Welcome to the Perion Network 4th Quarter and Full Year 2020 Earnings Conference Call. Today's conference is being recorded. The press release detailing the financial results is available on the company's website at perion.com. Before we begin, I'd like to read the following Safe Harbor statements. Today's discussion includes forward looking statements.
These statements reflect the company's current views with respect to future events. These forward looking statements involve known and unknown risks, uncertainties and other factors, including those discussed under the heading Risk Factors and elsewhere in the company's annual report on Form 20 F that may cause actual results, performance or achievements to be materially different and any future results, performance or achievements anticipated or implied by these forward looking statements. The company does not undertake to update any forward looking statements to reflect future events or circumstances. As in prior quarters, the results reported today will be analyzed both on a GAAP and non GAAP basis. While mentioning EBITDA, we will be referring to adjusted EBITDA.
We have provided a detailed reconciliation of non GAAP measures to their comparable GAAP measures in our earnings release, which is available on our website and has also been filed on Form 6 ks. Hosting the call today are Doran Gerstel, Perion's Chief Executive Officer and Mao Tigran, Perion's Chief Financial Officer. I would now like to turn the call over to Doron Gerstel. Please go ahead.
Thank you, and good morning, everyone. 2020 was a great year for Perion in so many ways. We exceeded our revised guidance for both revenue and adjusted EBITDA. And despite COVID, 2020 revenue were 25% higher than 2019. More than anything else, Q4 2020 results demonstrate the huge momentum behind the company.
We achieved record breaking quarter revenue of $118,300,000 representing a 51% increase from Q4 2019 and highest quarter adjusted EBITDA of $15,300,000 in the last 6 years. From a capital position, we've lost and deleveraged our balance sheet. We completed a successful subscribed follow on offering of $61,000,000 3 weeks ago, positioning Perion to continue to capitalize on the growth opportunities in front of us. Strong numbers, executional success and a powerful balance sheet. That's the trifecta headline here.
And we accomplished all of this in the face of a global pandemic market by unparalleled volatility, disruption and change across the evolving digital media industry and adtech ecosystem. Let me further point out our strong growth numbers are in the face of a sudden decline of travel and hospitality industry, which accounted for a 15% or more than $10,000,000 of our 2019 revenue. What I've just shared is a testimony to the last and probably the most critical reason for our 4th quarter results and annual performance, our incredible team across all our business units. When the pandemic hit in the Q2, they quickly adjusted to the new reality, working with collaboration and excellent agility. All of them work from home and all of them work from their heart.
You have my thanks and the thanks of all our shareholders. I attribute our success in 2020 to 3 critical trend that will be Perion's growth catalyst in 2021 and beyond. Trend number 1 is the struggle for attention. Brands increasingly recognize they need our high impact ad units to increase their brand equity with creativity and smash through the command attention across screens. Our ads are unignorable, which is why when delivered by our AI engine, they attract Fortune 500 Enterprises like Mercedes, constantly deliver higher return on ad spend and engagement metrics than conventional standard formats.
In fact, our ability to bring our clients this attention grabbing advertising in interactive CTV is unethical. Our intelligent high impact ad and the technology behind it has enabled us to decomodify digital advertising with noticeable results. Trend number 2 is the struggle of publisher to generate revenue. In 2020, publishers continue to face growing monetization challenges, and this will continue our rapidly growing content monetization engine, growth brands and publisher a unique ability to engage users for minutes versus the second of commodified programmatic display standard advertising. This platform is working so well for our own and operated site, which brought 1st tier publishers, such as Music, Entrepreneur Magazine and the Bonnier Group of Clients.
And it's just the beginning as the growing number of publishers we can support via our content monetization platform allow us to establish our own strategically controlled World Guardian. This is an efficient way and scalable way to generate first party data and drive revenue in a cookie less world. Trend number 3, everyone searching. The year of COVID-nineteen accelerated the growing trend of shopping online. It's obvious, but bear the repetition.
The number of consumers who researched before buying significantly increased the number of searches. Perion average daily searches reached $15,700,000 during the Q4, an increase of 32% year over year, an all time record. These type in keywords are what online retailers are most interested in because they are consumer who express the highest possible intent to buy. These signals are more valuable than what is obtainable from any other media channel. This growing number of searches compensated for the short term decline in RPM aligned our search advertising business to provide steady income with healthy margins.
