Good day, and welcome to the Perion Second Quarter 2014 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Deborah Margolit, Perion Investor Relations. You may begin ma'am.
Thank you, and we appreciate the attention of everyone who is joining us today. On today's call, management will be reviewing the financial results and business highlights of the Q2 ended June 30, 2014. The press release detailing the results is available on the company's website atperion.com. Before we begin, I'd like to read the following Safe Harbor statement. Today's discussion will include 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 from any future results, performances or achievements anticipated or implied by these forward looking statements. The company does not undertake to revise any forward looking statements to reflect future events or circumstances. In addition and as in prior quarters, the results reported today will be analyzed on a non GAAP basis, which management believes better conveys the operational state of the business. We have provided a detailed reconciliation of non GAAP measures to the comparable GAAP measures in our earnings release, which is available on our website and has also been filed on Form 6 ks.
With that, I'll turn the call over to Joseph Mendelbaum, Chief Executive Officer. Joseph?
Thank you, Deborah, and good morning, everyone. Welcome to our 2014 Q2 earnings call. Perion produced another strong quarter with $111,000,000 of revenue and $34,000,000 in EBITDA. The combination with ClientConnect has helped Perion achieve precisely what we thought it would, as we continue to expand our EBITDA margins, driving incremental cash flow and fueling initiatives in the mobile space. Our recent acquisition of Grow Mobile significantly enhances our mobile capabilities and fits perfectly within our new Lightspeed division as the first piece of our strategy to provide app developers the ability to promote, monetize and optimize their business.
We are focusing on helping companies buy advertising and track the ongoing performance of the media budget across the complex world of mobile networks and exchanges. According to a recent eMarketer report, the mobile advertising market will more than double in the coming years. However, it remains a nascent market highly fragmented and inefficient. There are over 100 ad networks offering advertising solutions, each requiring some technical integration and having its own reporting and analytics systems. Developers have to connect to and analyze data from each traffic source separately in order to optimize spend and increase their audience.
Paradigm, Lightspeed and Grow Mobile together provide them a unique and comprehensive solution to this problem. Today, we have a fully managed solution and we will be launching a self-service platform in the next quarter, leveraging Perion's years of experience in the demand, supply and analytics part of our business. Perion has lived and excelled in the performance based ecosystem both on the demand side, having spent last year alone over $200,000,000 in ROI based advertising and on the supply side, helping thousands of developers monetize their desktop applications. Over the years, we have built outstanding analytics capabilities specifically around cohort analysis and yield optimization of lifetime value and ROI. All of this experience, this expertise can and is being leveraged to help us expand to and thrive in a mobile first world.
Grow Mobile is growing at a very rapid pace and boasts an impressive roster of clients. We already have 50 plus developers and advertisers working with us and are rapidly signing up new partners. There is still more to be done, but we believe our timing is right to consolidate other parts of the value chain and create a unique offering for our partners. We will further integrate Grow Mobile into Lightspeed, providing a unique offering to help app developers. And we believe that already in 2015, a meaningful part of our business will be on and for mobile platforms.
The strong financial performance this quarter comes amidst a challenging time in the search monetization portion of our business. It is no secret that this business has seen its share of challenges and changes over the past few years. Policies keep on being updated as we have seen most recently with Chrome. Before going into more specifics, it is important to note that each time these changes have occurred, we have adapted and within a couple of quarters returned to growth mode every single time. I expect the same will be true for these most recent changes.
So while we delivered strong second quarter and first half results, we have 2 specific issues to work with in the back half of the year and these factors will impact our business. The first is changes to the Chrome browser mentioned above and the second is a one time technical matter. Let's first talk about the browser changes, which were released in the latter part of July, and in the short term impact our search monetization business, reducing the lifetime value of the user. In brief, the conversion rate of a Chrome user for our partners will go down as Google has instituted a series of added steps to the download process and in particular change the default choice for most third party downloads. This is not new for Perion and we have a talented team already hard at work together with our partners to adapt to these changes.
Anyone who follows this industry knows that these kind of browser and platform changes are part of this business. Based on our experience with other major browsers and similar situations, we expect the impact to be more pronounced initially and then diminish over time as we and others adjust. The other item was a technical matter that caused the number of searches to go down starting late in Q2. This reduction in queries directly affect our future revenues. We are in the process of implementing technical adjustments, which will address this issue and are confident that our searches will rebound by the later part of the year.
