And I'm happy to have Tal Jacobson, CEO of Perion, with us this morning. Tal's been a leader and executive in the ad tech industry for more than two decades. Prior to his appointment as Perion's CEO in 2023, Tal served as General Manager of CodeFuel, Perion's search advertising unit since 2018. Tal's success is rooted in his extensive experience in all facets of the tech industry. As Chief Revenue Officer of Similarweb, he was paramount to the Israel unicorn's growth spurt in its early days, and prior to that, he held positions of VP of Business at McCann Erickson, the role of CEO at the video collaboration platform Watchitoo, and Director of Business Development at AOL. So Tal, thanks a lot for joining us. We really appreciate it.
Yeah, good morning. Thanks for having me.
Good morning. Good place to start, there'll be different levels of understanding of the business of those that are on the call. Maybe just a good intro, elevator pitch for the company.
Yeah, absolutely. So we've been working. You know, Perion has been around since 1999. We've, we've pivoted quite a lot, probably one of the only companies that did, like, three turnarounds. Now, this now is our new one. And we've been very successful in the past few years doing two parts. We were kind of the SSP of Microsoft Search. We were providing that supply part, and we were providing technology for digital advertising for holding companies and brands and retailers. And now we're mainly focusing on that other part, which is providing that omni-channel solution through technology and AI to make a sense of what's going on in the digital advertising space.
Digital advertising, in three years from now, roughly, is gonna be running $1 trillion worth of digital spend a year, and to be honest, it's quite a mess. The industry is quite a mess. There are different hubs, and each of them is working perfectly by itself. Like you have The Trade Desk, which is great by itself, and you have Google, and you have TikTok, and you have Meta, and you have Amazon, and you have out-of-home, and you have CTV, and everything by itself is great, but nothing's making any sense when you're trying to mix them.
And for the chief marketing officers that are in charge of this $1 trillion a year, it's almost impossible to make sense of it out of it, and that's roughly the reason why CMOs are having an average tenure of a year and a half, because they it's impossible to prove to the chief financial officer that their marketing budget makes sense. And that's where we come into play. We're building that platform that makes sense out of that, and we're coming into holding companies and retailers and saying, "You can continue to spend however you want. You wanna do that over TikTok, you wanna do CTV, you wanna do video, you wanna do out-of-home? That's great.
Just do it through us, so you can have one unified platform and one unified technology, and we're gonna make sense out of that. And we're gonna show you what works, what doesn't work. We're gonna..." You're gonna waste less money because you don't need to learn again and again and again on each platform separately what works for your audience. Like which creative works, which audience actually engage more with your brand. You can do that under one roof. So we actually went out and acquired a company called Hivestack in December, which is the most advanced DSP and SSP for out-of-home, and we're using that as a base to all our technologies to extend our reach into all the other channels. That was quite a long pitch, but I hope it makes sense.
No, that's helpful. I mean, there, you know, there's... It's a complicated stack, you know, of companies, you know, that play in this area. And so, you know, when you look at that business, like what you've transitioned from, from the original days of the relationship with Microsoft to what you're building now, like, what do you think are the core competencies of Perion, like, differentiate it, so that the clientele gravitates to your platform versus the other options that are in the market?
Yeah, absolutely. So, you know, as I've joined the company six years ago, back then, we were almost got delisted. We had a lot of debts. We've taken that six years to rebuild the company. We had enormous success, no debts. The stock went up. We have a lot of cash. So our execution ability are proven, right? And we always work with our clients to understand their pain. You know, it used to be in the past with Microsoft, "What are your pains? How do we build a platform for you, for your needs?" And now it's mostly about, you know, working with holding companies and big retailers in the US, and now we also went into APAC, which is quite successful.
Working with those clients, understanding what are your pains, and we keep hearing the same pain over and over and over again. Everybody has the same pain. It's impossible to make any sense out of what's going on. It's impossible, and that's why they have all those silos platforms, and nobody can make sense out of that, and that's why they also operate on different agencies, so they, they're gonna have a search agency and a social agency and a CTV agency and an out-of-home agency... and, well, you know, our goal is to make everything work better together with their data and our platform, and even their agencies, and we're already seeing that success, so our retail media solution, which is something we've built organically about roughly two or something years back, has seen 75% growth year over year, and that's a product we've built organically.
