Digital advertising has been a reliable source of growth for investors for over a decade. But, suddenly, that's no longer true.

Leading social media and search platforms like Meta Platforms and Alphabet are posting single-digit or even negative growth. even once-reliable ad tech stocks are seeing growth grind to a halt. For example, Pubmatic, a supply side platform, forecast growth of just 1% in the fourth quarter.

However, one ad tech stock is bucking the industry trend. That's Perion Network (PERI 1.66%).

Perion operates a number of different ad tech services, the most important of which is its intelligent hub, which connects ad buyers and sellers, optimizing ad placements and increasing return on investment (ROI).

Revenue in the quarter rose 31% to $158.6 million, and its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) nearly doubled, going from $17.6 million to $33 million. Adjusted earnings per share, meanwhile, jumped 53% to $0.61, well ahead of estimates at $0.43.

Perion also raised its adjusted EBITDA guidance for the year from $102 million to $120, which equates to a 46% margin based on its revenue excluding traffic acquisition costs, which the company said was among the best in the industry. For overall revenue, the company expects the top line to increase 32% for the full year to between $630 million and $635 million. 

What's driving Perion's success

Perion has sought to differentiate itself from its peers by offering brands a premium advertising experience. For example, one premium ad features a rotating image, surround sound, and a call to action like a QR code that allows a customer to directly make a purchase on a Connected TV.

As CEO Doron Gerstel described on the earnings call, those premium ads deliver better ROI, and the company can charge $32 per thousand impressions, compared to a cost per thousand impressions (CPM) in the teens for a standard ad. The company A/B tested premium ads and standard ads and found that the high-impact versions delivered a 400% increase in site visits and a 400% higher conversion rate. The success of premium ads helped its average deal size increase 10% to $117,000.

Additionally, the company continues to gain traction with its cookieless tracking alternative, SORT. Management said the number of customers using SORT, which Perion gives away for free in order to increase customer loyalty, rose 11% quarter over quarter, and spending from SORT customers increased 25% from the previous quarter. 

Elsewhere, the company is seeing strong growth in search advertising, which rose 38% in the quarter to $73.8 million as advertisers shift their budgets from social media to search due to Apple's ad-targeting restrictions and broader macroeconomic challenges. 

Finally, the intelligent hub continues to benefit from cost leverage and expanding its media margin from 39% to 41%. In other words, Perion spent less on its traffic acquisition costs as a percentage of revenue.

Is it a buy?

Not only is Perion growing quickly in a challenging environment, but the stock is surprisingly cheap, trading at a price-to-earnings ratio of less than 15 based on trailing generally accepted accounting principles (GAAP) earnings.

In other words, the market seems skeptical that Perion can maintain its growth rate, but the company is already gaining market in a sluggish economy, and its relatively small size means it isn't subject to macroeconomic trends the way large social media and search platforms are.

Considering its valuation, the company needs only to deliver modest growth to create value for shareholders. Given its track record and the traction in premium ads and the iHub, the company could easily continue to post strong revenue and EBITDA growth. 

If Perion can do that, there's a lot of upside potential here.