All right, why don't we go ahead and get started since we're hitting 9:30 A.M. or 9:15 A.M. here. Hello everyone, and welcome to the Raymond James TMT and Consumer Conference. I'm Andrew Marok, and I cover digital media and advertising technology here at RJ, and we're thrilled to have Perion Network joining us at this year's event. With us from the company is CEO Tal Jacobson. Thanks for joining.
Thanks for having me.
Great. So for maybe let's start off at the big-picture level. So for those who maybe aren't as familiar with the Perion story, can you give us a quick overview of the company, your various businesses, and where you fit into the digital ad ecosystem?
Yeah, absolutely. So, you know, our goal is to connect advertisers with consumers through technology, and we have different mechanics. We've been doing this since 1999. I've been with the company for five years now. Now, the big things that we have are search advertising, we have publisher solution, we have advertising solution. Within that, we cover all the major channels. So we have social, CTV, video, display, high impact, out of home. We got the entire thing—right? And everything is based on technology. We're investing heavily in artificial intelligence and machine learning. Our goal is to create the best experience for the consumers, so the advertiser will be able to interact with the consumer and, you know, drive more sales.
Mm-hmm.
We just launched, I think a few weeks ago, Wave. That's the first of its kind AI-driven audio ads at scale. So it's all based on artificial intelligence, generative AI. So as a whole, this is what we do. You know, we've shown growth, constant growth in the past three years. Very profitable, very consistent with our results, and we're driving that, you know, forward.
Great. Yeah, and that's a great overview, and I think we'll be touching on a lot of those individual pieces as we go through the conversation here. But maybe one other high-level question is that 2023 seems to have been characterized by kind of uncertainty and uneasiness in the macro ad backdrop, but Perion has not. Perion's remarkable record through 2023 has been quite consistent. So what sets Perion apart that allows you to be a little bit more insulated from some of those macro fluctuations that we've seen?
Right. You know, first of all, our business model is to be as diverse as possible, and we sit, we have a layer on the market and not a specific product. So, for example, at our search business, we sit on the entire search industry. So for us, it doesn't matter if, you know, loans and insurances as industries goes down, while travel goes up. As long as the market keeps driving more revenue through it, we'll be fine. On the other side, video, display, high impact, CTV, again, we're sitting on the entire market. So some advertisers have lower budgets-
Mm
... in Q3, Q4, others have bigger budgets. That's totally fine. We're not on specific niche. We're not on a specific product. We're very diversified, and, you know, we're just moving with the markets, and, you know, we're basically shifting our activities where the budgets are moving, right? For example, Q3, up until Q3, we've driven a lot of video revenue to all our website that we manage. Our algorithm found out at Q3 that display ads are getting higher yields than video. So the algorithm actually moved all of the budgets to display and not video.
Mm.
For us, it's totally fine. We're not concentrating on video or anything else. We're concentrating on profitability. So that's how everything works.
Great, and then kind of on that theme of profitability, you're running industry-leading margins as a percentage of revenue ex-TAC .
Yeah.
How do you think about dropping revenue upside to the bottom line versus investments in tech, since you have, as you mentioned earlier, kind of such a diversity of opportunities in front of you?
Right. So, you know, in the long run, we believe that investing in technology will always be more profitable than, you know, just adding more and more people. So we're gonna stay, you know, very efficient. The margin percentage is gonna stay high, and we're continuing to invest in technology just as we've invested in the past. The reason why, you know, we're looking at to buy more companies is to basically adding more and more technologies, so we can stay at that level of efficiency.
Mm-hmm.
Right? So, you know, we believe that trend is gonna continue.
I think we'll dig in a little bit on that M&A point maybe later in the conversation as well. Let's take a look at search. Search is a pretty unique aspect of the Perion story. Not many other public players in the ad tech market have exposure to that format. Tal, you're the perfect person to have sitting here talking about this, having previously led the CodeFuel unit, where Perion search business sits. Bing is the key search partnership, Microsoft Bing.
Yeah.
How would you characterize that relationship right now? Can you give us maybe a peek behind the curtain for how contract renewals look, timelines, and kind of things like that, since we might be coming up on another renewal cycle?
Yeah. So, you know, we've been doing this search business with, you know, Microsoft and others for 14 years now. Next year is gonna be 15… for the Microsoft agreement. Now, the Microsoft agreement was always for 2 or 3 years. I've renewed the last agreement for 4 years, which was quite unique, and again, we're gonna renew that at the end of next year.
Mm-hmm.
