Perion Network (PERI -0.51%), the small-cap ad tech stock based in Israel, just delivered another beat-and-raise quarter. The company best known for its intelligent hub (iHUB) that connects digital ad buyers and sellers to optimize ad placements and traffic, said revenue in its second quarter rose 22% to $178.5 million, while adjusted earnings per share jumped 65% to $0.84, beating estimates.

The company also raised its guidance on both the top and bottom lines, raising its revenue guidance from a range of $725 million-$745 million to a new range of $730 million-$750 million, representing 16% year-over-year growth. On the bottom line, it now sees adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of at least $167 million, up from its prior forecast of at least $155 million, translating to 26% growth.

There were several different channels driving the company's growth, including connected TV revenue, up 104% to $7.2 million; retail media revenue, up 63% to $10.1 million; and revenue from its cookieless targeting solution, SORT, up 84% to $21 million.

A woman looking at several different images on a glass wall

Image source: Getty Images.

Where AI comes in

Perion may not be thought of as a typical AI stock, but machine learning and artificial intelligence play a significant role in its intelligent hub and other digital ad technologies

On the earnings call, new CEO Tal Jacobson explained how Perion's platform combines three layers of data, including anonymized data from the shopper, third-party data on factors like demographics and location, and its own proprietary iHUB data. All three layers of data then go through its AI decision engine, which chooses from thousands of dynamic creative ads.

Similarly, SORT is also based on artificial intelligence, allowing Perion to target "the right product to the right person at the moment" without the third-party cookies that are the typical tracking tool on the web but are expected to be phased out on Google Chrome next year. 

As a basic example, Jacobson explained, "We can customize our retail ad creative to reflect local weather. If it's raining in one city, they will see an ad for a comforting soup, but if it's hot and sunny, the local ads will promote ice cream." 

In other words, AI and the company's investments in that decision engine have driven much of its growth in recent years.

Like most of the ad tech sector, Perion was a big winner during the pandemic boom, but unlike its peers, the company continued to put up strong results even through last year, when digital ad growth ground to a halt.

That's one big reason the stock is up nearly 500% over the past three years and profit continues to soar. 

The road ahead

Jacobson just officially took over as CEO on Aug. 1, replacing Doron Gerstel, who had led Perion's turnaround over the last five years, building a unique position in ad tech with its focus on the intelligent hub.

During that time, Perion grew both organically and through acquisition, including Vidazoo, the video monetization platform it acquired in 2021. 

Jacobson envisions continuing with that strategy, telling me in an interview:

Our aim is to become one of the biggest companies in that space. In order for us to do that. We need to buy more technologies and more companies. I don't think there's any other way. That's the main goal.

Perion finished the quarter with a clean balance sheet, holding roughly $500 million in cash and no long-term debt, putting it in a good position to make more acquisitions.

The company is still a small player in ad tech, but it's growing fast in a massive industry, which offers an excellent growth opportunity for investors.

Even better, the stock is cheap, trading at a price-to-earnings ratio of 16 based on earnings according to generally accepted accounting principles (GAAP).

If Perion continues to put up strong growth numbers, the stock is well positioned to be a multibagger, especially as its AI technologies add leverage to the business model and drive margin expansion.