In anticipation of these changes, we have reduced our customer acquisition cost until the lifetime value and return on investment improves as we fully expect it will. As many of you are familiar with our business model, you know that since revenues trail marketing spend and as a result we no longer be able to achieve our original revenue projections. However, we do anticipate being close to our original EBITDA projections as the reduced spend works in our benefit later in the year. While this will obviously impact our 2015 numbers, we believe that being prudent with our marketing spend to maintain profitability and cash flow is in the best interest of the company and its shareholders. We anticipate growth to begin again once we sell in at the new level and we ramp up our marketing budget as we see opportunities and a higher ROI.
And if we see our efforts are fruitful sooner and as a result the LTV increases faster, we may revisit our decision as the ROI will be well worth it investing for 2015 despite the potential impact to EBITDA later in the year. It is worth noting that we also had some big milestone announcements this quarter, which position us very nicely for the future in the search monetization piece of our business. We signed and launched a new product initiative with Lenovo to white label our technology as the Lenovo Browser Guard, which we pre installed on millions of computers. We are excited about this opportunity and its potential both to expand with Lenovo and potentially other OEM manufacturers. The second major announcement was with regards to Bing.
We announced a new 3 year agreement with Bing effective January 2015 through December 2017 with an option for a 4th year. We continue to have an excellent relationship with Bing and are excited about this renewal. In fact, Bing is the only search engine to gain significant market share in the U. S. Over the past 4 years, growing from 11% in June 2010 to 19.2% in June 2014 as reported by Comscore.
This bodes well for the future and their coverage and RPM should continue to improve. While we cannot disclose specifics about the agreement, I can say that the economic returns of the agreement are substantially similar to those of this past year and over time have the potential to be even better for both parties. As to our Google relationship, we have had and continue to have a good relationship with Google. Unfortunately, due to their updated policies, the economics and profitability working with them have simply become less attractive and we have secured better terms from others in the industry. As such, over time, we have significantly reduced our dependency on Google and say they are no longer a material part of our revenues.
Since we had 2 agreements with them as a result of the combination with ClientConnect in parallel to our new big agreement and in conjunction with the fact that the revenues from Google are no longer material to Perion, we decided to exercise an early termination clause in the ClientConnect agreement. This was done in cooperation with Google and we continue to work with them through our legacy Perion agreement that we have with them until June 2015. Google has been a great partner of ours for the past 8 years and we will continue to look for other opportunities to expand our relationship. As I've always said, the key benefits of diversifying our search partnerships and maintaining multiple relationships are that we are not reliant on any single partner and we can shift our business to provide her with the best financial returns. Before I hand over the call to Yaacov, I wish to note that while we expect a year over year decline in our search monetization revenue for the second half of the year, we do expect that decline to stabilize over the course of Q3 into Q4.
With close to $400,000,000 in revenue and EBITDA expected to be over $100,000,000 our sizable and profitable business enable us to build a bright future ahead as we leverage our skills, talents and cash flow to the mobile ecosystem. With that, I'll turn the call over to Yaacov and then take your questions.
Thank you, Joseph. As we said in our press release, the acquisition of ClientConnect was viewed by U. S. GAAP as a reverse merger. And as such, our 2014 performance is being compared to that of ClientConnect in 2013.
As you have seen, and I will provide further details, this comparison shows tremendous year over year growth. It goes without saying that a substantial part of that growth is due to the 2013 Perion performance not included in the ClientConnect business in 2013. Revenue for Perion this quarter was $111,100,000 increasing $29,400,000 or 36% compared to $81,700,000 at ClientConnect in the Q2 of last year. In the Q2 of 2014, non GAAP revenues include $1,500,000 of Perion's deferred product revenues, which were deducted in accordance with U. S.
GAAP as a result of acquisition. In the Q2 of 2013, non GAAP revenues include $500,000 of revenues, which in the GAAP report was associated with discontinued operations. In the Q2 of 2014, Perion increased its investment in customer acquisition by 34%, reaching $56,000,000 representing 50 percent of revenues as compared to $41,900,000 or 51% of revenues in the Q2 of 2013 to find ClientConnect. R and D expenses this quarter were $10,600,000 or 10% of revenues, compared to $9,800,000 or 12 percent of revenues in the Q2 of 2013 at ClientConnect. Non GAAP R and D expenses in the Q2 of 2014 'thirteen do not include $500,000 $400,000 respectively, of non cash employee share based compensation included in the GAAP report.