Renewals always happen very close to the date that it needs to happen. That's not gonna happen, like, a year before. So if you don't hear anything in the next two, three month, that's fine. That's by design. Now, the way it works is we basically, you know, add supply to the Microsoft network and other networks for search. You know, adding software providers, device manufacturers, and so that they can have Microsoft search engine with a business model attached to it. Google has the same business model. Google does that directly with software providers. We do that on behalf of Microsoft and others, and it's a pretty straightforward business model. All the search engines on the planet are doing that for-
Mm
... over 20 years now. You know, we haven't invented it, we're just, we're just the best at it.
Very interesting. Yeah, I think that's a, that's a good point on the timing of the contract renewals, because we do have a couple of other companies in our coverage, obviously, maybe not direct comps, but Spotify, for instance, very dependent on licensing arrangements with the music labels that are kind of always ongoing, whereas yours are kind of closer, more concentrated to when the renewal date would be. So that's a good thing, I think, for investors to keep in mind as we, as we get into the renewal cycle here.
Right. The other thing to remember on the Microsoft agreement or the Microsoft relationship, we do work with Microsoft Advertising on so many other aspects, right? We're connected to Xandr, through the Vidazoo acquisition that we've done, through Undertone. We're doing... You know, we're connecting the video, display, CTV, again, through Xandr, and we're connecting a lot of it - a lot of the CodeFuel system into Microsoft.
Mm.
So it's a lot more than just an agreement. It's a very dynamic relationship, a very fruitful relationship that goes on.
Very interesting, and Microsoft pretty clearly signaling ambitions to be bigger in advertising than they are now, so-
I think they will-
Key partnership
... they will, they will be.
Great. And kind of where do you see the biggest growth opportunities within the search business? Is it continued publisher expansions, and if so, what types of publishers maybe are you targeting? Or is there maybe a bigger opportunity in partnerships with other search engines?
You know, so listen, you know, to be honest, there are not a lot of other search engines out there, right?
Pretty limited.
On the planet, there are maybe four or five search engines. We're working pretty much with everybody. You know, adding more publishers, adding more layers to our system in between the publisher and Microsoft, I think, are the key to continue to grow. We're working very closely with Microsoft on adding those layers, making, you know, integration even deeper and adding more type of publishers going forward.
Mm.
So we have a full plan with Microsoft. We're meeting with Microsoft. Our teams are meeting with Microsoft almost on a daily basis for the past few years. You know, I've been meeting with Microsoft at least once a quarter to think strategically, how do we take this forward? So yeah, we have a lot of plans on how do we take this forward, how do we grow this faster? You know, we're feeling confident about it.
Sounds like quite open lines of communication.
Yes.
Good. So you touched on high impact earlier, so let's dive into that a little bit. So can you talk just a bit at a high level about the high impact, especially CTV formats, and what sort of feedback you've been getting from advertisers in terms of how they drive ROI compared to maybe more traditional CTV formats?
The way we work is, you know, in advertising, you have the layer of what we call commodity.
Mm-hmm.
Right? So, you know, ads that you can buy in fifty cents or a dollar CPM for every thousand impressions, and then you have the super premium layer, right? And that's really what we're concentrating on. So even on CTV, yeah, you know, you have that layer of, like, TV ads, right? Like, video that you have no interaction with it. But then, you know, we come with technologies that provide an extra.
Mm.
So, for example, on live CTV, we have technology that understand exactly where to put that ad within a live event, that you can't predict, you know, in advance where exactly you're gonna have that touchdown or the home run, right? So, you know, having the ability to do that, we can charge premium-
Mm
... for that ad. We also have, you know, dynamic ads for CTV, for example, the pause ad. So we've done that for travel companies, like cruise companies, where you can see- actually see the boat coming in. It stays on the, on the TV. It keeps flowing, so you would know nothing is, you know, nothing's got stuck. But you can, you can take your time, take your phone, you know, scan the QR code, and do the, do the sell, do the acquisition through that, right?
Right.
All those layers that are all driven by technology can help us drive, you know, premium ads and charge premium rates.
That's interesting. So I know that advertisers, especially in times like this when budgets may be a little up and down or maybe not the most risk-taking group of people-
Mm-hmm
... how do you convince them to take a chance on some of these more innovative formats that, in a lot of cases, might require some kind of non-standard creative? And is there any way that Perion can help assist with that creative development?
Yeah. So, a lot of what's unique about us and why companies are choosing us to do that, is our ability to create creatives that are being, you know, generated through AI. I'm saying AI because that's the only way to generate hundreds of thousands of creatives at once and be able to measure them to see what actually works and what's not, right? So the measurement is a key point into that, and you're absolutely right. You know, in the marketing condition now, nobody wants to waste any budgets. They want to measure everything. They want to make sure that they're getting the right, you know, return on ad spend, and that's the key. So everything that we do is measurable.