Our CTV solutions, again, organically, we've built that, has shown 42% year-over-year growth. So the products we're building are seeing tremendous growth. Everything we do is around AI, so we have a pretty big AI team back in Israel, that's whole AI Israeli technology. And we're doing, you know, we have CTV technology with AI. We have audio ads through generative AI, which runs very nicely. Audience segmentation through AI, which is called SORT now, being implemented to the web and CTV. You know, we're seeing that our technologies actually resonate with clients, and which are coming back and back over and over again, giving us more and more budgets, and that's how, you know, we see our growth.
And can you talk a little bit about the revenue makeup? Anyone that kind of looks back into the recent history, you know, the revenue mix going back a year was quite different than what it is today. Talk a little bit more in depth about that transition, what happened with Microsoft, how the search advertising business declined as a percentage of the revenue, to give investors just a better understanding of the rev mix today and the makeup of it relative to where you were before the changes with Bing.
Yeah, absolutely. So, when Microsoft... So, again, we were kind of the SSP of Microsoft, running the inventory, their supply side. We're not the only one. They have or had a few more companies that did that. The beginning of the year, Microsoft decided they're gonna reduce pricing for the inventory, so they reduce the rates on the inventory, which made us provide revised guidance. So now Microsoft, as opposed to previous years, which were pretty big for us, now it represent roughly 5% of our world revenue. So, you know, the bad thing is, you know, it went down so dramatically at once. The good thing, I don't know if there's a good thing about it, but the good thing about it is we have less dependency on one specific partner.
That was always a weight over our shoulders, that we had this one client with this huge dependency, and now, you know, luckily, that's the only positive thing about it. We do not have one specific client that puts a lot of weight on us.
But you think from the way you described it that there you know you have growth potential ahead in terms of the business and the areas that you're investing now. And you referenced retail media and CTV which are kind of the hot and AI which are you know the kind of hot segments of the advertising industry. So I'd be interested in hearing you you know just talk about your kind of longer term vision or path for like now that the business has been reset by the change with Microsoft like the pace at which this company on a longer term basis can grow and like what the margin profile of it can be over time.
Right. You know, without giving guidance, moving forward for next years, you know, we're feeling very positive about our growth rates in the next few years. We're adding more and more growth engines. Our own growth engines are growing quite nicely. Even the out-of-home part is growing 41%. So everything grows on a double digit, higher double digit rate. You know, we still have roughly $400 million in cash, which we're gonna deploy part of it into buying a few more growth engines that can supercharge our hypergrowth in the future. So, you know, we're generating a lot of cash on an ongoing basis. We have a lot of cash.
I think, you know, there's a big opportunity here, especially for us, as the stock is currently at our cash level, and we are generating a lot of cash. So we look at that as an opportunity. We're seeing, you know, our employees getting excited. They see the opportunity of being part of a growing company that has a lot of potential. We see our clients being excited about our products, so that's a positive thing. So, you know, we're positive about the future.
Going into the segment, so in CTV is a really strong growth area of advertising online, given what's happened with time spent shifts from linear to online streaming. You know, how does Perion integrate CTV advertising with other digital marketing channels to create a cohesive strategy? And also, you know, can you talk specifically a little bit more about the dynamics of the YouTube CTV integration that was allowed last quarter?
Yeah.
That seems pretty interesting.
... Yeah. So, you know, for us, that's exactly what we're trying to solve. Instead of an advertiser working in silos, CTV on one part, social on the other parts, out-of-home on the other parts, we're trying to make sense out of it. So anything comes in, we try to always do campaigns across all channels with the data layers that does the learnings in between the channels. So we're integrating our technology. We have a pretty advanced AI-based DCO, which is our dynamic optimization server, which means that we're adding the component of the creative, and on CTV, out-of-home, everything we do, it builds the creative dynamically based on the data that it learned. So we're building that. We're seeing if people actually engage with that ad, and then we're changing it again.