Non GAAP R and D expenses in the Q2 of 2013 at ClientConnect include $5,000,000 of expenses classified as discontinued operations in the GAAP reports. Looking forward, we intend to further increase our investment in developing new products for new platforms, enabling us to rapidly create revenues on these platforms. Sales and marketing expenses for the quarter were $3,800,000 or 3 percent of revenues, compared to $4,100,000 or 5 percent of revenues at ClientConnect in the same quarter last year. These expenses were reduced in the non GAAP reports for the second quarters of 20142013 by $200,000 $300,000 respectively for non cash share based compensation included in the GAAP report. In addition, the non GAAP report for the Q2 of 2013 included $2,000,000 of expenses classified as discontinued operations in the GAAP report, while the Q2 of 2014 expenses were reduced by $700,000 amortization of acquired intangible assets.
G and A expenses for the quarter were $4,900,000 or 4% of revenues compared to $2,800,000 or 3 percent of revenues at ClientConnect in the Q2 of last year. The increase in G and A reflects maintaining Perion's position as an active participant in the public and M and A markets, building in part on the management platform created in Perion, which has G and A expenses of $1,800,000 in the Q2 of 2013. G and A expenses were reduced in the non GAAP report for the 2nd quarters of 2014 and 'thirteen by $3,100,000 $3,300,000 respectively for non cash share based compensation included in the GAAP reports. In addition, the non GAAP reports for the Q2 of 2013 included $2,300,000 of expenses classified as discontinued operations in the GAAP report, while the Q2 of 2014 expenses were reduced by $500,000 in expenses associated with acquisitions of Grow Mobile and ClientConnect. To summarize, GAAP costs and expenses during the Q2 of 2014 included $3,900,000 of non cash share based compensation, $4,500,000 for amortization of acquired intangible assets and $500,000 in acquisition related expenses for a total of $8,800,000 in adjustments to GAAP costs and expenses.
In the Q2 of 2013, the GAAP costs and expenses at client connect were increased by $9,600,000 classified as discontinued operations in the GAAP report, partially offset by $4,000,000 decrease reflecting non cash share based employee compensation. During the Q2 of 2014, EBITDA was $33,600,000 or 30% of non GAAP revenues, up 52% compared to $22,100,000 or 27% of non GAAP revenues at ClientConnect in the Q2 of 2013. Perion's net income in the Q2 of 2014 was $27,400,000 representing a 25% net profit margin, increasing 56% from $17,600,000 or 22% net profit margin at Klein Connect in the Q2 of 2013. GAAP cash flow from operations for the first half of twenty fourteen was $21,900,000 Cash flow from operations was reduced by $29,200,000 invested in creating working capital post the ClientConnect acquisition. Specifically, accounts receivable went from a zero balance as of December 31, 2013 to $42,100,000 as at June 30, 2014.
This was partially offset by $11,300,000 increase in accounts payable during this period. As of June 30, 2014, cash and cash equivalents were $35,600,000 or approximately $0.52 per share as Perion paid down its short term loan from conduit and other payables from prior acquisitions. Working capital last quarter went up to $32,500,000 compared to less than $9,000,000 at the end of last quarter. We expect cash from operations and working capital to continue and increase in the coming quarters. This concludes my financial overview.
Let me now review some key operating metrics for the Q2 and end with our 2014 outlook. Our total queries in the quarter totaled $3,100,000,000 of which $1,400,000,000 were from Tier 1 countries and $1,700,000,000 from the rest of the world. While total queries decreased 22% year over year, Tier 1 queries increased 25% year over year as we shifted our CAC to Tier 1 countries away from the rest of the world with the industry changes in February of 2013. In addition, as we move more toward advertising, we felt it important to start reporting some relevant metrics. Ad impressions had totaled 3,800,000,000 impressions with 1,500,000,000 in Tier 1 countries and $2,300,000,000 in the rest of the world.
As Joseph indicated, we are adjusting our 2014 full year guidance. We now expect that revenues will be in the range of $380,000,000 to $400,000,000 EBITDA will be in the range of 100 dollars to $120,000,000 and net income will be in the range of $80,000,000 to $90,000,000 We believe the headwinds, which are causing the guidance adjustment are short term in nature. We anticipate ramping customer acquisition spending soon, resulting in renewed growth in 2015 and beyond. Moreover, as our mobile strategy takes hold, we expect mobile to contribute to our growth beginning in 2015. With that, we will now open the call to questions.
