Perion Community Inventory: A Silent Contender Value Your Funding (NASDAQ:PERI)

Intro

Perion Community (NASDAQ:PERI) is a world expertise firm that operates within the digital advertising business, offering promoting and advertising options to companies, serving to them attain their goal audiences extra successfully within the on-line house. The corporate operates two income streams: Show promoting and Search promoting. For extra context, show promoting includes visually partaking parts like photographs and movies to advertise services or products on-line, resembling digital billboards to seize consideration throughout net looking. Search promoting, however, strategically positions textual content or visible adverts inside search engine outcomes, guaranteeing companies seem prominently when customers search related info, directing potential prospects to their choices.

As of the tip of 2022, show promoting represented 56% of PERI’s whole income, with search promoting making up the rest. Whereas PERI is a world enterprise, we word that almost all of its income comes from inside america, with 86% and 89% of search promoting and show promoting income being generated in North America in 2022, respectively.

Luckily for PERI, the 2 main markets it operates in current large alternatives long-term. In Determine 1 beneath, we level out that mixed, the North American search promoting and show promoting markets grew at an 18% CAGR from 2019-2022, as much as practically $175 billion, with PERI representing lower than a half p.c of the entire market. Wanting forward, the business is predicted to proceed experiencing sturdy progress, reaching roughly $232 billion by 2025, representing a ~10% CAGR from 2022 ranges. Given the market’s sheer dimension, mixed with PERI’s sturdy aggressive positioning throughout the house, we imagine it is vitally seemingly that PERI will proceed profitable share in outer years.

Over the previous yr, shares of Perion Community have been flat, versus the S&P 500, which has soared practically 23% in the identical time interval. Given its stable basic profile, we view its latest underperformance as a stable entry level for buyers, notably if the Fed decides to decrease rates of interest in 2024, which might seemingly unencumber capital for promoting. At present valuation ranges, PERI presents a compelling funding alternative, showcasing important potential for share appreciation each within the upcoming twelve months and over the lengthy haul. We assign PERI a Purchase score and value goal of $46, suggesting ~62% upside from its present share value.

Monetary Efficiency

Perion Community continues to ship stable monetary outcomes quarter after quarter, regardless of what its latest share value efficiency might counsel. In Determine 2 beneath, we present that, in every of the previous eight quarters, PERI has delivered top-line outcomes at or above consensus expectations, which provides us confidence that administration has sturdy visibility into its enterprise. In 3Q23, PERI’s top-line expanded 17% year-over-year, which we view as stable progress given the powerful macro set-up at present.

Perion Community’s bottom-line outcomes have been even stronger, comfortably topping consensus estimates in every of the final eight quarters, as proven in Determine 3 beneath. In 3Q23, PERI’s adjusted EPS grew 39% year-over-year, as much as $0.84, and we imagine the corporate is well-positioned to unlock additional earnings progress in outer years because it continues to drive leverage in its enterprise mannequin and diversify its income streams.

In Determine 4 beneath, we illustrate Perion Community’s historic income and consensus estimates by 2025. From 2019-2022, PERI’s income grew at a CAGR of 35%, and whereas progress is predicted to gradual going ahead, estimates point out that PERI will increase its top-line at a CAGR of 16% from 2022-2025, which we view as sturdy progress given the aggressive setting and ongoing macro headwinds.

Equally, outlined in Determine 5 beneath, PERI has loved wholesome earnings progress through the years, with traits anticipated to proceed in outer years. From 2019-2022, PERI’s adjusted EPS grew at a CAGR of 44%, with expectations that EPS will increase at a 14% CAGR by 2025. Whereas we view this as stable progress regardless, we see upside to numbers over time as PERI has constantly demonstrated its means to develop profitably, even despite macro challenges. Likewise, Perion Community continues to drive progress by innovation; it lately launched WAVE, a brand new promoting answer for dynamic audio adverts pushed by generative AI, designed to boost personalization and engagement within the rising U.S. digital audio advert market.

Given the difficult macro backdrop, we discover it precious to level out PERI’s sturdy liquidity place, as outlined in Determine 6 beneath. The corporate has $525M in money and short-term investments and no long-term debt, is extraordinarily worthwhile, and rising. We imagine PERI presents a fantastic mixture of profitability and progress at present, notably for these buyers who’re extra danger averse.

Valuation & Estimates

In Determine 7 beneath, we see that PERI is buying and selling at a P/E of 9x at present, roughly 26% beneath its five-year common of 12.1x.

When evaluating Perion Community to its business friends (see Determine 8 beneath), we see that PERI is buying and selling at a roughly 70% low cost on a price-to-earnings foundation. Whereas we perceive {that a} low cost could also be warranted given PERI’s slower progress relative to its friends, we imagine the low cost is effectively overdone, notably given PERI’s sturdy internet earnings margin profile relative to the comp group.

We estimate a 2025 adjusted EPS of $3.84, roughly 4% above consensus. Making use of a P/E ratio of 12x, in-line with PERI’s five-year common and a virtually 40% low cost to its peer group to mirror slower top- and bottom-line progress, we arrive at a value goal of $46, representing 62% upside from present share value ranges. Once more, we view our a number of as greater than cheap given the place PERI has traditionally traded, along with its sturdy internet margin profile, which is roughly 30% above its comps.

In Determine 10 beneath, we offer a state of affairs evaluation on value goal outputs primarily based on completely different assumptions for EPS progress and the a number of used for 2025.

Dangers to Thesis

Whereas we imagine Perion Community is well-positioned for sturdy progress and additional share value appreciation going ahead, we do see some dangers to our thesis at present. Primarily, if market situations had been to deteriorate, there would seemingly be much less advert {dollars} accessible to go round, which presents some draw back danger to PERI’s numbers for 2024 and 2025. Moreover, though the ad-tech house is huge, PERI does compete with among the world’s most distinguished tech corporations, together with Alphabet (GOOGL) and Meta Platforms (META), which might make it tougher to achieve further share over time, doubtlessly making a drag on PERI’s inventory value. Luckily for PERI, the corporate is already extraordinarily worthwhile, and rising, not like many younger companies within the house, which provides us confidence that it might probably proceed to win share and expertise stable share value appreciation in future years.

Ultimate Ideas

Given its monumental TAM, sturdy steadiness of profitability and progress, and engaging valuation at present ranges, we see Perion Community as a stable shopping for alternative in at present’s market. With a diversified enterprise mannequin, deal with technological innovation, and strong execution, PERI’s resilience positions it favorably for long-term success, making it a horny prospect for buyers searching for stability and progress within the dynamic digital advertising business. We assign Perion Community a Purchase score and $46 value goal, suggesting 60%+ upside from its present inventory value.