On Tuesday, Lake Street Capital Markets adjusted its price target on shares of Perion Network Ltd. (NASDAQ:PERI), reducing the figure to $10.00 from the previous $16.00. The firm, however, has decided to maintain a Hold rating on the stock. The adjustment follows significant changes in Perion Network's business dealings with Microsoft (NASDAQ:MSFT) over the past two months, which have introduced uncertainty into the company's revenue projections.
The lowered price target is based on a 9x price-to-earnings ratio for the year 2025, suggesting a valuation that Lake Street considers to be very attractive. Despite the appealing valuation, the firm expressed reservations about the stock's outlook, emphasizing the need for improved performance. The analyst from Lake Street stated, "At 9x 2025 P/E, our new $10 price target appears to be incredibly cheap, however, execution will need to improve before we can advocate for the shares."
Perion Network has faced challenges that have led to a reassessment of their future earnings potential, prompting this new price target. The exact nature of the overhaul in the company's relationship with Microsoft was not detailed, but it was significant enough to warrant a substantial revision of the stock's forecast.
The analyst's commentary reflects a cautious stance, suggesting that while the stock may seem undervalued, there are still hurdles that the company must overcome. The firm's position remains neutral until there is evidence of improved execution and financial performance from Perion Network.
In other recent news, Perion Network Ltd. has faced significant business headwinds. The company's financial outlook for the second quarter and the full year of 2024 has been adjusted due to Microsoft Bing's decision to exclude several publishers from its search distribution marketplace. This move has resulted in a downward revision of Perion's Q2 revenue to range between $106 and $108 million, with full-year revenue expected to fall between $490 and $510 million, as reported by Roth/MKM.
Despite these challenges, Perion Network continues to invest in expansion areas such as Connected TV, Retail Media, and Digital Out-of-Home advertising, and has initiated a $75 million stock buyback program. The company managed to post a 9% increase in revenue to $157.8 million in the first quarter of 2024, despite changes in Microsoft Bing's advertising pricing.
However, Perion anticipates a decline in revenue in the next quarter due to Microsoft Bing's pricing strategies. The company's diversified growth engines, including retail media solutions, CTV advertising, and digital out-of-home advertising, have demonstrated significant growth, offsetting declines elsewhere.
InvestingPro Insights
Amid the recent adjustments to Perion Network Ltd. (NASDAQ:PERI) by Lake Street Capital Markets, InvestingPro data sheds additional light on the company's financial health and market position. With a market capitalization of $416.91 million and a notably low price-to-earnings (P/E) ratio of 4.1, Perion Network appears to be trading at a valuation that may attract investors looking for potentially undervalued stocks. Moreover, the company's adjusted P/E ratio for the last twelve months as of Q1 2024 stands at an even lower 3.46, reinforcing the perception of an attractive valuation.
From a liquidity standpoint, Perion Network also shows strength, holding more cash than debt on its balance sheet, which is a positive sign for financial stability. Additionally, the company's gross profit margin for the last twelve months as of Q1 2024 is at a healthy 34.85%. However, it's important to note that analysts have revised their earnings downwards for the upcoming period, and the stock has experienced significant volatility, with a price total return of -74.33% over the last year.
For those considering an investment, InvestingPro offers further insights, including tips such as the stock trading near its 52-week low and the RSI suggesting it is in oversold territory. To delve deeper into Perion Network's financials and for additional InvestingPro Tips, interested readers can explore more at https://www.investing.com/pro/PERI, where 17 additional tips are listed. Remember to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, offering a comprehensive toolset for informed investment decisions.
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