Operator?
Thank you. And we'll go first to Carey Rice with Needham.
Thank you. Joseph, I was hoping that maybe you could provide some additional details around this technical item that seems to have resulted in a fairly sharp decrease in guidance in the second half of the year. I guess if you can provide some details, does that relate anything to the early termination of the contract with Google? Or is it something beyond that? And how do we how do you get confident that this isn't an ongoing thing or something that can't recur?
First of all, thanks, Gary, for being on the phone. So the confidence comes from, I think, 1st of all, as you know, Kerry, following the industry around and others in the industry that typically things like this happen and you adjust and then you adapt and frankly growth continues. It's not the first time these things have happened. I think the important matter here on the technical side and I don't want to get into too many details on it, but I will say the following. That in and of itself is not the major factor.
The major factor lowering our guidance is our reduction of media buying. The reason we're reducing media buying or customer acquisition cost is because we see the Chrome future impact that's going to affect conversion lifetime value and because of this technical issue that we've had matter that we've had, fundamentally those two things have affected our lifetime value. And therefore, as we look at our media buying, we're being much more prudent about where to spend the money. Some of our partners who didn't have as high of a ROI as we would have liked, we cut down rates. And because we're taking out mini buying, you know how the business model works, Kerry.
I'll give you an example. In Q2, we had $55,000,000 of customer acquisition cost. We would expect in Q3 that to go down by half. Now if you take out $26,000,000 or $27,000,000 of media buying, almost all that spend in Q3, almost all of it is would have been recognized as revenues this year, maybe not as profit, but as revenues. So you're already talking about $25,000,000 $26,000,000 of revenues going away.
Now if I do that in Q4 as well, you would expect in Q4 probably 50% or so of the revenues to be recognized in the year on media spend. So if we take again a $26,000,000 or $27,000,000 reduction in media spend in Q4, if it doesn't go like up, we're trying to be conservative, then you're talking about almost $40,000,000 or $45,000,000 of the $60,000,000 we just mentioned that are related to the fact that we're just spending less money until we see the LTV and ROI go back up. The technical issue we mentioned had a more of a one time impact as we look to the end of Q2 because we lost some queries. And basically there was a bug in one of the software updates we were doing and fundamentally it caused a glitch that unfortunately lost some users out of it. And I think it's a one time issue in the sense of losing the users.
We are obviously working to make sure the bug is fixed, which I can tell you on obviously all new installs we've done that. And we're looking to obviously update the existing base, but that takes a little bit of time and we have to be careful how we do that. So we're pretty confident on that side. Listen, these things happen. It doesn't help that they all happen at one time, Kerry, which is unfortunate.
Well, sometimes there's a perfect storm that proves and it is what it is. But that's why we're pretty confident about that issue. But I think the major issue to answer your question is most of this is in our control. If we wanted to hit the revenue numbers, we probably could have come very close, but the cost of spending money and losing a return on it. We don't think that's the best interest of the company or shareholders.
So we're trying to be conservative on the cash flow and the EBITDA. And we're very confident that as has happened in the past, the industry will rebound. I think you've heard other companies also mention the same thing that we're mentioning. It's not by coincidence and no, we didn't talk to each other. It's just because we've all been in the industry for a while and you see the same dynamics play out.
If I can do a couple of follow ups there on the technical issue. So it sounds like it was on Perion's side and that you fixed it. Did it I don't know if you can disclose anymore. Was it just prevented the browsers being the takeover page of the browser? Or I don't know if you explain that in a little more detail.
And then on the Chrome browser side, can you talk a little bit about where you are in the cycle of kind of coming into alignment with the Chrome browser policy changes? And when do you think you'll be complete with that?
Sure. The first one, I'm not it's I mean, it was mostly in our side. I don't feel comfortable talking about any more specifics on that. Again just you can imagine for a lot of different reasons. It wasn't browser specific.
Actually it was more of we just lost the user. So it wasn't because the browser has anything to do with IE or Firefox or Chrome and that one. It happens. So we on that one, we're pretty confident we understand what happened and we're working through that issues now. OmniChrome, 2 weeks ago was when it was announced, I think, or changed actually, I should say.
And like everybody else in the industry, we're trying to now optimize and see how best we can work within the new guidelines and or adapt and or adapt to how we work with Chrome specifically that browser. It has about a 40%, 45% market share. So it is significant, which is again it impacts the overall LTV, because the conversion rate did significantly go down. We like others are working to test a lot of different things now and obviously we'll see how it goes. I think we're at the beginning phases of testing it.
