Shares of Perion Network (PERI) have dropped over 40% on Monday after the company reported preliminary first quarter results, saying it expects revenue of $157M, well below consensus of $175.53M. The digital advertising solutions company also slashed its revenue outlook for 2024 to $590M-$610M from $860M-$880M. Following the preliminary earnings release, Lake Street downgraded Perion to Hold as it believes the company’s business model took “a body blow” when Microsoft (MSFT) changed its search pricing mechanism a few weeks ago.
PRELIMINARY RESULTS: Perion Network reported preliminary first quarter results, saying that as a result of the Microsoft Bing modifications, the company expects revenue and adjusted EBITDA of $157M and $2M, respectively. Consensus for Q1 revenue sits at $175.53M. For the full year 2024, Perion currently expects revenue and adjusted EBITDA of $590M-$610M and $78M-$82M, respectively. The previous guide had revenue at $860M-$880M and EBITDA at $178M-$182M. The decrease is mainly attributed to Search Advertising, and to a limited extent to the web video activity. The rest of the business indicators remain positive, the company added.
According to Perion, in the first quarter of 2024, the digital advertising solutions company experienced a decline in Search Advertising activity, attributable to changes in advertising pricing and mechanisms implemented by Microsoft Bing in its Search Distribution marketplace. These adjustments led to a reduction in Revenue Per Thousand Impressions, or RPM, for both Perion and other Microsoft Bing distribution partners. These changes contributed to decreased search volume.
“Our relationship with Microsoft remains strong and both organizations continue to explore more opportunities to collaborate on a variety of digital advertising solutions,” commented Tal Jacobson, Perion’s CEO. Jacobson added that, “Management and our Board of Directors are confident that Perion is competitively well positioned for continued success within the digital advertising landscape, and thus approved an increase to our buyback program from $50 million to up to $75 million, capitalizing on our strong cash position.”
“BODY BLOW” FROM MICROSOFT: Lake Street downgraded Perion Network to Hold from Buy with a price target of $16, down from $34, after Perion announced a Q1 miss and substantially lowered its revenue and AEBITDA forecast for 2024. Perion’s business model “took a body blow” when Microsoft changed its search pricing mechanism a few weeks ago by unilaterally lowering the RPMs charged to advertisers for indirect search traffic from Microsoft partners such as Perion, the firm tells investors. Lake Street’s prior 2024 model had 47% of Perion revenue coming from the Search segment and over 80% of that Search revenue via Microsoft, but going forward from April 1, its new model anticipates 21% of revenue coming from the Search segment.
ON THE SIDELINES: Following the news, Stifel lowered the firm’s price target on Perion Network to $15 from $25 and keeps a Hold rating on the shares. The firm says risk to the Period/Bing relationship is a major component of the bear case, which is up for renewal at the end of 2024. “The bears have a lot to point to this morning,” contends Stifel.
PRICE ACTION: In afternoon trading, shares of Perion have dropped over 41% to $12.34.
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