NOTE TO EDITORS: The Following is an Investment Opinion Issued by Spruce Point Capital Management
Expresses Concerns With Perion’s Extreme Dependency on a Microsoft Search Partnership in Light of the Loss of Yandex as well as With Perion’s Sharp Drop in Revenue per Search and the Financial Reporting Anomalies Emerging With its Publisher Counts and Search Metrics
Questions the Quality of Perion’s Revenue Growth in Light of Abnormally High Revenue per Employee, Retractions to its Revenue Recognition Disclosure and Critical Audit Matter Citation by its Auditor Related to Gross vs. Net Revenue Recognition
Provides Evidence That Perion’s Acquisitions Have Fallen Short of Expectations and That Revenue, Customer and Cost Reporting Anomalies Exist in High Growth Areas Such as CTV, Retail Media and Cookieless Products such as SORT® and iHub
Expresses Concerns About Perion’s Auditor, Audit Fee (4x Below the Industry Average) and Audit Chairman Due to the Prior Business Relationship Between Perion’s CEO and Audit Chair, Notably at ESC Medical Systems (Lumenis) Which Was Charged by the SEC For Revenue Fraud
Questions Perion’s Capital Allocation Decisions and Insider Selling and Also Raises Concerns that Perion Hasn’t Used Any of the $230M Raised Through Equity in 2021, Despite Currently Seeking to Expand Share Authorization by Another 20M
Sees 25% to 40% Long-Term Downside Risk to Perion’s Share Price and Urges Investors to Visit www.SprucePointCap.com and Follow @SprucePointCap on Twitter for the Latest on $PERI
Spruce Point Capital Management, LLC (“Spruce Point” or “we” or “us”), a New York-based investment management firm that focuses on forensic research and short-selling, today issued a detailed report entitled “Searching For Answers” that outlines why we believe shares of Perion Network Ltd. (Nasdaq/TASE: PERI) (“Perion” or “PERI” or the “Company”) face up to 25% to 40% long-term downside risk, or $19.10 – $23.85 per share. Download or view the report by visiting www.SprucePointCap.com and follow us on Twitter @SprucePointCap for additional information and exclusive updates.
***
Spruce Point Report Overview
Based in New York City and Tel Aviv, Perion is a global advertising technology company whose solutions are delivered across the three primary channels of digital advertising – ad search, social media and display, including video and Connected TV (CTV) advertising. These channels are brought together by Perion’s intelligent HUB (iHUB), which integrates Perion’s business assets from both sides of the open web, providing benefits to brands and publishers. In 2022, 35% of Perion’s revenue was generated from an agreement with Microsoft Bing, which was amended in 2020 and expires in 2024.
The concerns we outline in our report include:
Search business appears to be under pressure and over-reliant on a Microsoft partnership where revenues appear to be falling below plan while reporting anomalies emerge. Perion is emphasizing greater risks to its search business. In fact, it specifically reordered Risk Factors to make “Risks Related to our Search Business” the #1 most prominent risk upfront in its recently filed 20-F. In addition, Perion’s newly appointed CEO who assumes the role on August 1st is the General Manager of the search business named CodeFuel. After amending the Microsoft partnership in November 2020, Perion boosted its total revenue assumption over the four-year deal from $800 to $900 million in mid-2021 but added significantly more risk factors to the bottom of its presentation slide. In 2021 and 2022, Perion reported that 37% ($224 million) and 35% ($177 million) of revenue came from Microsoft, or a total of $401 million of revenue. We would have expected at least $450 million of revenue now that the partnership is 50% toward completion. In early 2021, coincident with raising partnership revenue estimates, Perion highlighted its …