The further good news behind the Microsoft Build renewal announcement is that extension for additional full year wasn't just a continuation. We added geographies, a new collaborative feature at even more favorable terms. The renewal is a result of the strong and healthy partnership we have cultivated with Microsoft Advertising over the last 10 years. The continuing collaboration between our companies will enable to further grow its network of publishers, offering lucrative search technology solutions and sophisticated experience for monetizing their digital property. We estimate that the revenue contribution in the next 4 years under the new agreement with ZYN will be $800,000,000 The macro context behind these trends is a massive shift in behavior as consumers are spending an increasing amount of time online, including but not limited to shopping.
They are turning to digital sources for sports and entertainment and news consumption as well as in new platforms like CTV. This was before the pandemic, but it has dramatically accelerated as consumers are social distancing and spending more time at home. Advertisers are responding to this monitoring consumer behavior and adjusting their digital advertising budget allocation based on shifts in which platform are winning the war for attention. As an example, just recently, Pinterest reported 76% growth in revenue after a long period where it disappoints analysts. Aireon is perfectly poised to capitalize on any ad budget shift between the 3 main pillars of digital advertising: search, social, display and video.
Our diversification strategy lets us pivot where the growth is, whether it's Pinterest or Facebook or Bing ad search, CTV or whatever is next. Stepping back for just a moment, it's now been over 3 years since my first earning call as current CEO. I've been consistent about our 3 phases transformation strategy to establish Perion as the unique player in the digital media ecosystem. I quickly review that plan, not so much to pat ourselves on the back, but because our ability to carefully stick to what we said should give you confidence in our ability to realize the aggressive goals we have set for the future. In our first phase, we have strengthened our balance sheet and put in place a sustainable capital structure.
We've done that. We've increased our net cash position from minus $41,000,000 when I joined April 2017 to plus $52,000,000 at the end of the Q4 2020. Growth in net cash is the result of our endless efforts during the last three years to leverage our expenses while growing our top line. In the Q4 of 2020, we decreased SG and A expenses from 80% from revenue in
the last
year from 80% from revenue last year to 13% in 2020. On top of that, last month, we completed the follow on offering, which was both upsized and oversubscribed, generating net proceeds of more than $61,000,000 This further solidified our balance sheet and provides optionality to capitalize on the growth opportunities in front of us. We've demonstrated throughout the acquisition of both Content Thank you and Pub Ocean our ability to develop a unique acquisition model, a model that assures long term engagement with the leadership team of the acquired company and most importantly, an accretive transaction, which its majority payout is based on earnout when meeting business goals with only 20% to 30% paying upfront. At the second phase, we've increased our investments in research and development from $23,000,000 in 2019 to $31,000,000 in 2020, ability to personalize our ad units on the fly, adding an interactive layer to CPV advertising, developing our own content management system or building AI aviation platform mode. We are now deep in, in the 3rd phase of our strategy, financial excellence.
We've laid the foundation for sustainable and profitable revenue growth in 2021 and beyond. We are beyond highly confident in our ability to deliver. With that, I'd like to turn the call over to Maoz to review the financial results for the Q4 full year. Maoz?
Thank you, Doron. Pure Tone financial performance during 2020 and 1% and volatile year for the digital advertising industry is a testament to our disciplined financial management before, during and after the onset of the pandemic. We expect it to build upon these strong results and the systems we developed to drive predictable and profitable growth in 2021 and beyond. The successful follow on offering we completed during January 2021, significantly strengthening our balance sheet and support funding of potential growth opportunities in the future. Turning to the results.
During the Q4 of 2020, revenues for Perion totaled 100 and $18,300,000 an increase of 51 percent from $78,300,000 in the 4th quarter last year. These revenues are composed of $68,400,000 from display and social advertising, representing 58% of twenty 20 4 quarter revenues with sales advertising and other revenues contributing RMB 49,900,000 and represent 42%. This increase was primarily attributable to a 159% increase in display and social advertising revenue, primarily resulting from the acceleration of our connected TV advertising offering and the contribution of our content monetization offering. Sales, advertising and other revenues decreased by 4% as a result of lower RPM, partially offset by an higher number of daily search queries we delivered to Microsoft Bing and others. During the 4th quarter, the number of search kept improving and achieved the highest level of the average sales per day.