As I mentioned in the past, it's usually taking 2 quarters before things settle down and then we would expect to sequential growth through the start in 2015. If we're lucky or and if we're good, which I think we're good and hopefully we'll be lucky, that may start sooner in Q4. But right now, we're being conservative and I think all of you know on the phone or at least Carrie you know, this is not something we knew about when we gave guidance in the year. I mean it happened obviously after the fact. Had we known about this, we probably wouldn't have given the guidance we gave.
So sometimes things are out of our control. Google had other changes that we did account for and I think we accounted for it well as you can see in our Q2 results. But this is one which no one really knew about at least at the time when we gave our original guidance.
Okay. I'll jump back in line if I have additional questions.
Thank you. Thanks, Gary. And we'll
go next to Dan Kurnos with Benchmark Company.
Yes. Thanks for taking my questions. Hi, Joseph. Just on the to push a little bit on the chrome factor here. I know that we've heard commentary from IAC and I'm sure Blucora is talking about it as well.
In this particular instance, we know that Chrome is now we know that the market you talked about market share and there's still 40% to 45% of new installs. I'm just wondering as we go forward, while the industry has dealt with this issue in the past, what prevents Chrome from making the download process so complicated that ultimately either people just can't monetize through Chrome or really what gives the confidence that in this particular instance that the situation will sort of
My answer to that is as follows. First of all, some of those I suggest asking Google. But I'll answer at least from our perspective. We look at the glass. Listen, it's not a pleasant day to sit into lower guidance.
And I think all of you know me on the phone, I'm taking away command, standing up in good times and bad times and given the news. But I look at the glass half full, I'm just optimistic. If Google really wanted to shut down its business, they could have just closed all downloads and all Chrome, any settings they wanted to. I mean, they can, it's their platform. I think what Google decided, again, this is me in terms of understanding what they've done, and say, listen, we want to put better controls.
We've been doing that slowly over the past year and a half. This is probably the last piece of the puzzle. And we're saying you can do downloads and you can't change search settings. We just want you to do it in a certain way, which we think is even more and more transparent to the consumer and make sure that lowers the potential complaints to consumers. Now, therefore, my confidence in, okay, let's assume that all takes effect.
Over time, people learn to adjust and to adapt. It's true that business may decline overall as the overall business declines. But I think the people with scale will actually overall still be able to have a very good and profitable business, albeit it may be a little smaller. But it's still very profitable and I think it will still be significant. I think the smaller players ultimately would not without enough scale will be able to survive what will be more of a profitability crunch because of just the way the business works.
So I think my optimism comes from more confidence that if they wanted to, they could have shut it off today. They didn't and there's no indications that they're planning on doing that. I think they recognize that there's free software out there and free extensions and advertising is an acceptable way of making money for free extensions or free apps and they just want to make sure that the user is fully informed when they do that. And we may have disagreements in the industry with Google's interpretation of fully informed and how much they go, but those are really in the margins discussions. The real point is they're doing these things for the benefit of the consumer.
As industry, we're going to have to adapt. We've adapted before. I do believe and I think others have said this as well, I think the industry will probably be smaller. But smaller doesn't mean it will still be big and it will still be profitable, but I think it's safe to assume that growing at 15%, 20% a year, it will probably be difficult in the current environment and especially over the next two quarters. But we do expect the temperature growth to come in again in 2015.
Okay. That's really helpful to get your thoughts on that. And certainly, I mean, it's still 20% of Google's business. I don't think they're going to close it down tomorrow either. In terms of the technical issue, just to drill down a little bit more maybe on Carrie's line of questioning here.
You mentioned that it was a bug. I'm just curious if any of that was from re platforming from browser changes or if it was just something that happened internally as you were rolling out some sort of either software or firmware update?
Yes. I mean, it was basically mostly internal. I mean, we as you can imagine, the browsers change frequently, so we have to update our software frequently. So it was certainly in response to updates of things that were browser related or other related, but it wasn't because of browsers or anything else happened. It was something that a bug that unfortunately caused us to lose some users and therefore queries.
We're working through that. I think we have a good grasp on it already. We fixed some of the things. It was a little complicated this time around, but we're certainly on the right path and we think that in time we've on the new installs again looking at that, I think we fixed it and we're just looking through now the overall network to kind of make sure that sometimes when you re release or try to revert back to something you may cause more damage. So we're trying to be very careful to do it right.
