This Under-the-Radar Tech Stock is a Buy

Follow by Email
Visit Us
Follow Me

This has been a tough year for the digital advertising industry.

With fears of a recession swirling through the economy, brands have pulled back on ad spend, and revenue at the leading digital ad platforms like Alphabet and bwas nearly flat in the first quarter.

But one ad tech company continues to buck the broader trend in its sector, delivering solid top- and bottom-line growth in its latest quarter. That’s Perion Network (PERI).

Revenue at Perion rose 16% to $145.2 million in the first quarter, with growth evenly divided between search advertising revenue and display advertising revenue.

Meanwhile, the company continued to expand its margins. Its media margin improved from 43% to 45%, showing the percentage of revenue it keeps after paying for the ad space and traffic acquisition it needs. On the bottom line, adjusted earnings before interest taxes depreciation, and amortization (EBITDA) rose 38% to $31.3 million, and adjusted earnings per share were up 45% to $0.48.

Beyond the strong quarterly results, there are a number of other reasons buying Perion stock is a smart move right now.

1. Perion’s business model is diversified

Most ad tech companies focus on one side of the advertising equation, serving either brands and agencies as a demand-side platform (DSP), or online publishers through a supply side, or sell-side platform (SSP).

Perion, however, connects ad-space buyers and sellers through its intelligent hub, which optimizes transactions for both sides, putting the right content in the right spot at the right time.

And it offers premium ad experiences like synchronized advertising during live events that doesn’t disrupt the programming. It also works with retailers to run ads in connected TV (CTV) that use a “connected cart” that can change what’s advertised according to retailer inventory levels.

Perion also runs ads across multiple channels, including search, social, display, video, and CTV, which has helped it grow during a difficult environment for advertisers.

Lastly, the company has launched its own privacy-first targeting solution, SORT, which it calls an upgrade from third-party cookies. It’s a competitor to The Trade Desk‘s Unified ID 2.0, but has greater privacy protections, according to Perion. SORT is rapidly gaining traction, with spending up 93% in the quarter and a 142% increase in the number of customers.

2. It’s getting tailwinds from ChatGPT

Perion has a strategic partnership with Microsoft (NASDAQ: MSFT), which has become particularly valuable now that Microsoft has revamped Bing to include chatbot features from ChatGPT.

Perion brought in nearly half of its revenue from search last quarter, the vast majority of which comes from Bing, and Perion CEO Doron Gerstel said: “The rapid emergence of ChatGPT in the market and Microsoft’s mission to further expand the role of AI within search, has elevated user interest in Bing. As a result, we experienced a 49% year-over-year growth in average daily searches, as well as a lift in new publishers.”

Search-advertising publishers rose 29% year over year, and the number of daily average searches climbed to 26.3 million, showing Perion is getting a significant benefit from the increased interest in Bing. If the search engine continues to attract new users and advertisers, Perion will be a major beneficiary.

3. The price is right

High-performing stocks in growth industries like ad tech tend to be expensive, but that isn’t the case with Perion.

The stock now trades at a price-to-earnings ratio of just 15, indicating the market is still ignoring the stock or doesn’t think this kind of growth is sustainable.

Thus far, the skeptics have been wrong about that, as Perion stock is up more than 600% over the last three years.

Perion is about to enter a new phase. Tal Jacobson, the current head of its search advertising unit, CodeFuel, will take over as CEO for Gerstel in August.

Jacobson brings an impressive resume to the job with more than two decades in ad tech. He was chief revenue officer at SimilarWeb, the web tracking service, among other top jobs, and he should be a good steward for the company’s next chapter of growth.

With Perion’s momentum continuing, the ChatGPT tailwinds likely to strengthen, and a bargain price on the stock, this ad tech company looks like a good bet to outperform again this year.

— Jeremy Bowman

This article was originally published on this site