So, you know, it can be digital out-of-home with QR codes, it could be CTV, it could be audio ads, it could be high-impact on websites, but everything is measurable.
Mm.
All the interactions with the ads, actual sales, did we drive more people to the actual store? Everything is super measurable, and we're doing the entire 360. Right.
Great. Interesting. So another one kind of on some of the emerging formats that Perion has noted that they're participating in. Let's talk a little bit about retail media.
Yep.
Pretty hot topic of discussion across the industry. You've talked about how you're attacking that opportunity. Can you just kind of give a quick overview of some of your retail-focused products and what we can expect to see in terms of further innovation in the space?
Yes. So with retail, it's quite a unique advertising client because what they have is a huge amount of data, of products, of promotion. You know, everything is local. So take, for example, Albertsons has, you know, so many different stores. Each store locally has different promotions, right? How do you take all that data, create all those ads automatically, but that would actually make sense, and do that across video, across audio now, across CTV, across all the channels that we have, and how do you measure what actually worked? How do you measure that we actually were able to create an uplift in avocado sales-
Mm
... in New Jersey?
Mm.
That can only happen with data, right, and machine learning, because somebody needs to, you know, crunch that numbers and say, "Okay, I can see that lift," or, "On that specific campaign, that didn't do anything, change it." That's really the angle that we're going after for retail media, is going to all those retailers with our data capabilities, creative capabilities, measurement capabilities, and, you know, getting them into that cycle of starting to run campaigns. Our machine learning is getting better and better by campaign because it actually learns those products, learns those locations, learns those audiences. You know, that's... So that's the angle we're going after with retail.
Great. And, and I know that that is not necessarily a space that you've inorganically added to yet, but we can maybe talk about that in a second. But what have kind of been some of the key internal capabilities or, or strengths that have allowed you to do, what you're talking about in retail media? Is it really just that data focus that you've kind of honed over the years of being a, a kind of everything platform?
Well, I think, you know, historically, we have a few advantages, you know, looking back. First of all, with Undertone, the company that we bought about eight or nine years ago, they had all the relationship, and within those years, we've built those relationship with retailers.
Mm.
About two years ago, or maybe a bit more, you know, we've started to do our own AI lab, right? SORT is one of the products, the first product that we came up out of the lab. Wave is another product. We actually took that, you know, the retail industry as a focus.
Mm.
So we said, "Let's, let's take all our AI efforts, talk with those retailers, customers that we already work with, and see how did we do, how can we take it further?" That's how organically we've built that. You know, as I said, we're constantly looking for more companies, more capabilities to buy or to partner with, so we can grow that a lot faster.
Great. So let's get into Wave.
Yeah.
You guys are really excited about that. I know when you meet with investors, you like to play the ad and say: "Hey, can you tell this is a digitally created voice?" And you can't. It sounds quite realistic. But so with AI being a talking point around the industry, with Wave coming and the AI-powered digital audio offering, kind of what's the early feedback there, and where else do you see AI maybe making the biggest impact across your suite of offerings?
So, you know, AI, a lot of people are asking, you know: "Are you, are you guys doing anything with AI? Do you think AI is the future?" And I always, I always say: "You know, AI is just technology. It's the way you use it, the applications, are what's gonna make the difference, right?" So for us, being in the advertising industry, how do you use AI in a non-creepy way? So people wouldn't say, "Well, that sounds like a robot," or, "But..." or, "That sounds non-human," or, "That's too intrusive." Right? So we need to find the right balance between art and science, because at the end of the day, marketing is always about the right combination between art and science.
Mm.
I think Wave absolutely nailed it. The reason, the fact that people can't figure out this is not a human being, you know, gives it that non-creepy element.
Mm.
But then you can do that at scale, right? Let's say one of our advertisers would have an influencer. We can take a sample of his voice and then do hundreds of thousands of audio ads being read by that actor or influencer.
Mm.
Right? But without AI and machine learning, there's no way on the planet that you can do that. You can't create hundreds of thousands of audio ads without hundreds of or maybe thousands of recording hours, right? So that's how we're using AI. You know, we've been using AI for two years now for targeting, which is cookieless targeting. We're now using AI for creative building. Audio is one thing, but we're, we've been using that for display as well, and we're working on the video part. And we have so many different layers that we're building currently. We're gonna release them as soon as we feel that, you know, their metrics make sense, just as we did with Wave.
You know, we wanted to play with Wave, you know, work with a few companies, see the metrics before we launched that publicly, and we do have other products which we're doing the same.
Great! We will. We'll keep our eyes peeled. Kind of on that topic of SORT, while we're on the AI-enabled products discussion point. So SORT has kind of been, you know, I think, coming to the forefront a little bit more recently, given the pending cookie deprecation in Google Chrome, which actually looks like it's gonna happen this time in Q1 2024. What's the latest on adoption and performance there? And I know you've talked in the past about potentially charging for it on a standalone basis.
