Spruce Point Capital has raised concerns that Israeli ad-tech company Perion Network might be using manipulative accounting and reporting practices to paint a rosy picture of its business.
In a short report Tuesday, Spruce Point questioned the accuracy of Perion’s financial reporting and said revenue recognition disclosures “around gross vs. net accounting recently became opaque” while the auditor raised it as a “critical matter.”
Spruce Point said that Perion’s revenue and EBITDA per employee put it on par with technology leaders Apple, Google, Microsoft, and Facebook. Despite this stellar performance and having $436 million of cash on hand and no debt, Perion is asking shareholders next month to approve a 33% share count bump, Spruce Point highlighted, claiming the move is a ‘‘major red flag’’ for investors.
Perion shares were down 3% at $30.83 after the first 15 minutes of trading Tuesday in New York. Spruce Point put a downside target of 25% to 40% on the stock.
Perion’s value has jumped by 765% in the last five years, but Spruce Point believes this is the result of a number of concerning changes at the company, including three ‘‘highly suspicious’’ acquisitions, and sustained stock promotion. The short seller noted that a four-year partnership with Microsoft – a key point in Perion’s bullish case – is running below plan stating that after two years, PERI has reported only $401m of revenue from Microsoft.