The renewed contract with Microsoft, Ping, for additional 4 years will continue to help us to increase reactivity with existing and new publishers. Customer revision costs and media buy in the Q4 of 2020 were $74,800,000 or 63 percent of revenues compared to $41,100,000 or 53 percent of revenues in the Q4 of 2019. The increase as a percentage of revenue is primarily due to the acquisition of Content Type 2 and Pub Ocean, which sharing higher customer acquisition costs, overall product mix change as well as lower RPM in sales advertising. While total revenues increased significantly during the Q4 of 2020 compared to the Q4 of 2019, GAAP SG and A totaled 15.8 $1,000,000 or 13 percent of revenues compared to $14,100,000 or 80 percent of revenues during the Q4 of 2019. Perion net income for the Q4 of 2020 was $9,000,000 or 0.30 dollars per diluted share compared to $5,900,000 or $0.22 per diluted share in the Q4 of 2019.
Non GAAP net income in the Q4 of 2020 was $13,800,000 or $0.45 per diluted share compared to $8,900,000 or $0.32 per diluted share in the Q4 of 2019. Adjusted EBITDA increased to $15,300,000 in the Q4 of 2020, dollars 12,200,000 in the Q4 of 2019. Net cash provided by operating activities in the Q4 was $12,800,000 compared to $11,200,000 last year. As of December 31, 2020, we had cash, cash equivalents and short term bank deposits of $60,400,000 compared to BRL 61,600,000 as of December 31, 2019. As of December 31, 2020, total debt was $8,300,000 down from $22,900,000 as of September 30, 2020 and $16,700,000 as of December 31, 2019.
During the Q4 of 2020, the company returned $12,500,000 loan during the Q3 of 2020, out of its acute credit line and made scheduled pay down of $2,100,000 of its credit facilities balance. Turning to our 2020 full year results. Total revenue for 2020 was R328,100,000 compared to R 261,500,000 in 2019, representing an increase of 25%. Search advertising and other revenues represented 55% of revenue for the full year 2020, with display and social advertising contributing 45% compared to the full year 2019 when search advertising and other revenues contributed 66% and display and social advertising contributed 34%. This increase was driven by 69% growth in display and social advertising, primarily resulting from the acceleration of our connected TV advertising offering and the contribution of our content monetization offering, which were acquired in 2020, offset by the overall COVID-nineteen impact on ad spend across the industry during the Q2 of 2020.
This impressive growth was achieved despite a $10,000,000 reduction in travel ad spend with us due to the COVID pandemic compared to 2019. Search, advertising and other revenues increased by 3% due to higher number of daily search, partially offset by lower RPMs impacted by COVID-nineteen. Customer acquisition costs in MediaGuide for 2020 were $197,600,000 or 60 percent of revenue compared to $135,900,000 or 52 percent of revenue in 2019. The increase as a percentage of revenue is primarily due to the acquisition of Content IQ and Sub Ocean, which carry higher customer acquisition costs, overall product mix change as well as lower RPMs in sales advertising. On a GAAP basis, Perion's full year net income was $10,200,000 or 0.36 dollars diluted share compared to $12,900,000 or $0.49 diluted share in 2019.
Non GAAP net income for the full year 2020 was $26,600,000 or $0.91 per diluted share compared to $21,600,000 or $0.83 per diluted share in 2019. During 2020, adjusted EBITDA was $32,800,000 or 10 percent of revenue compared to $32,400,000 or 12% of revenues in 2019. Net cash by operating activities for the full year 2020 was $32,000,000 compared to BRL44,700,000 in 2019. The primary reason for the decrease compared to the prior year is mainly due to the one time improvement in working capital during 2019 and approximately $10,000,000 working capital mix in 2020 in connection with the acquisition of ClearQ and Sub Ocean. This concludes my financial overview for the Q4 and the full year 2020.
I will now turn the call back to Doron for closing statements.
Thank you, Mao. Despite the global pandemic and all the associated Perion. We successfully integrated 2 accretive acquisitions and achieved greater than expected synergies. We experienced strong demand in the fast growing CTV and video market for our interactive CTV ad units. We expanded our technological moat and further diversified our offering.