And CTV is just such a huge part of that, and now we're adding all the premium inventory of CTV. So YouTube CTV turns out it's the second biggest network of CTV in the U.S. So the second biggest thing that people consume content through on TV is actually YouTube. And with YouTube, we have a lot of capabilities in terms of audience segmentation, how do we run dynamic ads? So we've actually run. We've done an amazing ad for one of those, I can't remember the name, but a restaurant in the U.S. with, like, over 300 stores, and within the ad itself, on your TV, you're gonna see the ad, and then you're gonna see a map saying, "Five minutes walk that way to get to that restaurant," right?
And obviously, each house is gonna see a different map or a different recipe or a different elements, right? And that's gonna be based, "Is it raining? So you probably shouldn't go to the restaurant, but here's a QR code so you can order to your house," right? "Is it sunny? So you should go that way," right? "Is it too long? Here's a QR code to order an Uber to get you there." And having that ability to have dynamic ads across, you know, the mainstream channels just give us so much more advantage than anybody else.
And you also mentioned retail media, which
Yeah
... I think you referenced grew 75% organically, and that's another segment of the ad market, you know, that's doing very well right now. There's a lot of companies, you know, playing in it, that are creating their own first-party data, you know, to provide better advertising to customers, you know, most notably Amazon. But there's a number of players that are, you know, doing this as well, and, you know, it's definitely becoming a big segment of the overall online advertising industry. So I'd be interested what your play is there in retail media, where the value is that you provide, you know, to clients, relative to them going directly to some of these players.
Yeah. So we're taking quite a unique position on retail media. While everybody's concerned about retail media networks within websites, like within Amazon.com, we're concentrating on retail media. How do we bring people back to physical stores and online stores at once? So we're taking that, you know, we're working with companies like Albertsons and Kroger. We're taking all their data and promotional data based on location, and then we're gonna push that into our generative AI engine to create dynamic ads, and it might be hundreds of thousands of dynamic ads, and we distribute that through the channels. So we would actually take, for example, a promotion for, I don't know what, in Hoboken, New Jersey, 7 A.M., for the local store, you have a promotion on avocado, right?
And you're gonna take that, create an audio ad, which sounds very much human, even though it's fully generative AI, and you're gonna push that dynamically into Spotify and iHeart for that specific audience on those specific hours, right, so maybe that's gonna be for females on their way to a yoga class at 7:00 A.M., right, but to do that dynamically for hundreds of thousands of ads into audio, into CTV, into out-of-home, and then measuring how many people actually went back to the store and bought that avocado through the promotion, right? That's how our unique solution for retail media works, and obviously, through the numbers, you can see that it's very successful, and again, 75% year over year, and you know, we're expecting that to continue to be one of our biggest growth engines going forward.
Is there a way to speak to... I don't know if this is something that you disclose or not, but the mix of the advertising solutions business by the type of advertising, the categories, the CTV, retail media, the other categorizations, is that something that you speak to?
To break it down by clients-
Yeah
... or by channels?
By channels.
So we show the main channels, right? So we break down out of the retail media, we break down how much is CTV, how much is out-of-home, because those are the biggest channels. We do not break the smaller parts, right? So we do have social, we do have video on open web, we do have the standard, we do have APAC. So we have a lot of channels, but we're mainly showing the biggest ones that are growing the fastest, because that's where the market is going, right?
I mean, most retailers are asking, you know, "What's the most effective thing that push back people back to the stores?" And obviously, you know, we think, and they show us that out-of-home is actually pushing the most people back to physical stores to buy more things. And that's why we went out and bought this super advanced technology called Hivestack that can do that, and now we've implemented our, you know, DCO technology into Hivestack, so it dynamically creates on-the-road ads that can dynamically change. So, for example, if you're going really, really fast on the highway, it would change the ad based on the condition of the road to maybe two or three words, because you can't read more than that when you're driving really fast.
But if there's a traffic jam, then it will automatically add more words to that thing and maybe add a QR code, because you're driving really slow, you can actually take a picture of that or you're stopped, right? So all of those small elements, you know, combining the actual promotions locally with our technology that builds in dynamically, it's what drives, you know, the success, and that's why we're mainly showing the out-of-home and CTV portions that are growing.
Mm-hmm. Okay. And, Hivestack is what gave you access to the ability to do that out-of-home, or you had that capability and this accelerated your efforts in that area?
