Most of the tech sector has gotten hit hard in recent months -- and the ad tech niche has been no exception. Shares of high-flying small-caps like Magnite and AcuityAds have cratered, and even industry leader The Trade Desk (TTD 0.99%) is down nearly 50% from its all-time high.
One ad tech stock that continues to thrive despite the headwinds is Perion Network (PERI +0.20%), which provides an intelligent hub that connects ad buyers and sellers, and helps optimize ad campaigns.
When Perion reported its first-quarter results last week, it beat estimates on both the top and bottom lines. It also raised its guidance. Yet the market shrugged off the results, sending the stock down slightly following the release.
Image source: Getty Images.
Total revenue rose 40% to $125.3 million, outpacing analysts' estimates for $122 million. That growth came largely from its display advertising segment, where revenue rose 80% (or 52% organically) to make up 55% of total revenue. Within display advertising, video and CTV revenue jumped 123% organically, or 341% including its acquisition of Vidazoo, a video monetization platform. Revenue in search advertising, its other primary business segment increased by just 10%.
On the bottom line, Perion's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) surged by 158% to $22.7 million as its intelligent hub continued to scale. Adjusted EBITDA margin excluding traffic acquisition costs (ad placements on Alphabet's Google and other websites), rose from 25% to 42%, and adjusted earnings per share jumped from $0.19 to $0.44, easily beating the consensus estimate of $0.28.
Management also hiked its 2022 revenue guidance from the $610 million to $630 million range to the $620 million to $640 million range, and upped its 2022 adjusted EBITDA outlook from the $88 million to $92 million range to the $98 million to $102 million range.
Based on that guidance, the stock is trading at just 9 times forward EBITDA and 12 times trailing adjusted earnings.
Those valuations and the company's growth rate may be the best arguments for buying Perion stock, but its first-quarter report included some other signs that the company is hitting its stride.
NASDAQ: PERI
Key Data Points
Video is booming
The connected TV and video segment is now one of the fastest-growing areas in the digital ad space. In an interview with The Motley Fool, CEO Doron Gerstel said that video monetizes at a higher rate than traditional display ads because it adds more value, and also offers more ways to measure engagement. In the wake of its October purchase of Vidazoo, video's share of Perion's display advertising grew from 15% to 40%, meaning that video contributed much of the overall revenue growth for the company.
Video has become perhaps the biggest growth driver in the digital advertising industry. On Meta Platforms' latest earnings call, CEO Mark Zuckerberg discussed how ads had evolved from text to photos to video, and how Facebook is using Reels, its short-form, TikTok-like product, to deliver more video ads.
Perion's strength in video will continue to be an advantage as the market increasingly moves in that direction.
It has its own cookieless tracking solution
Third-party cookies are disappearing from Google Chrome, the world's most popular browser by far, so ad tech companies will have to come up with other ways to track users and target ads. Trade Desk's Unified ID 2.0 is a popular tool for that, and it integrates with Perion's platform. But Perion has its own cookieless tracking protocol, SORT. Gerstel noted that SORT has one advantage over UID 2.0: It doesn't require an email address like UID 2.0 does, making it more privacy-sensitive.
NASDAQ: TTD
Key Data Points
SORT has outperformed traditional third-party ad-targeting tactics, and delivers a click-through rate that's as much as double what traditional cookie-based solutions return, providing clients with higher engagement and a higher return on their ad spend. This creates flywheel effects for both advertisers and Perion.
The first quarter was the first full period that SORT was available, and it has already been used in more than 110 campaigns. Perion is currently giving away SORT for free -- using it as a customer acquisition tool. That looks like a smart strategy as third-party cookies will soon be obsolete.
A clear buy
Perion's business is growing rapidly and it's generating profits, yet it's priced like a value stock. It's making smart investments in technology; it's growing both organically and through acquisitions and is well-positioned to benefit from the boom in video and connected TV.
Over the near term, bearish market sentiment could continue to weigh on Perion's stock along with growth stocks more broadly, but if this company continues to deliver these kinds of results, the stock ought to move higher. And it could soar if investors begin to embrace ad tech stocks once again.