We locked in and expanded our strategic partnership with Microsoft Bing for additional 4 years. We entered 2021 on an exceptionally strong footing that was further fortified by the closing of the upsized and oversubscribed offering that generating more than $61,000,000 in growth per sustainable and highly profitable double digit annual revenue growth, targeting $500,000,000 in annual sales by 2023. Our technology mode established an advanced by R and D center of excellence enabled all our business units to first capture the attention, imagination and the interest of user and then convince them with a proprietary combination, ad units, content and layout that are optimized in real time. We're taking an important step by launching our new Capture and Convinced brand narrative for pairing. For the first time, we're establishing powerful connective tissue that makes all our business units operating other than the same narrative.
The market fit and the marketing power of capture and convince bring us the perfect recipe of consistency and agility. It is the combination is delivered by our current business units and potential synergistic acquisitions that gives me the confidence to hold out $500,000,000 as our revenue North Star. For 2021, we are targeting revenue of $350,000,000 to $350,000,000 for 2021, we are targeting revenue in $350,000,000 to $370,000,000 range and working to achieve adjusted EBITDA in the range of $35,000,000 to $37,000,000
Lastly, I would
like to again thank the amazing parent team for their resiliency and agility during the unprecedented year. I couldn't be prouder of our collective accomplishments and more appreciative of our collective efforts. With that said, operator, will you please open the call for questions? Operator?
Thank We'll now take our first question from Jason Helfstein from Oppenheimer.
So three questions. Doron, first,
you talked about kind of the success of Content IQ and promotion integration. Maybe just elaborate a bit more, talk about are you already cross selling that? Just what are the synergistic benefits you're seeing from any metrics you can share as far as client count, client penetration, client cross selling, etcetera. Question number 2, maybe if you could help us understand organic advertising growth in the 4th quarter. So kind of adjusting for Content ID and Publishing, what was organic advertising in the 4th quarter?
And how are you thinking about kind of organic advertising growth for 2021? And then last question, you are targeting $500,000,000 in 2023 revenue with $420,000,000 organic, I think, in the last presentation, and probably $80,000,000 for future acquisitions. Maybe just talk about M and A plans for this year. Maybe help us understand timing. Is it something that would be kind of more first half, second half?
And then also, you've closed in an increase in AMTAC valuation. So how is that kind of playing into your thinking? And kind of would that impact your ability to close acquisitions this year? Thanks.
Very good. Okay. 1 by 1. So 1st and foremost, I think that the ContentIQ and the Pub Ocean contribution is not just on what they're able to generate, but also the synergy. And I would like to focus on the synergy capability.
So, fab ocean has its own and operated site. And I basically stated they are extending and externalize their content optimization platform to other first year publishers. I mentioned Newsweek, I mentioned Entrepreneur, and Bonnier is just the first one. But collectively, when you're looking about those these 1st tier sites as well as the home and operate sites, they've created a great large supply that definitely can be a great opportunity for other business units to generate demand. At this point, this demand was very much targeted network outside that we have to pay.
For instance, take Undertone. Undertone is working with brands and agencies to deliver their campaigns. We're getting an insertion order, and we can work with undertones and top network. Now when we have such a great internal publisher network that we control, The CAC that we are paying outside will go in house, and that will be a huge synergy saving. So this is, for instance, one example.
That apply, of course, to the demand that can be generated from our partnership with Microsoft Bing. And in a way, we are trying very much to develop here, as we said, our own walled garden, where at the same time, we're increasing our demand capability. We are increasing our supply capability. And that gives us a great opportunity to definitely reduce our attack and this will improve our margin. And as far as our plans for M and A, I can tell you that we are looking at few areas that has to do with what we believe are the main key growth factors behind our success in 2020.
In the creativity side, we are looking for ability to enhance our DCO, dynamic creative optimization. In other words, in what extent we are able to personalize the ad units based on the data that we're getting. This was and will remain one of the major factor for advertisers. And we are currently working with our own platform, SparkFlow, but we believe that there are great opportunity out there for that as well. Another area which is interested a lot has to do with blockchain.
Blockchain, in a way, in our world of advertising. It's more on the search monetization world. And we believe that while the number of searches is growing exponentially, our partner is looking to increase the safety and safety of the searches and safety of the keywords and all of that. And we believe that blockchain can be a very interesting way. So those are the two examples of what we're looking.
