DoubleVerify: Strong Market Leader In Media Measurement And Analytics Market
Summary
- DoubleVerify provides a software platform for digital media measurement, data, and analytics.
- Accreditations and strong growth rates in existing and new customers indicate that the company has a very strong position in the market.
- Due to a robust growth strategy and high growth market opportunity, I believe high growth to continue.
- Furthermore, despite its high investment cost, the company achieved reasonable profitability levels already.
- Its estimated 5-year forward multiple indicates that the stock would yield a very decent return, especially considering that the risk level doesn't seem to be really high.
peepo/E+ via Getty Images
Investment thesis
DoubleVerify Holdings, Inc. (NYSE:DV) has accreditations and strong growth rates in existing and new customers, indicating that the company has a very strong position in the market. I'd say that the stock at current valuation levels is a buy.
Table of contents
- Introducing DoubleVerify and its industry
- Stock performance
- Competitive analysis
- Growth
- Margins
- Risks
- Valuation and conclusion
Introducing DoubleVerify
DoubleVerify provides a software platform for digital media measurement, data, and analytics. Its products deliver unbiased data analytics to marketers, allowing them to improve the efficacy, quality, and return on their digital advertising efforts.
Their services include:
- DV Authentic Ad is a metric of digital media quality that evaluates the presence of fraud, brand safety, viewability, and geography for each digital ad;
- DV Authentic Attention is a predictive analytics solution that provides exposure and engagement to drive campaign performance; and
- Custom Contextual is a solution that allows advertisers to match their ads to relevant content to maximize user engagement and drive campaign performance.
- DV Publisher Suite, a solution for digital publishers to manage revenue and increase inventory yield by improving video delivery, identifying lost or unfilled sales, and aggregating data across all inventory sources; and
- DV Pinnacle, a service and analytics platform user interface that allows customers to adjust and deploy controls for their media plan and track campaign performance metrics across channels, formats, and devices, is also among the company's offerings.
Market opportunity
I expect the global advertising industry to grow at a much higher rate than the economic growth level. Not only are does the use of e-commerce keep increasing, increasing resources to set up digital advertising campaigns add to the future growth. The Business Research Company expects the market to reach $354.90 billion in 2026 at a CAGR of 14.3%.
DoubleVerify's revenues are based on the continued acceptance of digital measurement tools and analytics, as well as the rise of digital advertising. Advertisers have progressively transferred their digital media spend to programmatic and social media channels as the digital advertising industry has evolved, allowing them to directly target adverts to accomplish desired business goals. Because of its interfaces with prominent programmatic and social media platforms, DoubleVerify's solutions have benefited directly from this expansion.
Competitive analysis
DoubleVerify is part of the digital ad measurement market. Its primary competition is other digital ad measurement providers, including Moat and Grapeshot, which are part of the Oracle Data Cloud and Integral Ad Science. Throughout this article, I will use Integral Ad Science (IAS) to benchmark DoubleVerify's statistics. Integral Ad Science is a technology company that analyzes the value of digital advertising placements.
DoubleVerify has received accreditations and certifications from a wide range of industry bodies, including the Media Rating Council, a United States-based nonprofit organization that manages accreditation for media research and rating purposes. The accreditations and certifications of its products give advertisers confidence in the efficacy and reliability of its solutions. The expansive coverage of its certifications and accreditations across metrics, standards, devices, and regions represents a significant expenditure of capital and years of auditing that can be difficult for new market entrants to obtain.
DoubleVerify is the only fully accredited programmatic suite in the market today.
Accreditations DoubleVerify (Investor Presentation)
As a result of its accredited and differentiated offerings, customers currently impressively include over 50 of the top 100 global advertisers including Colgate-Palmolive (CL), Ford (F), Mondelēz (MDLZ), and Pfizer (PFE).
Furthermore, due to loyalty of customers and newly offered solutions, DoubleVerify has achieved great net revenue retention rates, which I will further explain in a bit.
In conclusion, DoubleVerify seems to possess great competitive advantages to become/stay the leader in the market.
Fundamental analysis
I split the fundamental analysis into two parts, (revenue) growth analysis and margin analysis.
DoubleVerify recent growth
Growth performance of DoubleVerify and its competitors in the last few years:
Stock | Revenue Growth (Quarterly YoY) | Revenue Growth (TTM YoY) | Revenue Growth Rate (3Y) |
DoubleVerify | 34.2 | 36.42 | 47.21 |
Integral Ad Science | 30.68 | 27.67 | nan |
Source: Seeking Alpha, income statement and earnings
The high growth rates are explained by attracting new clients, but also by growing its existing customer base. DoubleVerify was able to drive net revenue retention of 126% in 2021, 123% in 2020, and 156% in 2019 through increased advertising volume and the successful launch of newly-introduced solutions.
