In April 2017, digital ad company Perion Network (Nasdaq: PERI; TASE: PERI), which was trading at a market cap of about $120 million, was suffering from erosion of its traditional market, a debt taken to finance a large acquisition two years earlier, and a power struggle that had taken place a few months earlier, from which it was only beginning to recover. Needing to overcome with these problems, Doron Gerstel became Perion CEO. After six years in the job, Gerstel recently announced he would be stepping down in August.
He will be succeeded by Tal Jacobson, currently General Manger of CodeFuel, the company's search division. Gerstel will remain a board member at Perion, which provides solutions for advertising campaigns on search platforms, social networks, and more.
"Perion is the fifth company where I’ve been CEO. I managed two public and three private companies, for nearly 100 quarters," Gerstel tells "Globes." He came to Perion after previously managing Nolio (acquired by CA Technologies), Syneron, Zend Technologies and Panaya (acquired by Infosys). "The last four companies I managed was in the context of a corporate turnaround. You enter a reality where, on one hand, the board that interviews you for the position says 'this is the next Google', and on the other hand, the situation is catastrophic. In terms of productivity, things were very hard, with debt, declining revenue, and above all, a major problem with our image in the capital market, as well as difficulties with hiring employees. I can say that when I came to the company, the board of directors was considering - and did not reject outright - a proposal to sell Perion for $70 million. It gives you a sense of how challenging the business was."
Today, Perion's market cap on the Nasdaq and TASE is $1.55 billion - more than 12 times the value on the day Gerstel was named CEO. "The turnaround story is the same at any company, and I always divide it into three parts. First is to prioritize the balance sheet: start earning, generating cash, and repaying debt, because a company needs to have solid financial legs. The second, while making the necessary cuts, technological developments must be speeded up, because these will be the main driver of the third stage, which is growth."
When you put it like that, it sounds simple.
"It's not simple, but it needs to be done easily and described clearly. The top priority is a long-term strategy. The strategy we presented six years ago serves us and it’s different to the rest of the AdTech industry; we made a decision to diversify activity. The right strategy is to see things through the eyes of the people who own the digital advertising budgets within their organizations, who divide the budget between the different advertising channels: search platforms, websites, and social networks.
"The idea is that, if we know how to create solutions for all three channels, we won't suffer if the allocation shifts. It sometimes changes after various events, including macroeconomic ones, but we don't suffer from that - we flourish. The big problem is that there’s no free lunch; if we hadn’t done this in an efficient manner, this strategy would have become expensive and wasteful. That’s why it was important for us to develop a hub capable of linking the various solutions, to enable operational efficiency."
"Just scratching the surface"
According to Gerstel, in 2022, out of 52 public companies in the industry, Perion was the only one with a positive return. The share rose 5.2%, and as of early 2023, has added another 31%. "In the end, it's all about numbers, and the numbers proved the strategy," he says. "In the beginning, the company didn’t provide forecasts at all, then it started issuing forecasts, meeting them, exceeding them, and raising them. Slowly, it started attracting interest, higher trading volume, and analysts understanding the story. Even our $600-700 million high point (annual revenue was $640 million in 2022, and is expected to be about $730 million in 2023), is just a fraction of the AdTech sector. We're just scratching the surface of the potential.
"The market is very large and the trick is to identify areas with serious growth potential that correspond to advertising channels. Within those, there are options, for example, in the area of smart TVs we focus on live broadcast sporting events. Those advertisers want a return on investment and will compensate accordingly. Last year, we grew by 40% and the market grew 10%, an indication that we took market shares."
According to Gerstel, Perion currently has a good infrastructure for growth because it takes in information - data and other indicators - from all of the different advertising channels, and then targets them effectively. "In our world, data is the biggest advantage. If the advertiser gets a return on their investment, does it matter how much they paid? Our prices are very high, and we’re trying to educate the market that it doesn't matter how much it costs - what really matters is how much it's worth."
Advertisers value privacy
Perion also launched a solution without cookies - those small pieces of data collected while surfing the Internet. "We understood that we needed to prepare for this, and build a technological solution that would be at least as effective as cookies, but would preserve privacy in the cleanest way," he says. "Consumers prefer brands that maintain privacy in their advertising campaigns. More advertisers are understanding this - in the business world, it’s also part of the ESG [environmental, social, and governance] issue - and it brings us a lot of business."
What is the main challenge your successor, Jacobson, faces?
"To continue growing in the direction of diversification of activity, perhaps through a significant acquisition in areas where we aren’t yet a strong player. We have a very large force multiplier and an interesting playing field. I’m sure he'll continue moving the company forward. I recruited him four years ago from Similarweb, and he developed the strategic partnership with Bing. He's the right person in the right place to take the company to the next level."
Are there more acquisition opportunities today?