As far as the last question that has to do with our goal for the next 3 years. So then all star is to get to $500,000,000 What we basically said during the follow on meetings that we have that we're looking about the minimum CAGR of 10% in the next 3 years, which gets us into the $430,000,000 I underline the word minimum. But no matter if it's $430,000,000 or above, as we are shooting for, we believe that in the next few years, we are going to do an acquisition. And that's why we did the following transaction, and this is why we're going to have at the end of Q1 something close to $140,000,000 in cash. And we set a very rigid framework of acquisition, as I mentioned in the call, which is majority of the procedures to earn out and only 20% to 30% is upfront cash.
And we are claim to continue with it because it was definitely something that we believe brings value not just to us, but also to the company that we acquire and allow us to retain talent of the acquired company for a long period of time.
Just can I don't know, Mao, do you want to just comment on organic growth in the 4th quarter for advertising?
So yes, we can say that this is not something that we have on the public. What we can say that if we're looking on pro form a basis, it will be above 20% growth.
Thank you.
We will now move to our next question from Carrick Martinuzzi from Lake Street. Please go ahead. Your line is open.
Congratulations on the real strong year. It's just amazing how we're finished out when we think back to the start days of April. So kudos to
you and
Indore pulling it together.
Thank you.
I have a question regarding the Connected TV business. First of all, I want to understand the difference between CTV and iCTV. But then second of all, I want to ask about kind of percentage of revenue. It looks like in Q4, we had around $6,500,000 CTV of the $118,000,000 So a relatively small part of your overall revenue, but where do you think that can go percentage wise either in 2021 or
Right. So the main difference between CTV and the ICTV, the interactive, is definitely, 1st and foremost, from the advertiser standpoint, is the ability to gauge the interaction level between the viewer and the screen. So as you already can understand, once the video is running, who knows what is the it's like any other ad unit that you see on a conventional or linear TV, who knows where is your attention? Is it to your mobile or to anything that is around you other than the video itself? The interaction part of it is to ensure that you we grab your attention, we capture your attention, capture your attention that you need to react with an action.
And the action is that you need to click on your remote and basically run a video out of few options that we are promoting while the main video is running. You need to choose between fewer options. Once you choose the video that you choose is cars running, But the most important part is the interaction. If you are not interested on learning more, you must click on your remote. For advertisers, this factor of clicking the remote demonstrates engagement.
And everything here is all about engagement that they know to very much appreciate the return on their ad spend. So that's the layer of interaction above the conventional video that you basically see in CTV. Of course, not everyone is clicking on those small boxes with video. But those that click, they know that 100% are engaged with the new with the ad or with the video. And they're willing to pay way more for it and willing to pay more in terms of CPM because they can ensure that the engagement level is very high.
Now in terms of the percentage of CTV for the entire this is something that we are going to keep reporting. The number is growing. I can tell you that we definitely in part reported all CTV from the entire display and $6,500,000 out of our overall advertising. Is percentage wise, it's 10%. And if you're looking about the entire display in video, which is close to $200,000,000,000 I don't think the CTV reached $20,000,000,000 It's way, way less.
So we are happy with the 10% when we're looking at about the overall display and video spend. But definitely, this is going to get more and more because we're now working on ICTV 2.0. And the ICTV 2.0 is not just adding those boxes with additional information that you need to click. Once you will click on them, it will be personalized, dynamic. In other words, the video the creative will change based on the data, based on gender, based on location and so on and so forth in order to very much increase your attention and ability to engage with these
And then a follow-up. Any signs of life in the travel and hospitality and entertainment verticals?
No. At this point, definitely, the market is very much on hold. We are looking forward to what's going to happen during the summer. But I must say that our forecast and guidance for 2021 we're not taking any consideration at all of the recovery of this segment.
And we'll now move to our next question from Laura Martin from Needham. Please go ahead. Your line is open.
Hi there. Thanks for taking the question. Great numbers, guys. Congratulations.
Thank you, Laura. Thank you.
So I want to ask a question about guidance. So you reported this really accelerating revenue growth of 50% in the 4th quarter and 25% revenue growth for the full year. So what is decelerating so massively in 2021 that this guidance gets down to 10% for the full year? And building on that question, when an investor call and every other competitor that you have in this space is projecting 30% or you're projecting 30% revenue growth, what would you say to them that they should buy this stock, which is going to grow 10% at the top line or is most of its competitors are going to grow 30%. How would you answer that?