So we had some success in out-of-home in the previous year, and when we saw that we're just getting more and more requests from our customers to do more and more out-of-home, we went out and we looked at all the out-of-home companies. You know, there are not a lot. There are, like, three out-of-home technology companies out there. And we've looked at all of them, and then we've decided, "Oh, we're gonna buy the leader of that, which has the most advanced technology." And we've doubled down on owning our own technology there, and we're now serving, you know, other clients who just want that technology.
So sometimes we're gonna do the omni-channel, the full experience, and sometimes we would work with, you know, all those holding companies that are just using our own, you know, DSP as a self-serve platform and buying their own out-of-home through us as a platform.
Mm-hmm. So you talked a bit about the opportunities ahead. I'd be curious what you think the biggest challenges are for the business now, you know, as you kind of embark on this period, post the more substantial contribution from Bing, how you think about the risks associated with that?
The risk of the future or the risk of Bing?
Yeah. The risks of relying on other aspects of the business to drive growth. So, you know, just basically the challenges to you achieving your growth strategy.
Yeah. So, I think, you know, we do see some good signals, but like any other companies, we would need the market to also start moving in the right direction. I think Q3, Q4, from all the, you know, if you look at analyst reports, nothing to do with our own numbers on the market, it seems like we're gonna heading into a good period of advertising, so budgets should go up again. This was the beginning of this year, that was kind of a strange year for ad tech, and I think things are gonna start picking up. Next year should be very positive for ad tech. Again, going through all the reports I'm reading, nothing specific to our company. So more budgets are gonna go in. I think there's gonna be more need of solutions like we have.
Fortunately for us, there's no other company that provides that full solution, that full technology solution. So, you know, that's good for us. We're looking at, you know, buying a few more solution like that, so, you know, I do see us adding more growth engines in the future. So that should also fuel our growth. But again, it's not only about us, it's the whole economy that should pick up, and budgets should raise faster, so.
It does seem like the online advertising industry in aggregate is doing quite well, you know, even in this quarter, you know, and the prospects do remain strong. I'd be curious your how you're thinking about then you mentioned some more M&A, how you're thinking about, you know, just capital allocation in general, and just balancing reinvesting in the business versus share repurchase versus M&A?
Yeah, absolutely. So we've announced at the beginning of the year that we're gonna buy $75 million of buybacks, which is, you know, roughly 20% of the company buying it back, which is a big buyback. We're considering a few M&As, so we don't think there's one silver bullet. We think it might be a few. When we think about M&A, it's the rules we're thinking of is it has to be EBITDA positive, so it needs to show that people are actually using it, and it's an efficient engine. It has to come with meaningful technology, so we're gonna have the confidence that it's gonna continue to grow. So, you know, it can't be just a one-trick pony. It needs to be fully technological, profitable, with a great team, and it has to be synergetic.
So the way we're looking at it now is, can I use my own sales team and my own relations within the holding companies to resell another solution, right? So I wouldn't need... When I look at the future, and we're now in a process of making everything more efficient, I don't need four people going to the same client selling them four different things. So how do I use my current sales team to sell more products and more solutions instead of just having more people, right? So that's the goal. How do we add more growth engines that my current team can sell? So, you know, with time, we should become more and more efficient.
Thanks, Tal. This has been a very good intro and update on the business as well, and we definitely do appreciate your time. I think before, I'm just scanning... Well, I don't know if you may have hit on this just in ending, but I did get a question from the audience just about more color on the M&A pipeline, and I don't know if you feel like you addressed that, about the types of businesses or not, but to the extent that you haven't, if you could, just in closing.
Yeah. So obviously, you know, I can't reveal names of companies we're looking at. But you know, as I said, you know, profitable, technological, extremely synergetic to what we do, that's pretty much it. It needs to fit into our current customer needs. So the new methodology that we're using is whatever company we're looking at, we're taking it to our clients, and we're gonna say, "If we're adding this, would that be helpful to you? How much would you spend more if we're gonna have that solution, and if we're gonna integrate that solution within our solution?" So we're, you know, in a sense, we're actually asking our clients, "Do you need that?" Right? So it's, I think it's a lot more powerful than just us adding more companies. It's about adding solution to our current clients.
Okay, great. And again, thank you so much for the time. We very much appreciate it. Thank you, Tal.
Thank you.
Have a good day.
You too. Bye.