Going parabolic is a rare feat on the stock market, but more than a few artificial intelligence (AI) stocks have already done so. Super Micro Computer, for example, is up 161%. Arm just jumped nearly 50% on its earnings report, and investors seem to be falling over themselves to get their hands on the next big AI winner.
Shares of small-cap adtech company Perion Network (PERI 0.96%) were moving in the opposite direction after its fourth-quarter earnings report on Feb. 7. The stock tumbled 20% as its revenue growth guidance was on the lighter side for 2024. Perion predicted revenue of $860 million to $880 million this year, representing an organic growth rate of 10%, which reflects a slowdown in video advertising that's taking place across the industry.
However, savvy investors may want to buy the dip on this adtech stock. The company's making a number of moves in AI that should pay off over the coming years.
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Perion's AI portfolio grows
Perion is best known for its intelligent hub that connects ad buyers and sellers, and optimizes purchases and placements. That technology relies on machine-learning algorithms, but Perion's work in generative AI could prove to be even more exciting.
A few months ago, the company launched WAVE, an audio advertising program that uses generative AI to narrate ads. This allows ads to be customized according to time, place, target audience, and even variables like the weather.
Using such technology is cheaper at scale than using human voice actors, and, according to Perion's data, it gets better results than traditional ads, with 2.4 times the visit-rate lift and 117% the incremental sales lift.
The technology has been embraced by retailers like Albertson's and Pep Boys, and is available on leading audio platforms like Spotify, SiriusXM Radio, and iHeartRadio. It's also one of a number of strategies the company is implementing that has led to its revenue in retail media soaring -- sales in that segment rose 196% in the fourth quarter to $20.2 million.
Another new innovation from Perion includes a program that shows ads on linear and streaming TV when a viewer pauses the program they're watching. It's currently running that program in partnership with DirecTV.
Finally, the company also closed on another acquisition in the fourth quarter, spending $100 million to take over Hivestack, a full-stack programmatic, digital-out-of-home (DOOH) ad company. Hivestack's technology helps place ads on digital billboards and other outdoor media spaces. The deal gives Perion a presence in a fast-growing ad channel in which it had been underrepresented.
Why the stock could take off
There are a number of factors that should give Perion a strong tailwind over the next few years.
First, the growth of AI and the company's own investments in it will make ad targeting better, and increase return on investment for marketers, thereby encouraging more spending on ads. With its investments in the intelligent hub, WAVE, and SORT, its cookieless tracking technology, Perion is well positioned to capitalize on the AI boom.
There's also a general recovery in digital advertising taking place as the recession that many had expected never happened, and brands are starting to ramp up ad spending.
Perion also aims to continue making acquisitions, which should grow the business and increase its competitive advantages as it works toward becoming a one-stop adtech shop.
Perhaps most of all, the stock looks like a good candidate to go parabolic because it's significantly undervalued, trading at a price-to-earnings ratio of less than 11, a steep discount to many of its peers, even though it has a track record of strong growth.
Repurchasing shares at this valuation might make sense, but Perion CEO Tal Jacobson said in an interview that it's better for the company to invest in the growth of the business to drive long-term shareholder returns.
Expect Perion to continue to release new products and features this year, and possibly make another acquisition. If the company can beat its guidance, the stock could soar as investors come back to the growth story.
