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DoubleVerify (NYSE:DV) Reports Q3 Results


Full Report / December 15, 2021
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Digital media measurement and analytics provider DoubleVerify (NYSE:DV) reported Q3 FY2021 results that beat analyst expectations, with revenue up 36.1% year on year to $83 million. On the other hand, guidance for the next quarter missed analyst expectations with revenues guided to $100.5 million at the midpoint, or 0.76% below analyst estimates. DoubleVerify made a GAAP profit of $7.92 million, improving on its profit of $5.8 million, in the same quarter last year.

DoubleVerify (DV) Q3 FY2021 Highlights:

  • Revenue: $83 million vs analyst estimates of $81.8 million (1.52% beat)
  • EPS (GAAP): $0.05
  • Revenue guidance for Q4 2021 is $100.5 million at the midpoint, below analyst estimates of $101.2 million
  • Free cash flow of $14.2 million, down 32.8% from previous quarter
  • Gross Margin (GAAP): 83.8%, down from 85.2% same quarter last year

When Oren Netzer saw a digital ad for US-based Target while sitting in his Tel Aviv apartment, he knew there was an unsolved problem, so he started DoubleVerify (NYSE: DV), a provider of advertising solutions to businesses that helps with ad verification, fraud prevention, and brand safety.

The advertising industry continues to shift from traditional mediums to an expanding array of digital channels and platforms. Digital advertisers have historically relied on inconsistent, self-reported data from a large number of publishers, social media platforms and programmatic ad servers to understand how and where their ad budgets are being spent. The need to understand where ads are being served has accelerated in recent years as more and more objectionable content and ad fraud have found their way into the online advertising ecosystem.

DoubleVerify’s solution is an independent third party measurement provider which big brands can use to track and optimize the performance of their digital advertising dollars. The company’s DV Authentic Ad metric measures whether a digital ad is displayed in a fraud-free, brand-safe environment and is fully viewable in the intended geography. DoubleVerify’s customers can use this metric in real time, allowing advertisers to use the data to improve the efficiency of their advertising campaigns. Central to DoubleVerify’s competitive advantage is its integration across all the major platforms across the entire digital advertising ecosystem, and platforms from social, video, mobile in-app and connected TVs.

The digital advertising market is large, growing and becoming more diverse, both in terms of audiences and media. This as a result drives a growing need for a software that enables advertisers to use data to automate and optimize ad placements.

DoubleVerify’s competitors include large vendors such as Adobe (NASDAQ:ADBE), and Salesforce.com (NYSE:CRM), along with Oracle’s Moat and Grapeshot (NYSE:ORCL), and Integral Ad Science (NASDAQ:IAS). Smaller private companies that compete directly include White Ops and OpenSlate.

Sales Growth

As you can see below, DoubleVerify's revenue growth has been very strong over the last year, growing from quarterly revenue of $61 million, to $83 million.

DoubleVerify Total Revenue

And unsurprisingly, this was another great quarter for DoubleVerify with revenue up 36.1% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $6.57 million in Q3, compared to $8.93 million in Q2 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 28.3% over the next twelve months.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. DoubleVerify's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 83.8% in Q3.

DoubleVerify Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.83 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a great gross margin, that allows companies like DoubleVerify to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity. It is good to see that the gross margin is staying stable which indicates that DoubleVerify is doing a good job controlling costs and is not under pressure from competition to lower prices.

Key Takeaways from DoubleVerify's Q3 Results

We enjoyed seeing DoubleVerify’s impressive revenue growth this quarter. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results were not the best we've seen from DoubleVerify. The company currently trades at $30.98 per share.

Is Now The Time?

When considering DoubleVerify, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. There are a number of reasons why we think DoubleVerify is a great business. First, its revenue growth has been strong. On top of that, its impressive gross margins are indicative of excellent business economics, and its very efficient customer acquisition hints at the potential for strong profitability.

DoubleVerify's price to sales ratio based on the next twelve months is 13.2x, suggesting that the market is expecting more measured growth, relative to the hottest tech stocks. Looking at the tech landscape today, DoubleVerify's qualities as a business really stand out and we do like the look of the company at current prices.

The Wall St analysts covering the company had a one year price target of $41 per share right before these results, implying that they saw upside in buying DoubleVerify even in the short term.

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