Frank Voisin is the author of the popular value focused website Frankly Speaking, found at Frankvoisin.com
The following is a reader submission rebutting a recent Seeking Alpha article on Perion Network Ltd (NASDAQ: PERI).
Frank’s Disclosure: No position in any of the securities mentioned.
Last week Vince Martin wrote a Seeking Alpha article on Perion Network (PERI) which seemed to cast a negative view on the company. We have been following the company for a while and are far more optimistic about its prospects. It’s unclear if Mr. Martin even bothered to speak with PERI or Google before publishing his widely circulated article, but we have serious concerns about some of his statements which we believe present an incomplete and inaccurate picture of the situation. Importantly, we believe Martin’s article has created an attractive opportunity for investors to buy the stock that has been beaten down by questionable journalism and undue concerns about the Google contract renewal.
Below are some of the issues we have with Martin’s article:
- Martin correctly mentions the risk that GOOG may not renew the contract which expires later this month; however, he never explains some other highly plausible reasons why the renewal process may be taking so long. Anyone who has been closely following the company understands that PERI completed a major acquisition of Sweetpacks only last month. This acquisition may be complicating the renewal process because it significantly increases PERI’s size and alters its business mix. Furthermore, (as PERI has repeatedly told investors) Sweetpacks has its own GOOG contract which does not expire until May 2013, so PERI/GOOG may be trying to structure a contract that combines the existing PERI and Sweetpacks agreements. Finally, one must consider the calendar impact on PERI’s ability to get a deal done with Google. In many industries it is often difficult to finalize a deal towards the end of a calendar year because people often take vacations in December and when they return in January they are often focused on other things. So, while we doubt the calendar was the sole factor in holding up the GOOG renewal, we believe it likely contributed to it.
- Martin fails to mention that it is not uncommon for contract renewals to occur at the last minute. Anyone familiar with PERI’s industry knows that one of its competitors, AVG Technologies (AVG) recently had to renew its Google contract. AVG’s contract was scheduled to expire on September 30, 2012, but it was not until September 27th (three days before the expiration) that AVG announced it had agreed with Google to extend the agreement until Oct. 31, 2013. Then, on Oct. 31 (the day the extension was scheduled to expire), AVG announced the agreement had again been temporarily extended. Then, on November 28, AVG announced a new two year agreement with Google.
- Investors should study what happened with AVG so they can understand what may happen with PERI’s stock price. AVG’s stock price traded down to below $10 towards the end of September as investors panicked that the Google deal would not be renewed. However, the stock traded up every time AVG announced an extension. When AVG finally announced the new 2 year deal in November, the stock traded close to $14. So, investors who bought stock during the time of panic made over 35% in only two months.
- Martin claims that “even if a deal gets done, there may be some concern on Google’s end about Perion’s software….” This is a rather damaging statement for which the author provides little support. He doesn’t provide any recent comment by Google relating specifically to PERI nor does he even indicate if he spoke to Google. Instead, Martin references language from an outdated SEC filing (PERI’s 2009 20-F) and then throws more fuel on the fire by claiming Google had “some distrust of ” PERI’s business model. Again, he offers no real support to justify this highlycontroversial claim. I think a reasonable person would wonder why if Google (a multibillion dollar company) really had “distrust” of PERI (a relatively tiny and insignificant customer) why GOOG renewed its contract after the 2009 and appears ready to renew its contract again.
- Martin also states that it appears that Google has “real concerns about Perion’s behavior – and have for some time.” We wonder why the author feels the need to repeatedly make such damaging statements, especially since he provides no proof to support his comments.
- Martin notes there have been “a number of complaints” about Smilebox on sites such as CNET. While indeed there are some complaints, Martin fails to even attempt to put the magnitude of the complaints into perspective by not telling readers how many people have downloaded Smilebox. Without informing readers how many people have used the product, it is difficult to objectively understand how significant of a problem these complaints are.
- Martin says “ Mandelbaum’s effort to blame ignorant and/or difficult customers seems insincere.” We certainly hope Martin isn’t implying that Mandelbaum called his customers “ignorant” which we believe is a rather insulting phrase. Perhaps Martin believes these people are“ignorant,” but we highly doubt Mandelbaum does. Regarding Mandelbaum’s sincerity, we again question the basis for Martin’s accusation. We have known Mandelbaum for a while and have always found him to be honest and straight forward. Sadly, Martin fails to explain why he considers Mandelbaum to be insincere.
- Martin states the segments in which the company competes “peaked in 2001.” Again, he provides no facts or data to support this statement. However, anyone who reviews PERI’s or Sweetpacks’ financials, or does some basic analysis of the company’s 2013 guidance can easily see that their business is actually growing organically. It’s unclear to us why someone who is criticizing the future of PERI’s business model would fail to mention the