Quick Pitch: Perfect (PERF)

Potential Buyout: 17.5% Upside (at $1.66)

Several members have asked me about this privatization setup. While the spread is wide at 17.5%, it appears to be largely justified by the underlying risk. Here’s a quick overview.

Augmented reality app developer Perfect has received a non-binding privatization proposal from its founders at $1.95/share. The founders already have a tight grip on the company. They own 53% of the economic interest and control 81% of the voting power through super-voting shares, while also holding both the CEO and chairwoman roles. Shareholder approval is effectively guaranteed, and the special committee review, which is already underway, also looks like a formality. In essence, this transaction depends solely on whether the founders choose to move forward.

The offer values Perfect’s equity at $198m, only slightly above its $172m cash pile. Cashing out the minority holders would cost $93m. Obviously, there’s no financing risk in this takeover. The offer comes at all-time lows, and, at a quick glance, appears to be an opportunistic/attractive deal for the buyers.

The biggest issue is that it is not clear why the founders are being so generous. PERF is a breakeven business that’s facing a massive disruption from AI. Subscriber count already fell from 1,000k+ in 2024 to ~900k in 2025, despite $30m+ spent on marketing last year. Why would founders who already control the company pay above cash value and effectively hand $93m to minority holders?

The only charitable explanation is that the founders are acting in good faith. Maybe they’re honest people, and simply want to return minorities their share of the cash, take the business private, and then put it in run-off mode. PERF has been spending $12-$15m annually on R&D. If that is cut and marketing is optimized, the buyers could potentially recover the $26m purchase price relatively quickly. However, if this explanation does not hold and no better one emerges, there is a real risk the offer is not firm and could be withdrawn. In that case, the downside would be significant.

There are a few signs, albeit soft ones, that the founders may be acting in good faith. They are a husband-and-wife team who also founded CyberLink, which was once a major provider of DVD-related software. It now trades on the Taiwan Stock Exchange with a market cap of US$150m. Perfect’s core technology was originally developed within CyberLink before being spun off as a standalone company in 2015.

Perfect has been backed by Alibaba, Snapchat, Chanel and Shiseido. Alibaba was at one point a ~10% shareholder, though it fully exited its position in 2024.

The founders also have a track record of returning capital to shareholders. In 2023, PERF conducted a $50m tender at $3.10/share for 16% of the shares. Notably, the founders did not participate. The offer was oversubscribed, with about 27% of total shares tendered. Cyberlink has also been paying out a dividend for over 20 years.

Overall, the founders do not strike me as people who would totally disregard their reputation. Walking away from the privatization and allowing PERF’s share price to continue to deteriorate would clearly damage their credibility. But it remains to be seen whether they move forward with cashing out the minority holders.

 

More background on PERF

Perfect operates across two segments: B2B and B2C. The B2B business provides augmented reality software to beauty and lifestyle brands, enabling virtual try-on features of products such as jewelry, shoes, makeup, eyewear, etc. The clients can then implement this feature across their own websites, in-store smart mirrors, and third-party platforms like Snapchat and WeChat. The customer list spans across 800 brands and includes Estée Lauder, LVMH, Shiseido, and even Walmart. This segment has been gradually shrinking over the last few years, with management pointing to macro pressures and reduced spending from brand customers.

The main growth driver so far has been the B2C segment. It includes seven mobile apps under the YouCam suite focused on augmented reality and photo editing. The flagship products are YouCam Makeup (with over 100m downloads and 4m reviews on the Google Play Store) and YouCam Perfect (also with 100m+ downloads and around 2m reviews). Both apps were launched back in 2014, but monetization only really began in 2020 with the introduction of a freemium model, where users pay for premium features via subscriptions. Despite substantial growth since 2020, the paying subscriber count started to decline last year. Revenue growth continued due to improved average sale price following introduction of a new higher-priced premium tier at $79/year, up from $39/year for the standard tier.

Management attributes the increased churn to the introduction of a higher-priced subscription tier that shifted some features out of the standard plan. That feels like a stretch. Maybe it was a factor, but competition from AI likely played a much more meaningful role.

PERF is a former SPAC. The merger was completed in 2022, and the company has since significantly underperformed its original financial projections. The above mentioned top-tier backers (Alibaba, etc.) all participated in the $50m PIPE alongside the de-SPAC. Moreover, PERF is a Taiwanese company with Taiwanese founders and management, operating in an exotic augmented reality software space and using ‘AI’ in every other sentence of its investor communications.

Historical financials are provided in the table below:

Note: operating income for Q4’25 has been adjusted for $2m one-off impairment.