DoubleVerify Ups 2022 Guidance As Growth Continues

May 31, 2022 6:15 PM ETDoubleVerify Holdings, Inc. (DV)1 Comment1 Like

Summary

  • DoubleVerify went public in April 2021, raising $359 million in gross proceeds in an IPO.
  • The firm provides online advertising measurement and monitoring to large enterprises worldwide.
  • DV has shown admirable growth while reaching earnings breakeven (or better).
  • The stock has been battered along with the tech sector. For investors with a risk-on appetite, DV may be a potential Buy opportunity.
  • Looking for more investing ideas like this one? Get them exclusively at IPO Edge. Learn More »

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Khanchit Khirisutchalual/iStock via Getty Images

A Quick Take On DoubleVerify

DoubleVerify (NYSE:DV) went public in April 2021, raising approximately $359 million in gross proceeds in an IPO that was priced at $27.00 per share.

The firm provides an enterprise digital media platform for online advertising monitoring and analysis.

Despite the firm's uneven net results earnings over the past several quarters, I'm impressed by its growth path and breakeven earnings (or better) along with its improving guidance for 2022.

For investors willing to take a risk-on approach, my outlook for DV is a Buy at around $22.00.

DoubleVerify Overview

New York, NY-based DoubleVerify was founded to develop a platform to help enterprises track and analyze their online activities to increase their digital marketing effectiveness and protect their brand equity.

Management is headed by Chief Executive Officer, Mark Zagorski, who has been with the firm since July 2020 and was previously CEO of Telaria, a video management platform.

The company's primary offerings include:

  • DV Authentic Ad - quality tracking

  • DV Authentic Attention - predictive digital ad performance

  • Custom Contextual - programmatic ad enhancement

  • Supply-Side Solutions

The firm seeks customer relationships primarily from large enterprises.

Market & Competition

According to a 2021 market research report by Grand View Research, the global marketing analytics software market was an estimated $2.7 billion in 2019 and is expected to reach $8 billion by 2027.

This represents a forecast strong CAGR of 14.8% from 2020 to 2027.

The main drivers for this expected growth are a growing need by companies moving their sales efforts online to analyze their marketing campaign performance and to improve their results.

Additionally, the continued transition of firms of all sizes to the cloud will produce demand growth for cloud solutions in the years ahead.

Also, the chart below shows the historical and projected future growth trajectory of marketing analytics software adoption in the U.S.:

U.S. Marketing Analytics Software Market

U.S. Marketing Analytics Software Market (Grand View Research)

Major competitive or other industry participants include:

  • Integral Ad Science

  • Oracle Data Cloud

  • White Ops

  • OpenSlate

DoubleVerify's Recent Financial Performance

  • Topline revenue by quarter has grown significantly over the past 5 quarters:

5 Quarter Total Revenue

5 Quarter Total Revenue (Seeking Alpha and The Author)

  • Gross profit by quarter has followed approximately the same trajectory as that of total revenue:

5 Quarter Gross Profit

5 Quarter Gross Profit (Seeking Alpha and The Author)

  • Operating income by quarter has been highly variable:

5 Quarter Operating Income

5 Quarter Operating Income (Seeking Alpha and The Author)

  • Earnings per share (Diluted) have tracked the variability of Operating Income:

5 Quarter Earnings Per Share

5 Quarter Earnings Per Share (Seeking Alpha and The Author)

(Source data for above GAAP financial charts)

In the past 12 months, DV's stock price has fallen 36.3 percent vs. the U.S. S&P 500 Index's drop of 1.7 percent, as the chart below indicates:

52 Week Stock Price

52 Week Stock Price (Seeking Alpha)

Valuation Metrics For DoubleVerify

Below is a table of relevant capitalization and valuation figures for the company:

Measure

Amount

Market Capitalization

$3,760,000,000

Enterprise Value

$3,630,000,000

Price/Sales

10.02

Enterprise Value/Sales (TTM)

10.04

Enterprise Value/EBITDA (TTM)

69.01

Operating Cash Flow (TTM)

$61,040,000

Revenue Growth Rate (TTM)

39.03%

Earnings Per Share

$0.15

(Source)

As a reference, a relevant public comparable would be Integral Ad Science (IAS); shown below is a comparison of their primary valuation metrics:

Metric

Integral Ad Science (IAS)

DoubleVerify (DV)

Variance

Price/Sales (TTM)

5.37

10.02

86.6%

Enterprise Value/Sales (TTM)

6.15

10.04

63.3%

Enterprise Value/EBITDA (TTM)

76.72

69.01

-10.0%

Operating Cash Flow (TTM)

$67,090,000

$61,040,000

-9.0%

Revenue Growth Rate

36.4%

39.0%

7.3%

(Source)

Commentary On DoubleVerify

In its last earnings call (transcript), covering Q1 2022's results, management highlighted the continued adoption by large advertisers of the firm's Authentic Brand Suitability (ABS) functionalities which allow advertisers to create a set of brand safety controls and deploy them across campaigns and platforms.

CEO Zagorski also noted that its fixed transaction fee business model reduces its exposure to CPM volatility and smooths out its revenue ramp despite shifts in ad spend policies by clients.

Also, its CTV (Connected TV) measurement products grew impression volume by 55% year-over-year.

As to its financial results, total revenue grew by 43% year-over-year, led by activation revenue growth of 56% and activation revenue growth was driven by its Authentic Brand Suitability product, which produced 52% revenue growth.

Its measurement business grew by 23%, a distinctly lower rate of growth than its ABS growth.

Gross profit dipped due to cost increases from revenue-sharing with programmatic partners for new activation revenue.

Its product development, sales & marketing and G&A expense lines grew as the firm added headcount.

Looking ahead, Q2 revenue was guided to grow at 33%, which also matches its guided revenue growth for all of 2022.

Regarding valuation, the market is valuing DV at significantly higher multiples than competitor IAS, despite the two firms' similar revenue growth trajectory.

The primary risk to the company's outlook is the unpredictable macro environment on client ad spending and related desire to use the firm's measurement and monitoring offerings.

DV is like other technology companies that have gone public in recent years. It continues to spend as it seeks to expand its business.

But, as the cost of capital has risen in recent quarters due to rising interest rates, these money-losing stocks have been beaten down.

My rough guess is that most of the 'beat-down' has been priced into DV's stock.

Despite the firm's uneven net results over the past several quarters, I'm impressed by its growth path and breakeven earnings (or better) along with its improving guidance for 2022.

For investors willing to take a risk-on approach, my outlook for DV is a Buy at around $22.00.

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This article was written by

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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.

Additional disclosure: This report is intended for educational purposes only and is not financial, legal or investment advice. The information referenced or contained herein may change, be in error, become outdated and irrelevant, or removed at any time without notice. You should perform your own research for your particular financial situation before making any decisions. Post-IPO investing carries significant volatility and risk of loss.

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