Israel-based ad tech company Perion Network (PERI, Financial) is experiencing a significant drop to multi-year lows after announcing a major cut in its Q1 and FY24 guidance. This downturn is attributed to alterations in Microsoft's (MSFT, Financial) Bing search distribution marketplace, which have severely impacted PERI's business. Despite efforts to diversify its revenue sources and expand globally, MSFT remains a crucial contributor, accounting for about 35% of PERI's revenue by the end of 2022.
The revision in PERI's financial outlook is notably severe, with the new FY24 revenue projection of $590-$610 million marking a 31% decrease from previous estimates of $860-$880 million. Furthermore, the adjusted EBITDA forecast has been slashed by 56% to $78-$80 million. The company attributes these adjustments to changes in ad pricing and other factors at Bing, leading to a drop in Revenue Per Thousand Impressions (RPM) and search volume. These changes have not only affected PERI but other Bing distribution partners as well, including Adobe (ADBE, Financial), Concentrix (CNXC, Financial), and Shopify (SHOP, Financial).
Despite a strong Q4 earnings report on February 7, with Search business revenue up by 33% year-over-year to $114.4 million, the abrupt guidance cut has caught investors off guard. The Search segment, which accounts for nearly half of Q4 revenue, is expected to suffer significantly, overshadowing growth in PERI's CTV and Retail Media segments, which saw increases of 69% and 196%, respectively, in Q4.
Acquisitions have been a key growth strategy for PERI, highlighted by the recent purchase of Hivestock, which expanded its digital out-of-home (DOOH) product range and Brazilian market presence. Given the challenges posed by Bing, PERI is likely to focus even more on mergers and acquisitions to drive future growth.
The substantial reduction in PERI's financial forecast underscores the unexpected challenges the company faces, despite previously strong performance in its Search business and ongoing efforts to diversify its revenue streams.
