In its latest quarterly filing Perion Networks (PERI), a provider of multi-channel digital advertising solutions, reported a 104% year-over-year (YoY) increase in connected television (CTV) revenue. The triple digit rise was due, in part, to a change in how the company recognizes CTV revenue:

“Starting this quarter, we changed our methodology for measuring our CTV activity. We moved from measuring CTV campaigns to measuring CTV channels. The CTV growth trend under both methodologies remains in the same trajectory.”

The change reduced the prior year’s second quarter CTV revenue to $3.5 million from $5.1 million.

Without the change, Perion’s second quarter 2023 YoY CTV activity would have grown just 41.1%, instead of the reported 104%.

The bigger question, in our view, is whether the change was made to accelerate the current year’s growth rate or to reduce prior period sales for some reason.

Notably, the CTV growth rate reported in the latest quarter appears to be inaccurate. Perion reported Q2 2023 CTV revenue of $7.2 million, indicating YoY growth under the new methodology is 105.7%, not 104%.

Nowhere in the release did DuDil find a routine disclosure warning numbers may not sum due to rounding.

With an Enterprise Value (EV) of approximately $1.74 billion, Perion is priced as if it will grow annual sales to more than $3 billion, or four times the estimated $743.1 million in 2023 sales. To justify its current share price of $34.95 our Reverse DCF— which quantifies investor expectations embedded in the current share price— indicates Perion must:

—Grow sales 17% annually for a decade, significantly faster than consensus FY24 and FY25 forecasts of (32.8) and (6.1%), respectively
—Increase NOPAT margin to 13%, up from our 3-year average estimate of 9.1%
—Increase Invested Capital (IC) Turns to 1.4 from our 3-year average estimate of 1.1

Notably, Perion’s current share price also implies the company will increase ROIC to 18.2%, up from our estimate of 17.9% in 2022 and our 3-year average estimate of 11%: