In the burgeoning field of artificial intelligence (AI), where tech giants are in a race to innovate and scale up, Perion Network (PERI) emerges as a promising small-cap adtech player. While AI stocks are becoming increasingly popular among investors, Perion Network has maintained a relatively low profile despite its rapid embrace of AI technologies.
Perion Network specializes in connecting ad buyers and sellers across digital channels, streamlining transactions and optimizing returns through its intelligent hub. The company’s utilization of advanced AI, neural networks, and machine learning optimizes ad yields, processing vast amounts of data generated from ad interactions to derive valuable insights.
A strategic partnership with Microsoft Bing aligns Perion with the capabilities of ChatGPT, demonstrating the company's commitment to AI innovation. They also recently launched WAVE, a generative AI audio technology enabling the creation of targeted audio ads.
Albertson's, a leading supermarket chain, has already expressed enthusiasm for the realistic quality of AI-generated voices through WAVE, positioning Perion to capture a significant share of the nearly $7 billion digital audio ad market - think podcasts, radio, etc.
Perion’s financials are solid, with a 17% revenue increase to $185.3 million and a 29% rise in EBITDA year-over-year. The company’s growth trajectory outpaces its industry, fueled by strategic acquisitions, such as the recent purchase of Hivestack.
With a market cap of $1.5 billion and an attractive P/E ratio of 14, Perion shows substantial growth potential. Wall Street’s skepticism may undervalue the stock, overlooking its potential for significant returns as it expands its AI product suite and acquisition strategy.
Considering the digital advertising market's expansion, Perion’s ambition to grow from a $1.5 billion to a $15 billion company seems feasible. If Perion can maintain a compound annual growth rate of 18% and its earnings multiple doubles, it could earn a 10X return in the next decade, turning a hypothetical $20,000 investment into $200,000.
This year, we’re seeing record setting political ad spending on the U.S. races for president, congress, and governorships across the country. The projection is $16 Billion in ads will be purchased, with many moving away from Facebook due to its inability to track performance, thanks to Apple’s tracker blocking.
While PERI won’t get a huge slice of that $16B, it will get some of it as it helps businesses direct funding to various digital streaming platforms today.
Today’s stock market is largely overbought, with most P/E ratios above 25 for tech stocks. PERI looks like a bargain compared to that, and is likely to be discovered as analysts and investors start digging for bigger discounts and higher rewards relative to risk.
I first learned about PERI in late 2022 and have been following it since then. Kudos to my favorite AI stock picking app, LevelFields, for flagging it then as a breakout performance. The stock was trading at 22/share then and is now at about 31/share as I write this. I wish I had bought it outright but did manage to sell some puts on it and made an 8% return in doing so.
One of the reasons I really like this stock is because they can manage costs. While many media companies have to spend enormous amounts to create content to draw audiences, PERI only needs to spend on the tech to deliver ads. Thus their COGS (costs of goods sold) stays very low. The market for ads is only growing, with everyone entering the streaming businesses. This makes for a growing market opportunity for PERI.
I also like where they are headed in the audio space. Everyone I know listens to some form of audio content but the ads being served are often small business sponsors and the whole industry seems like the pre-Google Adsense period where ad placements were wildly inefficient and done on a one on one basis. As the company approaches this industry, it’s in a unique position to own the space and in doing so could prove a great acquisition for Google or Microsoft to increase their footprint in the audio ads space.
Imagine being able to run an AI-driven audio ad that was AI-optimized for the right audience and message? That’s the future.