Future growth
Several factors could help boost the future growth of DoubleVerify:
Growing with Our Current Customers. New solutions should help continue growth in the existing customer base. For instance, as content consumption shifts to platforms like Facebook, YouTube, TikTok, and others, it is expected that advertisers will be keen to adapt their online presence - as well as their quality and performance measurement solutions - to these new and growing areas.
Expanding Our Customer Base. DoubleVerify intends to continue targeting new advertisers, programmatic platforms, and digital publisher customers who have not yet adopted digital ad measurement and analytics solutions, as well as those currently utilizing solutions provided by its competitors or point solutions. With the total addressable market for its core solutions less than 25% penetrated as of 2020, there is plenty of room for growth left.
Expanding Our International Presence. DoubleVerify intends to continue to grow its presence in international markets in order to meet the needs of our existing customers and accelerate new customer acquisition. They are already located in 21 countries worldwide.
I believe that these growth strategies, combined with a solid position in the market, will help achieve high continued growth rates. As the market and the company are maturing, I believe the company will lose a few percentage points every year.
Growth estimates by analysts in percentage:
Stock | Revenue 2022 | Revenue 2023 | Earnings 2022 | Earnings 2023 |
DoubleVerify | 30.2 | 26.7 | 11.1 | 90.0 |
Integral Ad Science | 30.0 | 27.5 | 116.2 | 416.7 |
Source: Analyst estimates from Seeking Alpha
The growth rates of the analysts are fairly in line with what I expect. Interesting to notice is that analysts expect the Integral Ad Science to almost grow at the same level.
Margins
I computed several key margins for DoubleVerify and its industry. The first number in the cells in the following table refers to DoubleVerify, while the number between the parentheses refers to Integral Ad Science.
Accounting item as % of revenue: DoubleVerify (Integral Ad Science):
Accounting Item | 2021 | 2020 | 2019 |
Gross Profit | 83.7 (83.1) | 85.3 (83.2) | 86.4 (84.5) |
Operating Expense | 75.6 (91.3) | 76.6 (88.9) | 65.0 (100.3) |
Normalized EBITDA | 17.2 (11.1) | 19.2 (21.5) | 34.2 (17.1) |
Free Cash Flow | 22.0 (15.4) | 4.7 (10.1) | 12.9 (-4.4) |
Normalized Income | 8.8 (-13.2) | 8.4 (-13.4) | 12.8 (-24.0) |
Source: Seeking Alpha income statement
Much of the 2021 operating expenses can be linked to the IPO, acquisitions, and investments for future growth. Impressively enough, however, due to its high gross margin, its profitability levels are still sufficient.
Risk analysis
Before I get into the valuation of the stock, I will touch upon the risks of owning DoubleVerify.
Key risk measures:
Stock | 52W Beta, daily | Market Correl | Debt / Equity % | Net Interest Coverage |
DoubleVerify | 1.78 | 0.41 | 0.57 | 49.12 |
Source: Yahoo Finance prices and Seeking Alpha
DoubleVerify has a beta of 1.78, showing that it's very sensitive to market movements. Correlation to the market is quite low, indicating a good additional diversification for a portfolio.
Its high net interest coverage (EBIT/net interest expense) shows there is no reason for worry regarding its financial structure.
A risk is the fact that Media Rating Council periodically reanalyzes its accreditations, if they would remove any, it would hurt its strong reputation in the industry, which I think is one of its strongest competitive advantages.
Valuation
I have computed several key current valuation metrics.
Key valuation measures:
Stock | Enterprise Value / Revenue | Enterprise Value / EBITDA | Enterprise Value / Gross Profit | Forward PS | Forward PE |
DoubleVerify | 10.02 | 58.20 | 11.98 | 6.47 | 66.61 |
Integral Ad Science | 6.91 | 87.45 | 8.31 | 3.84 | 49.9 |
Source: Seeking Alpha
According to the EV/revenue and EV/gross profit ratio, the market values DoubleVerify higher than Integral Ad Science, which, in my opinion, can be attributed to the fact that DoubleVerify has an extremely strong accredited product and higher current profitability levels.
To see if an investment would be profitable, we can estimate a 5-year EBITDA multiple forward and compare it to the long-run S&P 500 EBITDA multiple. If we take the EV/revenue and divide it by a rough annual growth estimate of 23% and divide this number again by an estimated EBITDA margin of 40%, this would give a 5-year forward EV/EBITDA multiple of 8.8. Recent market EV/EBITDA fluctuates around 14. Furthermore, DoubleVerify could be still valued a lot higher than the market in 5 years, as I expect that growth can be achieved long after the 5 years. Theoretically, this would yield a very robust return, especially considering that the risk level doesn't seem to be very high.
In conclusion, I say that the stock at current valuation levels is a buy.
This article was written by
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.