Perion Network Ltd (PERI), a digital advertising company, has emerged as the top small-cap advertising stock, offering a promising investment opportunity, according to Oppenheimer analyst Jason Helfstein. Despite a decline in its stock price by 28% over the past six months, Perion Network has consistently outperformed its peers and the NASDAQ index on multiple financial metrics.
Outperforming Revenue Growth
Perion Network has achieved impressive year-over-year revenue growth, outpacing its peers by approximately 400 basis points (bps) in FY21 and an impressive 1,400 bps in FY22. Analyst estimates for FY23 suggest an additional outperformance of around 700 bps. This exceptional growth can be attributed to Perion Network’s diverse mix of managed service DSP, search, CTV, and retail media capabilities.
Search Revenue Dominance
One of the key factors driving Perion Network’s success is its dominance in search revenue, consistently surpassing its peers by an average of 2,400 bps since 1Q22. Additionally, its advertising revenue (excluding search) has outpaced the digital advertising industry (excluding China) by an average of 2,100 bps in FY21-FY22. Notably, Perion Network has also seen significant growth in the rapidly expanding segments of CTV and retail media, which now contribute approximately 10% of its revenue, up from 7% in 2Q22.
Financial Strength and Cash Position
Perion Network has demonstrated impressive financial strength, expanding its EBITDA margin by approximately 600 bps in FY22. In comparison, its peers experienced a contraction of around 300 bps. Estimates for FY23 suggest further expansion of approximately 200 bps for Perion Network, while its peers may face a contraction of around 700 bps. Moreover, Perion Network has generated substantial net cash, amounting to 27% of its market capitalization, or $411 million worth of cash as of 2Q. This contrasts with peers who have a net cash position of -1%. Perion Network’s prudent growth strategy has allowed it to generate organic cash flow, facilitating strategic acquisitions and share buybacks.
Despite a recent decline of 28% in its stock price over the past six months, Perion Network has outperformed its peers by 45% and the NASDAQ index by 10% over the past two years. The stock’s underperformance in recent months can be attributed to the Bing/ChatGPT partnership, which failed to benefit search cost-per-clicks (CPCs). However, the company’s long-term performance remains strong.
Q3 Forecasts and Conclusion
Oppenheimer analyst Jason Helfstein projects Q3 revenue of $185.31 million and earnings per share (EPS) of $0.64 for Perion Network. Based on its consistent financial performance and potential for future growth, Perion Network continues to be a top choice for investors seeking opportunities in the small-cap advertising sector.
Price Action: Perion Network’s stock is currently trading at $30.10, representing a 3.90% increase on the last check on Friday.