On Tuesday, Perion Network Ltd. (NASDAQ:PERI) shares faced a downward revision of its price target, which was lowered to $9 from the previous $13 by Roth/MKM, while the firm maintained a Neutral rating on the stock.
The adjustment comes amid concerns over the company's business momentum and a significant shift in its business model, primarily due to reduced engagement by Microsoft (NASDAQ:MSFT) Bing.
The revised outlook is based on a reassessment of the company's Search segment revenue, which has been downgraded for the second time since April. Additionally, weaker demand in the video and display markets has led to lowered expectations for the Advertising segment's performance. Despite these challenges, Perion Network's shares are trading at an enterprise value of approximately $35 million, which is below the new adjusted EBITDA estimates.
The analyst from Roth/MKM highlighted the impact of Microsoft Bing's pullback on Perion Network's business operations. This development has been a key factor in the need to revise revenue projections downward. The company's reliance on the Search segment revenue has been particularly affected, prompting a reevaluation of the stock's value.
Perion Network's Advertising segment has not been immune to the industry's broader challenges, with the company experiencing a slump in demand for both video and display advertising. This has further contributed to the lowered revenue expectations and has been factored into the new price target set by the analyst.
In light of these revisions, the current enterprise value of Perion Network stands at a notable discount when compared to the revised adjusted EBITDA estimates. The stock's valuation reflects the current challenges and uncertainties facing the company, as outlined by Roth/MKM's analysis.
In other recent news, Perion Network Ltd. has adjusted its financial outlook for the second quarter and the full year of 2024 due to Microsoft Bing's decision to exclude several publishers from its search distribution marketplace. The company now expects Q2 revenue to range between $106 and $108 million, and full-year revenue to fall between $490 and $510 million.
Despite these changes, Perion continues to invest in expansion areas like Connected TV, Retail Media, and Digital Out-of-Home advertising, and has initiated a $75 million stock buyback program.
In the first quarter of 2024, Perion faced challenges due to changes in Microsoft Bing's advertising pricing but managed to post a 9% increase in revenue to $157.8 million. The company's growth engines, including retail media solutions, CTV advertising, and digital out-of-home advertising, showed significant growth, offsetting declines elsewhere. Perion's acquisition of HiveStack played a crucial role in this success.
However, the company anticipates a decline in revenue in the next quarter due to Microsoft Bing's pricing strategies. Despite this, Perion remains confident in its long-term prospects, focusing on creating an advertiser-centric universe with technologies that power brand presence across the consumer journey. The company's leadership expressed confidence in the company's direction and its ability to generate positive cash flow and seize future opportunities.
InvestingPro Insights
The recent price target revision for Perion Network Ltd. (NASDAQ:PERI) by Roth/MKM underscores the company's current financial challenges and market position. To provide a broader perspective, InvestingPro data shows a market capitalization of $416.91 million and a low P/E ratio of 5.86, suggesting that the stock could be undervalied relative to its earnings. Furthermore, the company's strong revenue growth of 14.5% over the last twelve months as of Q1 2024 indicates resilience in generating sales despite market headwinds.
Adding to the narrative, two InvestingPro Tips highlight the company's financial health and market perception. Firstly, PERI holds more cash than debt on its balance sheet, which is a positive sign of financial stability. Secondly, despite recent price declines, analysts have revised their earnings upwards for the upcoming period, hinting at potential underestimation of the company's future performance by the market. Additionally, the stock is trading at a low earnings multiple, which could attract investors looking for value opportunities.
For those interested in a deeper analysis, InvestingPro offers additional insights on PERI, with a total of 18 InvestingPro Tips available that could further inform investment decisions. Prospective subscribers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to valuable tips and metrics that can provide a competitive edge in the market.
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