That's a very good question, and thanks for that. So 1st and foremost, this is the 3rd year that we are providing guidance, and company management is quite conservative with their estimate. Keep in mind that this is the Q1. Keep in mind that there are some still unknown. We are all our eyes are very much where we want to be 3 years from now.
So first and foremost, I think that we are one of the fewer. I've been listening to all of our competitors. 1 of the fewers that basically can even think about providing estimate where they want to be 3 years from now. And this is one. The second thing, I think that we are in a very unique situation from our offering.
While most of our rivals are very much offering a point solution, we proved in the past, and I think that this is very important to say now that we are offering a diversification strategy. Diversification strategy that allows us very much to very much deliver based on or capitalize on any changes that are happening among those 3 main pillars. With that, I basically said that we are preparing very much for growth, and that's the $500,000,000 that are representing a 17% CAGR. And as I said, we would very much like to start the year with a conservative number.
Okay. And then my second question is on cookies. I'm interested in how you think this cookies will, I must say, about over the next 5 years. What do you think happened with cookies in the marketplace?
Yes. So first, we need to ask ourselves how much out of how much the companies are very much dependent quickly from a retargeting standpoint. This is definitely a critical question, how much of the business are depend on the 3rd party cookies. Our way of overcoming the cookie was very much on the on developing our own or controlled supply network, which turned to be our 1st party cookie instead of very much relied on outside or third party cookie. And it is in a way, it was a sudden move because usually, an ad network rely on other publishers, but we believe that, that will give us a tremendous advantage as we are growing our supply, not just internally, but also the fact that we signed such agreements with a 1st tier publisher and the idea is to continue with it.
It gives us a become our own world garden and less even depends on the 3rd party cooking. At the same time, the other part of the business, which it has to do with search advertising or social advertising, they are not part of this game because they're not effective for the cookie. So that's something that needs to take into consideration. And because, again, if we were only on display and not having our own supply network, I think that, that will definitely get the concern to way higher level.
Okay. So just staying on the market for that, so do you think third party cooking stays away? I mean, not your company, but just in the general ecosystem. Do you think those are cookies actually go away and get replaced by a live action solution? Or do you think they actually don't go away because regulators are going to force people to keep them out there?
Just in the marketplace outside of your dependence on cookies as well.
And from outside the Perion, I think that we definitely see that this trend. It started with all the regulation that is happening in Europe and then follow to what's happening the CTPA in the West Coast and then other and other location. Look what's Apple just announced last week. I think it's part of an overall trend, which has to do with privacy, overall trend. And I don't think that the issue of cookie lists will be behind.
Definitely, IAB and others that are very much care about consumer privacy need to match. And it's not even question of if. In my opinion, it's just question of plan.
That's super helpful. And my recommendation is you just go off the CTV and then you can now have a ticket at all. That's all the last.
And we'll now move to our next question from Jeff Martin from ROTH Capital Partners. Please go ahead. Your line is open.
I wanted to focus on you've increased your R and D spend significantly over the years. I wanted to get a sense of what your focus is from an R and D standpoint in 2021 and then also draw us out to 2023, what does that roadmap look like?
Yes. Thank you. So first of all, I never mentioned it, but in my background, I'm coming from an enterprise software business. So one of the main reasons for me joining Perion was the fact that I do believe that technology makes a difference. There is a reason we call it mold and there is a reason we increase our spend to widen and make it deeper.
Believe this is definitely something which gets us high, high return on investing on technology. And that's why we're increasing it year over year. Keep in mind that what we are investing now, 1st and foremost, and I'm taking here our content monetization system. We reached a point that we understand, through the acquisition of Content IQ, that the current content management system that they have, which was based on an open source, a content management system is not enough for scale. And we have to develop our own content monetization system in order to take content optimization into a different level.
A different level when it comes to optimization and keep the visitor in more than between 6 to 8 minutes in our site. And not just that, we build it. And the idea was how we're able to externalize it to our partners. And that was a huge investment on our side. So that's one example.
The other example was very much the investment that we did on, I think, was 2 years ago, acquiring an AI center in Ukraine that we are further invest more and more on it. And that's very much all being on AI modeling that's now become on anything that everything that we're doing has definitely an AI service or AI model that is very much generating there. And as I mentioned before, personalization and using the huge amount of data that we have that is coming from all different touch points, from the social to the search to, of course, to the display. It's all come to a huge data lake that allows us to serve any parts of our business and with the right data, the right signal, which is so essential in our business. This is a huge investment, and I'm very happy that we are very much able to grow our business based on this investment.