And I think that's what we're focusing on. But as I mentioned, it's kind of more of a it took my user base down, but it is what it is. The real impact here today from that is just that it hurt my LTV and therefore we're lowering our media buying in accordance with that and the Chrome changes.
Okay, great. And then just lastly for me and I'll step back in the queue. It looks like your product and other revenues were a little bit lower I think than most of us were expecting. And I'm just trying to get a sense of how much of that was a display issue, if display growth was down sequentially pretty meaningfully or if there has been a continued scale back on the product side, which doesn't seem to be a real focus of the company going forward, at least at this point?
Yes. It wasn't product revenues. It's been pretty stable, flat to slight growth. The bug obviously is we lost users, we lost homepages. When we lost homepages, we lost advertising revenue.
That's one of the reasons. It wasn't not only, but that was one of the reasons.
But you're not seeing I mean even with the reduced queries obviously you'll see a lower display, but you're not seeing any particular other headwinds to call out on either the CPC front or anything else. Okay.
No.
Okay. Great. Thank you.
Okay. Thanks.
And we'll go next to Jay Srivatsa with Chardan Capital Markets.
Thanks for taking my question. Joseph, going back to the bug and the impact, are you able to quantify what percentage of customers or what percentage of revenues were really impacted by that?
In general, yes. Again, I'm not going to go to number of users, but I think as I mentioned on the phone, let's just you if you take the overall effect of lifetime value and then a reduction in media buying, so if we took down our guidance by let's say $60,000,000 or $70,000,000 the majority of that overwhelming majority is because of the media buying. So I think I did the math a few minutes ago, but the majority is the media buying and the technical matter was a portion of that, but the majority overwhelming majority is the media buying numbers.
All right. Looking ahead beyond the next couple of quarters, when do you foresee getting back to engaging yourself on media buying to start to look at growth for 2015?
Listen, we're we do that every day. I can assure you that the Alco and I and the team, we get daily cash on cash reports. We get weekly reports on performance. As we think as we start seeing things improve and we start adapting to the changes, we'll increase media buying. Because of the uncertainty today of when that will take place, we decided to be conservative and just take the hit once on the guidance as we go forward.
We would hope and expect that by the end of Q3, early Q4, should be able to ramp up the media buying, but we'll do it slowly. We're not going to do it quickly until we really have a good sense of what the steady state is. But as we go forward, that's what we're looking at today. And I think as we mentioned, we fully expect that in Q in 2015, we will resume sequential growth.
All right. In terms of the Google contract, can you give us some idea on what your thinking was when you chose to opt out of the Google contract?
Yes. Basically, it was simple. We had 2 contracts. Administratively, we only needed 1. They weren't Google is no longer material to us in revenues.
Typically, we just talk to Google. There is administrative work with 2 contracts. We decided it didn't make sense. So we opted out of that and we still have the other one. And we'll continue to work with them until June 2015 and then we'll reevaluate them.
All right. You mentioned on the mobile side challenges in monetization. What are some of the things that you're looking at to put in place as you look at launching Grow Mobile as a material part of your revenues?
Yes. So Grow is on the actually advertising side. It's on the promotion side, not the monetization, but I'll address both of your points. On Gro and Lightspeed, so Lightspeed, I believe next month, if I'm not mistaken, we should be launching our self-service platform. We're doing some integration with Gro.
Gro is really growing, excuse the pun, nicely in terms of their revenue growth and clients. And we think we're well positioned there precisely because we do know and frankly the growth founders as well. They were media buying people at different big companies, Zynga and Storm8. We know media buying ourselves, so we have I think a unique insight into what our partners need in terms of their analytics, their tracking and their obviously connections to buying across as wide of a network as possible to increase the yield of their advertising. I think we're making great strides there and we're very confident that that's going to really hopefully grow extremely nicely over the next 2, 3, 4 quarters and we're really optimistic about that piece.
On the monetization side, which is we'll call the supply side of the business, we're working with leveraging our data and really looking at the programmatic targeting side of the business, which we think we have a few things which we've learned on the desktop side, applying it to mobile and looking at acquisitions to kind of augment that in a similar fashion to what we did with Grow and buying for Lightspeed. So we have 2 other divisions we kind of opened up in the past few months at 6 months at Parion. 1 to focus on the monetization side, the supply side and 1 to focus on the analytics or the optimization side, excuse me, specifically around user engagement and increasing the lifetime value of user engagement, cohort analysis, AB testing and the like. So we're excited about those two things. We're investing in them now.
