021, the stock trades at a forward price-to-earnings ratio of less than 15, and the company is targeting 30% profit growth in 2022.
In addition to its own execution, Perion is benefiting from a number of secular trends, including the expansion of the digital advertising market and the boom in connected TV. While the pandemic helped accelerate those trends, the momentum in digital ads seems unlikely to fade as consumer demand is there and CTV provides benefits that more traditional forms of advertising don't.
With its tech ramping up and the potential of an acquisition to boost the company, Perion's current valuation looks like a steal.