Okay, great. And then curious, with RPM down in Q4 offset by a significant increase in searches, are you seeing that trend continue so far in Q1? And what's embedded in your guidance for the balance of the year in terms of those 2 metrics?
So first of all, as far as January, to not even to our supply, but the COVID hit started in March last year, and April May was the worst. So it's a good comparison to see January 2020 to January 2021. And I definitely can tell you that the trend continued in terms of number of searches, which is great to compensate on the decrease on RPM, allow us to very much deliver sustained revenue from search advertising. And our assumption that this trend will continue even if we were able to very much overcome COVID. I think that most consumer very much enjoy about online, shopping online or doing things online, and this trend is definitely to continue.
The other thing that we think is going to improve the RPM is the huge amount of online retailers. We're able to see a new type of online retailer that not just they don't have their brick and mortar store, but in most cases, they don't have even an inventory. And their spend is only on ad search, looking for consumer with a very high intent. And that's a very, very interesting compelling moment for them. So overall, we definitely see that this trend will stay even if COVID will not be with us somewhere in later 2021.
And then final question. Looking at your presentation, what's up on the Investor Relations side here, it looks like CTV and having that the deal side is up 60% from the 3rd quarter and customers grew in the 45% range. Wondering if you could comment on that. And are you seeing increased interest continuing so far this year in CTV?
Yes, definitely. So we grow 2 things between the Q3 when we just launched it and the Q4 of 2020. Both in absolute numbers of revenue, the number of customer, but more importantly, on the average deal size. The average deal size grew significantly, which is, for us, is one of the major KPI because customers see and evaluate the return on ad spent on CTV, especially with the factor of interactive CTV and growth spend. This trend is continuing.
And definitely, what started as an experiment in the Q3, they increased the spend on the Q4 and the further increases so far in the 1st few weeks of the year. And we believe they will continue and do so when we are going to launch, as we said, the ICTV 2.0, which has a personalization level on top of what we're doing right now with ICTV. There is a nice slide since you referred to our prior presentation that will definitely demonstrate how DCO, dynamic creative optimization, plays so well in the CPV space.
We will now take our final question from Chris McGinnis from Sidoti and Company. Please go ahead. Your line is open.
Good morning. Thanks for taking the questions in this quarter. I was just wondering, Ron, if you could just maybe expand a little bit on the Microsoft and the same relationship and how far some more collaborations can include. And can you just highlight some more comments
on how that's changed in
the last conference for the new one you just signed at the end of the year? Thanks.
Yes. Thanks for the question. So I was honored to do the not the last one, but also the previous one. So we did the previous one on October 2017 for 3 years. And we did this one and announced it in November 2, 2020, and it's quite a difference, quite a difference budget in duration.
The last one was for 3 years. This is a 4 year. For those who know Microsoft doing the 4 years agreement, we are part of a very few vendors that's being able to engage for such a long period of time. That's, by the way, required for us not just to renew or extend the agreement in terms of amendments, but definitely writing the new agreement from scratch. But it's not just about 4 years or more years in terms of contract.
I think the main important factor has to do with better rev share. That's one. So we have higher tiers that represent where we are right now. So we are going to get more margin for Microsoft. One second, extended to new geography.
And in the previous agreement, we were limited to 6 countries, currently to 34 countries, which is part of Microsoft Advertising overall geography expansion strategy. And the third is that we are now able to offer or market new products, new products that we were not able to do on the previous agreement. So all in all, this is why we basically share that our estimate that in the course of the next 4 years, we will be able to generate $800,000,000 from this agreement, dollars 200,000,000 in average on annual revenue. Currently, we're in the level of $172,000,000 So that's definitely a significant increase. And what I'm more happy with is the fact that it's a sustainable, predictable stream of revenue that has to do with this pillar, search advertising, that based on any KPI that we're looking, and I shared one of them, which is the average daily traffic.
It's definitely moving in the right direction, and it's been generating for us substantial
revenue.
That concludes today's question and answer session. So I'd like to hand back to Don Gerstel for any closing remarks.
Yes. Thank you very much for your participation, and stay well. Bye bye.
Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.