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Perion Network (PERI), a provider of digital advertising and content monetization products, is crashing to its lowest levels since late 2020 after issuing downside Q2 revenue guidance and slashing its FY24 revenue guidance again. The primary issue afflicting PERI is related to changes being made at Microsoft (MSFT) Bing, which has historically been one of the company's largest advertising partners, accounting for approximately 35% of PERI's revenue as of the end of 2022. Now, however, search revenue from Bing is expected to represent less than 5% of PERI's revenue in 2H24 due to Bing's decision to "exclude a number of publishers from its search distribution marketplace."

• This decision to exclude certain publishers -- which apparently includes PERI -- is a major step in Bing's pricing strategy with its distribution partners. Recall that in early April, PERI issued downside Q1 revenue guidance and significantly cut its FY24 revenue guidance to $590-$610 mln from its prior forecast of $860-$880 mln to reflect changes in ad pricing and other mechanisms at Bing.
  • These changes began to drive Revenue per Thousand Impressions (RPM) and search volume lower, but the impact from the changes at Bing wouldn't really kick in until Q2. In fact, search advertising revenue still increased by 26% in Q1.
• When PERI reported Q1 earnings about one month ago, the company reaffirmed its FY24 revenue outlook and its Q2 guidance of $118-$122 mln was actually ahead of expectations at the midpoint. Furthermore, during the earnings call, CFO Maoz Sigron characterized the company's relationship with MSFT as "strong", despite the changes in advertising prices, suggesting that Bing's decision to exclude PERI from its search distribution marketplace came as a surprise.
• It's another huge blow for the company and its investors as PERI is now expecting FY24 revenue of $490-$510 mln -- a whopping 43% below its original guidance, at the midpoints of the guidance ranges.
• Replacing the lost revenue from Bing will be a tall order and it won't happen overnight. PERI is working with other search engines to try to rebuild its search business, but the company has been working to diversify its revenue streams, most notably through its CTV and Retail Media businesses. Both businesses are generating very strong growth with CTV revenue soaring by 108% in Q1 and Retail Media surging by 134%.
  • However, both businesses are also still relatively small, with CTV and Retail Media accounting for 5% and 9%, respectively, of total Q1 revenue.

The main takeaway is that the situation with Bing went from bad to worse, catching investors off-guard again. Not only does PERI face the daunting task of replacing the lost business from Bing, but it also must restore a measure of lost confidence that's now likely hanging over the company and its stock.