Description

Time-sensitive idea, so will be brief.

See jamal’s (prize winning) PERI post from 9/20/22 for good background.

In short, the stock/story did not play out as hoped.  The Bing business, once 35% of PERI revs, has all but gone away.

Pro forma for that, looks like they will be run-rating $40-50m of EBITDA, down from peak EBITDA of $230m.  FCF likely 80-90% of that.  Stock comp running $15-20m. Call it run-rate FCF - Stock comp of $20-30m.  This is based on the company’s 2H24 guidance, with Bing at <5% of revs. 

With PERI at sub-$9/shr this morning, the business is now trading below net cash.  I see mcap of ~$450m, with $480m of net cash on the BS, and no debt.  They have $75m shr repo auth in progress = 17% of the company at current px.  Much of that net cash came from raising at $20+/shr in 2021.

In the modern era, seeing a non-nano-cap business with + FCF trading below net cash is exceedingly rare.

The Bing outcome reminds us this is a cr*ppy biz, subject to the whims of the major search engines.  I don’t bring any unique forecasting to the table, and there is a chance the operating business ends up a zero, or even negative.

5x remaining EBITDA + net cash = $14/shr = 50+% upside to here.  And a safety net from the perfect balance sheet = $9.40/shr in net cash.

An obvious way to lose from here = mgmt does something stupid with their net cash.  Here’s mgmt in today’s recent pre-announcement press release:

“Furthermore, management and our Board of Directors are equally committed to delivering shareholder value by leveraging our strong balance sheet to invest in technology, acquire complementary solutions and execute our $75 million buyback program, which has already begun.”

Clearly “investing in technology or acquiring complementary solutions” is not what we want.  Using that cash for anything other than buying back stock below net current assets would be an egregious failure of the board’s fiduciary duty.  Which of course doesn’t mean it can’t happen.

I have no special view of mgmt or the board.  Obviously, this would be a ripe situation for an activist.

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Catalyst

Buying back stock below book value.