DoubleVerify raises 2022 guidance as growth continues (NYSE:DV)

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A quick overview of DoubleVerify

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

The company provides a digital business media platform for tracking and analyzing online advertising.

Despite the company’s uneven bottom line in recent quarters, I’m impressed with its growth trajectory and break-even point (or better) as well as its improved 2022 guidance.

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

Introducing DoubleVerify

DoubleVerify, based in New York, NY, was founded to develop a platform for businesses to track and analyze their online activities to increase their digital marketing effectiveness and protect their brand image.

Management is led by CEO Mark Zagorski, who has been with the company since July 2020 and was previously CEO of Telaria, a video management platform.

The company’s main offerings include:

  • DV Authentic Ad – quality tracking

  • DV Authentic Attention – predictive digital advertising performance

  • Custom Contextual – Improved Programmatic Ads

  • Supply side solutions

The company seeks client relationships primarily with large corporations.

Market & Competition

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

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

The main drivers of this expected growth are the growing need for businesses to shift their sales efforts online to analyze the performance of their marketing campaigns and improve their results.

Additionally, the continued transition of businesses of all sizes to the cloud will drive a growth in demand for cloud solutions in the years to come.

In addition, the graph below shows the historical and projected growth trajectory of marketing analytics software adoption in the United States:

U.S. Marketing Analytics Software Market

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

Major competitors or other industry participants include:

  • Integral advertising science

  • Oracle Data Cloud

  • White operations

  • OpenSlate

DoubleVerify Recent Financial Performance

  • Core revenue per quarter has increased significantly over the last 5 quarters:

Total turnover over 5 quarters

Total revenue over 5 quarters (Seeking Alpha and The Author)

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

Gross profit over 5 quarters

Gross profit over 5 quarters (Seeking Alpha and The Author)

  • Operating profit by quarter was highly variable:

Operating result for the 5 quarters

5th quarter operating result (Seeking Alpha and The Author)

  • Earnings per share (diluted) followed the variability of operating income:

5 quarters of earnings per share

5 quarters of earnings per share (Seeking Alpha and the author)

(Source data for GAAP financial tables above)

Over the past 12 months, DV’s stock price has fallen 36.3% compared to the 1.7% drop in the US S&P 500 index, as shown in the chart below:

52 week stock prices

52 week stock price (seeking alpha)

Evaluation metrics for DoubleVerify

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

Measure

Rising

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)

For reference, a relevant audience comparable would be Integral Ad Science (IAS); Below is a comparison of their main evaluation metrics:

Metric

Integral Advertising 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)

DoubleVerify Review

In its latest earnings call (transcript), covering the first quarter of 2022 results, management highlighted the continued adoption by major advertisers of the company’s Authentic Brand Suitability (ABS) features that allow advertisers to create a set brand safety controls and deploying them across campaigns and platforms. .

CEO Zagorski also noted that its fixed transaction fee business model reduces its exposure to CPM volatility and smooths its revenue ramp-up despite changes in client ad spend policies.

Additionally, its CTV (connected TV) measurement products increased impression volume by 55% year-over-year.

In terms of its financial results, total revenue increased 43% year-over-year, driven by activation revenue growth of 56% and activation revenue growth was driven by its Authentic Brand Suitability product, which generated 52% revenue growth.

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

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

Its product development, sales and marketing, and G&A expense lines grew as the company increased its workforce.

Looking ahead, Q2 revenue was guided to grow 33%, which is also in line with its guided revenue growth for all of 2022.

On valuation, the market values ​​DV at significantly higher multiples than its competitor IAS, despite the similar revenue growth trajectory of the two companies.

The main risk to the company’s outlook is the unpredictable macro environment on customer ad spend and the related desire to use the company’s measurement and monitoring offerings.

DV is like other tech companies that have gone public in recent years. She continues to spend as she seeks to grow her business.

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

My rough guess is that most of the ‘beats’ went into DV stock.

Despite the company’s uneven bottom line in recent quarters, I’m impressed with its growth trajectory and break-even point (or better) as well as its improving outlook for 2022.

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

About Joel Simmons

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