We're obviously using the cash flow of the business. One of the reasons we bought ClientConnect, obviously, despite the volatility in the industry is because we knew scale and the cash flow and the bigger size would help us as we look to expand and diversify. I think in that sense, we were right. Obviously, we didn't know all the changes that would happen, but changes are constant. So I think we're excited about the future.
And again, we have a good pipeline of other acquisitions. And I think despite everything that's going on, we have so far done 4 acquisitions and all of this all have succeeded in terms of what we originally were thinking of and hoping from them. So I think we have a good team and I'm excited about the future and obviously our focus is going to be to do it faster. Given the nature of the desktop side of the business, we certainly intend to move even faster.
Last question from me. Last time Google made policy changes, there was a lot of fallout from several of your competitors who were simply unable to adapt. Do you foresee similar fallout this time around given some of the changes they've imposed now? And when do you expect to if at all to see some form of market share gain following that?
It's a good question. I we're not talking about what competitors do or don't do. I think what I'd say is that after the February 2013 changes, many of our competitors really decreased their volume in Google other than probably someone like IAC, who obviously has a big, big partnership with Google. I think you look at everybody in this space, the amount of revenues as a percentage of their revenues with Google has just decreased. As I mentioned, Google is a great partner, but just economically it made more sense to work with people like Yahoo!
And Bing and others. And I think therefore, we saw some shakeout already. I don't know if you see a whole lot more shakeout because of this. You may see a little bit here and there, but I think maybe there will be. And I think as you mentioned Jay, we mentioned before, we think we're in a good position to pick up market share when that happens.
But right now, our main focus is adapting to new changes, focusing on ramping up our media buying again on the desktop side and then investing in the mobile for the future of the company. And we remain excited about the future. And this is a marathon, not a sprint. Sometimes in mile 13 or 14, you're panting hard and going up the hill is difficult and but you got to get through it and that's what we'll do.
Thank you. Good
luck. Thank you.
And we'll go back to Carey Rice with Needham.
Just a couple more follow-up questions. One about the technical issue, just kind of more of a clarification for me. Did you say that it has been fixed? And if it has, why wouldn't you kind of go ahead and accelerate media buying to regain those customers quicker than a couple of quarters out? And then on the second question is, I know while I know there's a lot of moving pieces here, just trying to really get a sense of how to think about 2015 and kind of reacceleration of media buying and kind of the economics around that and trying to get a better understanding of where do you think this business can ultimately grow in 2015?
You mentioned kind of a 15% to 20% would be tough in the next couple of quarters. But is that kind of what we should think of about a reasonable growth rate in 2015?
Okay. I'll try to answer all those questions. I'll ask Jaakko jump in as well. First on the technical issues. So as I mentioned, it's largely fixed.
I'm not going to say 100% fixed, largely fixed. But again, that's not causing that was the drop in revenue, some of that was related to that. The drop in media buying is related to just the overall LTV and that's mostly the chrome. If chrome is 40% market share and your conversion rate drops significantly that means your lifetime value is going to go down until they can adapt to the chrome issues. Not going to spend a lot of money until I know it's going to be profitable.
So there is some lingering effects from the technology. Mostly it's been fixed, but it was one time loss of users because I can't get them back. I can try to buy more new users, but I can't get those back. And as you know those users were profitable users for us because they were with us for a while already. And you know the way the model works, right?
Our churn is highest in the 1st month. But if they survive the 1st month of this, actually they become a very, very valuable user. So in general, that's what hurt us again that one time issue. The rest is totally related to media buying and we're not going to ramp up the media buying. We're still doing $25,000,000 $26,000,000 of media buying, but we're not going to ramp up more than that until we understand better the effects and how the industry adapts to the Google Chrome changes.
With regards to 2015, I want to be clear. What I'm saying is, I don't I'm not sure there'll be growth next year in the overall service monetization piece of the business. I think for Perion, our growth will come from hopefully the fruits of our labor in the mobile space. We'll have sequential growth I believe as we look to go down the next two quarters in search. And then we'll have our mobile, hopefully, revenues from what we've done today and from hopefully future acquisitions.
So I think we still can grow next year, but it's going to be off of lower base coming out of 2014. I don't know yet. I would say in terms of the search monetization business by itself, it goes back to probably Jay's question earlier about the market share. If a lot of our competitors remain in place, then I think you're still talking about probably next year a single digit growth maybe probably single digit growth on a year over year basis in the search monetization business. And then mobile, we're going to have high double digit growth.