"The opportunities are increasing because the stock market is pretty much locked, IPO window is shut, so what's left in terms of a liquidity event if not a sell-off? There are amazing opportunities, and, given the current climate, they're cheaper than two years ago, and the market is far more realistic."
Has the tech sector sobered up from the hype of 2021?
"Totally. The valuations were unrealistic, SPACs had improbable market caps, and returned to moderate levels. Even the private market had heaps of companies with the glorified title of 'unicorn,' that turned out to be something else, given their results. I consider myself an 'old economy' person who strongly believes in profitability, whether a start-up or a public company. You need to make money first and then handle it with great responsibility. The trend was 'growth at any cost' but that’s not where a CEO’s responsibility lies. It’s a short-term vision that puts companies with their backs against the wall when they need to recruit in unfavorable conditions".
Today, things already look completely different, but 18 months to two years ago, companies were hiring workers ruthlessly, competing over the perks they could shower on them; a series of sketches on satirical TV show Eretz Nehederet, poked fun at tech companies that hired employees by giving them Teslas, and ice cream flavors by the dozen. "I have to say that if you want to hire good personnel and someone sets a certain standard, I can't come and tell the candidate, 'Work for me for altruistic reasons.' So, some took it to the level of ice cream in the cafeteria and 'daily Teslas'. We didn’t go that far but we did have to do some things to seem relevant, because that was the conversation at the time. We can’t school everyone, but we do have to act responsibly."
"Leaders are tested through unity"
Do you share concerns about damage to the economy by the judicial reform?
"I'm far more concerned about national disunity. In history, the destruction of the Second Temple was born first and foremost out of sibling rivalry. Today's discourse is very unhealthy - I can’t believe that, in the 21st century, someone would unleash a sectarian demon. Leaders should be tested through unity, not polarization.
"It’s clear that reform is the right thing; improvement processes are nothing new to those of us in the business world. However, there’s no doubt that, no matter how good and confident a manager you are, change is needed, and dialogue is required. Even in high-tech, the management style has changed and the business is more democratic. No one is born with all the answers, and doing things unilaterally leads to distrust and lack of cooperation.
"We’re not considering withdrawing funds from Israel. We need to behave responsibly, and I hope that whoever leads the reform will come to their senses and create a negotiation process. If it brings about unity that would be a benefit."
At the end of the transition period, Gerstel, a sailing enthusiast, is planning to sail from Italy to the Canary Islands, and then across to the Caribbean. "I'm going to rest," he says. "I've had a series of jobs, each one required learning and that requires energy, certainly as a manager who likes to dive deep. I'm not retiring, and I'm not ashamed [to take a break]. I like to work; I need to come back with renewed strength to my acquired area of expertise: turnaround."
Wouldn't you rather be the chairman of a company that someone else manages on a daily basis?
"I'd rather be a coach on the field than sit in the stands."
On ChatGPT: "It's truly a gift for us"
One development that may give Perion a boost is the expanded use of artificial intelligence (AI). More specifically, the huge interest around ChatGPT, the chatbot developed by US-based OpenAI that allows those using it for search to receive AI-based responses instead of links to other websites.
Microsoft, with which Perion has a long-standing partnership in search solutions, invested in OpenAI and announced its intention to integrate ChatGPT into its solutions, including its search engine Bing, which for years has not come close to the popularity of its rival Google. Investment firm IBI wrote recently that, if this were the case, Bing's user base will grow, and the amount of income-producing searches contribute to Perion’s growth; Perion being an essential partner to Microsoft in the area of search.
Gerstel points out that "Microsoft sees Bing as an important strategic asset. Unfortunately, they have a 3% share in the search sector, but they view it as having great potential. Each point of increase in market share is worth $2 billion to them, and there is a one-to-one value relationship between improving the user experience, and increasing the amount of user searches and bringing in new ones. The impact on us should be really direct.
"I assume we will get to see it, because Microsoft is all-in on this thing, and as they are successful in all kinds of other fields, they can take a significant share from Google. This step really comes as a gift to us."
Microsoft has made acquisitions in the AdTech sector. Why shouldn't it buy Perion?
"We aren’t for sale. I believe that Microsoft makes acquisitions in places that are good for its portfolio, and we are very diverse in what we do. Right now, it's not on the agenda at all; the strategic partnership with them is good for Perion."
What about another buyer?
"There is always consolidation in the market, but I am truly convinced that we are trading short by as much as $1.5 billion - that’s 10 times the EBITDA, which in terms of technology and the profitability percentages we have, is nothing compared to other companies.
"It’s true that they’re knocking on our door, but we won’t even enter into a dialogue, because there is no reason to gift ourselves to someone, when we can achieve much bigger market capitalizations."
Published by Globes, Israel business news - en.globes.co.il - on March 2, 2023.
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