Mm.
Is that maybe still in the plans?
SORT, currently, SORT is being used roughly by 90% of our campaigns that are able to run SORT, which are not CTV or out-of-home, but browser-based. And we're not thinking, currently, we're not thinking about charging for that. The way we're using it is we're giving that for free.
Mm.
Most of our customers, when they start working with us, we would say, "You know what? Do half with cookies, half with SORT, see what works best." And then eventually, people see that SORT is actually providing three times better results, and then they would come back with more budgets and ask for SORT, because SORT... You can't get SORT anywhere else. So that's how we use SORT. SORT is our, you know, secret sauce to getting more budgets.
Interesting. And that's been built up just by the sheer amount of data that you have flowing through your platform.
Yes
- that continually kind of refines the segmentation of users.
Absolutely.
Great.
Absolutely.
All right. Well, now let's, let's get into M&A, finally. We've, we've kind of been hinting at it the whole discussion here, but Perion obviously historically been an acquisitive company. The last one you did was fairly sizable with Vidazoo about two years ago. So you've built up a strong cash position since. What's, what's the outlook? Is there anything on the shopping list, and what kind of particularly appeals to you as you're looking for maybe capabilities or tech in the marketplace?
So listen, our goal is to become one of the biggest companies in our industry. We're not. We're not. We haven't come this far just to stay this far. We need to get a lot bigger, a lot stronger, and continue the momentum that we've built in the past three years. And even though organically we're growing quite nicely, we want to grow even faster, and that can only happen with M&A. So we're looking for companies that can add more technologies, more segments, more countries, more clients, and we're looking at everything digital advertising that is run by pure technology.
Mm.
That's what we're looking for.
Great. So yeah, again, we will, we'll keep our eyes peeled there. It sounds like there's no shortage of opportunities. I guess maybe how would you characterize the buying market? I mean, you're going out and presumably looking at companies now. Multiples have seemingly come in a little bit, but it seems that anybody who has technology that is worth buying is probably still commanding a fair premium. Is that... I guess, maybe in light of the current situation, how are you taking, like, what's your discipline in your approach to M&A frameworks?
Yeah. Listen, you know, the market is, even though publicly traded companies are not at the same valuation they used to be, not Perion, but everybody else, touch wood. But you, when you speak with founders and CEOs, especially with companies that their stock went down, you know, they're not very happy to sell at the current market conditions.
Mm.
So they all expect premium, right? This is why we're speaking with, and we've spoken with hundreds of companies in the past two years, and we're not gonna buy any company that we're not gonna feel very confident about at the right price. We're not gonna pay premium just to pay premium. We're gonna pay the right price.
... and then I guess kind of the last one I had before my wrap-up question was on the margin structure of the company. I mean, normally, I'd ask Maoz, and Maoz is a pretty capable financial steward, I think, given the numbers.
Yeah.
But, how are you looking at the trajectory of margins, given your higher incremental margins, but maybe balancing that against the need to invest in tech and invest in product for all of the opportunities that you have in front of you?
I think, again, you know, margin-wise, you know, we're feeling very confident about our margin percentage, and we're gonna continue on that path. You know, adding more companies to our portfolio, we're always looking at their margin percentage, their growth rate. So... And, and again, we're gonna continue to invest in, in technology, either by adding more people but staying at the same level of efficiency or adding more companies.
Hmm.
We're gonna stay at the same, pretty much the same levels.
Okay. And then the last one I always like to ask our companies before we wrap up, 2024 looks like it's gonna be a pretty interesting year, which is definitely a good thing. If you had to pick one thing out of the Perion story that investors either should keep an eye out for or is maybe misunderstood in the story, what is one thing that you would highlight?
Listen, you know, with the past four years, we took the company, you know, from being a $3 stock to a $30 stock, right? So we've proven to the market that we know how to execute, we know how to be efficient, we know how to be consistent. So I think that's, by now, people understand that part. I think people needs to adjust to the fact that we're a technology company, not an advertising company.
Hmm
and look at us as a technology company. That score-- the, you know, the fact that we're using technology for an advertising market is just because we're seeing all the opportunities there. But, you know, we're focusing on data, we're focusing on AI, we're focusing on technology. We're not focusing on advertising. We're just... Our applications are towards advertising. So people need to understand that investing in us is investing in technology, investing in AI, investing in data. That's what we're all about.
Great! Well, we will definitely keep our eyes on the story over the next year, so-
Thank you.
Perion Network and CEO Tal Jacobson, thanks for joining us this year.
Thank you.
Great.