I think that's what I'd say today, but I think I'll have a better information for you, Carey, in Q3, our earnings call then or in the course of the Q the end of this quarter, early next quarter. It's too early to tell right now, but that would be my best guess today.
Thank you. Appreciate that.
And we'll go next to Dan Kurnos with Benchmark Company.
Yes, thanks. Joseph, just a quick follow-up on the Bing renewal. Congrats on that by the way. Just in the press release, you mentioned that there was some limited exclusivity. I just without going into specifics, can you give us any update on the relative terms relative to your prior bank contract?
Yes, I'd be happy to. Sure. I'm sure my General Counsel will love it. I I'd itemize you all the details of the contract. But since we both know I can't do that, because of confidentiality, what I can say is as follows.
The economic returns are substantially slower to what it has been in the past 2 years. We did change a few things, but I will tell you we're over the 3 years, we're actually confident and optimistic that actually we'll do make more money over time, both for us and for Bing, if the deal goes as we both expect it to go. I think the other changes were more standard changes today, which because the original deal they had with Conduit was 4 years ago, more around policy issues and the policy issues, which we fully support and frankly agreed to, we're doing almost all of them anyway, more policy issues to protect. And I think as we've said before, the user experience and in the previous contract, there just was less of an issue, so there was less restrictions on that. And those are things which we support.
So those are the 2 main areas of changes in the contract. But on an economic basis, we think it will be substantially similar and over time potentially even better, both for us and for Bing. And on the policy side, we're very comfortable with what we did together with Microsoft and Bing to ensure that we have very good and reputable policies for the benefit of consumers.
Got it. That's really helpful. And then just one other quick follow-up for me. Since you are launching the self serve platform on the mobile side, I know that it started with you partnering and helping them buy media. Just maybe a high level thought on your strategy and how you balance between a hands on or a hands off approach and which you think is going to be the most successful going forward understanding that both will be key components to the strategy?
Yes. It's a great question. I think you have to look at it and one of these we're approaching this is to really segment the market. So there are different solutions for different segments of the market. Let's give you an example.
An ad agency is almost always going to pick the self-service platform approach, right? So it will be more like a salesforce.com SaaS model and that makes sense for an ad agency. A pretty big media buying gaming company out there or somebody else who has internal people who would use it, but also a percentage of that media buying, they'll say, in order to balance out and get yield maximization, they may outsource us 10%, 20%, 30% for example of their budget, so it's managed, as well as using our own platform for their own internal people. We see both of those things happening. And I think lastly, there's probably some companies out there just don't have any internal ability to do that.
So they'll outsource it to us as a way of really gaining the best of what we have, our platform and our talented and our expertise. I think as more and more growth is programmatic, I think first of all, that's good for us in terms of what the technology platform we built and what grow has built together and we think this is actually excellent and will give us a lot of opportunity for growth in the future. And I think as more growth programmatic, I would think that there will be a healthy balance, but I would say today if you had to push me on this, I'd probably self-service would probably be a higher percentage of clients going to that. But I wouldn't say it's like ninety-ten, probably like sixty-forty. Again, that's a guess, Dan.
I don't know, but based on speaking to different partners and different potential partners, it would seem, I'd say in the next 2 or 3 years, I would expect it to go there. Today, a lot of it is fully managed because the self-service platforms are not fully baked yet in a lot of companies. It's still early in the game. But I would expect it to go to that over time.
Got it. Great. That's really good color. Thank you.
We have no further questions in the queue at this time.
Okay. Is it up to me?
Yes, sir. It's back to you.
Okay. Thanks. All right. All right. To wrap it up, as always, I'd like to thank Al and the team at Perion for all their hard work and dedication in helping us achieve these great results in the Q2.
While we work through industry changes on the desktop through the next two quarters, as in the past, we expect the business to stabilize and return to sequential growth in 2015. We remain dedicated and focused on building out our mobile platform and are off to a very encouraging start with Lightspeed and our acquisition of Grow Mobile. On a personal note, as a sign of my belief in the business and the great talent we have at this company over the long term, I am pleased to announce that as soon as the trading window opens for me, I plan on purchasing stock in the company and I'm confident that over time it will prove to be one of my best investments. Thank you and have a good day.
And this concludes today's conference. Thank you for your participation.