DoubleVerify: Volume, International Expansion Verified Long-Term Growth

DoubleVerify (NYSE:DV) offers a valuable service to advertisers who want to maximize their digital advertising budgets. It gives them the information they need to make informed decisions by independently verifying that their ads are being seen by real people, not automated bots. As a result, advertisers can optimize their ad spend, reach their target audience, and generate a positive return on investment. DoubleVerify is making progress in content advertising and has seen an increase in media transaction measured volume, putting it in a favorable position in light of the current changes in Ad Spending. DV has improved profitability and no long-term debt on its balance sheet, making it an appealing long-term candidate.

Company Overview

Without third-party cookies, DoubleVerify will still be able to provide its customers a more private and secure method of measuring the effectiveness of their online advertisements. This enables DV to address concerns around data privacy, which is increasingly important in today’s privacy-conscious environment. This can be seen as a major advantage for the company, as it allows it to continue to provide its services to clients while also satisfying their needs with regards to data protection. This is an advantage for the company since it allows it to continue providing services to clients while still meeting its obligations regarding data protection. Additionally, one of the fruits of DoubleVerify’s innovative solutions is its expanding greenfield customer base and continued growth in new enterprise logo wins. These enterprise logo wins are established enterprises in their respective industries, which positions DV favorably long term.

…In the third quarter, we won Mattel, GAP and several other large and high-profile advertisers away from our competitors.

In addition, we successfully broke through a number of greenfield accounts, TUI, Marina Bay Sands, and Smart Energy U.K. In fact, 71% of our third quarter wins were greenfield, representing the highest share of greenfield wins in any quarter this year. Our vast TAM remains largely untapped with a significant number of global greenfield opportunities for us to win and expand our business with, over the long-term. Source: Q3’22 Earnings Call Transcript

This is especially true given the company’s strong gross retention rate of 95% and significant YoY growth in its large customer base count, as seen in the image below.

Additionally, despite today’s macroeconomic challenges, DV manages to expand its revenue to $112.3 million, up 35.09% from $83.1 million in Q3’21, owing to stronger volume, as quoted below.

On volumes, our 17% year-over-year growth continues to significantly outpace the industry as reflected in Magna’s forecast of 7% growth in 2022 US Digital Ad Spend, ex-Search. With regards to pricing, our MTF growth of 10% in the quarter was primarily driven by improved premium product mix, followed by the impact of the programmatic display and video price bifurcation which we initiated on our core programmatic products in the first quarter of this year. Source: Q3’22 Earnings Call Transcript

Another point of interest is its growing Activation services, which are based on content-driven data and do not use third-party cookies or cross-site tracking technology. This division continues to be DV’s largest revenue contributor, with $62.17 million at the end of the quarter, up 48.37% from $41.90 in Q3’21. According to management, new client activation is driving this growth.

…Approximately 60% of ABS’s revenue growth was fueled by new client activations while 40% was generated by existing clients growing their ABS impression volumes.

Increased volume in our standard programmatic products also significantly contributed to our Activation revenue growth, as well as the impact of the price bifurcation. Source: Q3’22 Earnings Call Transcript

DoubleVerify’s expertise in measurement and verification, combined with its expanding capabilities in influencer marketing and connected TV advertising positions the company well for long-term growth.

The first is expansion on Social where, as Mark mentioned, our brand safety and suitability measurement products have now launched on TikTok and are continuing to expand on Linkedin as well as on other leading platforms

The second is CTV where Netflix selected DV to provide viewability and fraud measurement across its platform, with brand safety and suitability to follow. The third is Authentic Attention, which is gaining momentum with Advertisers following the launch of DV’s Authentic Attention snapshot. Source: Q3’22 Earnings Call Transcript

The company’s cross-selling catalyst is a key factor that is expected to drive significant growth and deepen its relationships with its customers in the future, as stated below.

Finally, there is the continued opportunity to cross-sell our Measurement suite to Activation only clients. Of our top 500 customers, over 20% have used DV’s solutions for Activation only but not for Measurement this year. Using both product suites enables advertisers to further optimize media quality and reduce media waste, a compelling customer value proposition for our commercial team to cross-sell. Source: Q3’22 Earnings Call Transcript

To sum it up, DV’s new customer base, its international expansion initiatives and cross-selling opportunity, position the company well especially considering the future market recovery.

Valuation

Integral Ad Science Holding Corp. (NASDAQ:IAS), LiveRamp Holdings, Inc. (NYSE:RAMP), AppLovin Corporation (NASDAQ:APP), The Trade Desk, Inc. (NASDAQ:TTD)

DV maintains its industry leadership with an expanding moat in social media and connected TV. In fact, it boasts stronger gross margin and net margin as compared to its peers, as shown in the image above. This explains why it trades at a higher multiple than its peers. Additionally, DV remains appealing, especially given its 4.42x forward P/S in 2026, which is attractive compared to its 16.03x P/S in FY21.

Approaching $30 Resistance Level

DV’s weekly chart reveals that it is approaching a strong psychological resistance at around $30. Nevertheless, today’s increasing buyer interest suggests a possible breakthrough in this resistance. This sentiment is supported by the MACD’s bullish crossover, as seen in the chart. If one is wary of entering during breakouts, waiting for consolidation above the $20 support zone would offer a more favorable entry point.

Caveat

Aside from the current bearish macro environment, one of the challenges DV is facing is its slowing gross margin, as shown in the image below.

According to the management, one of the reasons for the slowdown in gross margin is due to higher software costs to support increased volumes. This could further limit its EBIT growth, and in fact, the management has guided for a slower EBITDA margin at the midpoint of 31%, down from the 33% recorded in FY’21.

Final Key Takeaways

Despite its temporary weakness mentioned earlier, DV’s balance sheet remains solid with no long-term debt. According to the management, they will continue to ramp up their capital expenditure to $35 million this FY’22, up $9.4 million in FY’21. Out of the $35 million budget, $25 million is allocated to office space for international expansion. DoubleVerify’s inclusion in the S&P SmallCap 600 index will make this stock more liquid and may attract more traders and investors. Overall, DV’s improving profitability and strong financial position make it a good long candidate.

Thank you for reading and good luck everyone! Happy February!