Digital media measurement and analytics provider DoubleVerify (NYSE:DV) reported Q1 CY2024 results topping analysts' expectations, with revenue up 14.8% year on year to $140.8 million. On the other hand, next quarter's revenue guidance of $154 million was less impressive, coming in 2.8% below analysts' estimates. It made a GAAP profit of $0.04 per share, down from its profit of $0.07 per share in the same quarter last year.
DoubleVerify (DV) Q1 CY2024 Highlights:
- Revenue: $140.8 million vs analyst estimates of $138.2 million (1.8% beat)
- Adjusted EBITDA: $38.1 million vs analyst estimates of $35.2 million (8.2% beat)
- EPS: $0.04 vs analyst estimates of $0.02 ($0.02 beat)
- Revenue Guidance for Q2 CY2024 is $154 million at the midpoint, below analyst estimates of $158.4 million
- The company dropped its revenue guidance for the full year from $696 million to $669 million at the midpoint, a 3.9% decrease (also dropped its adjusted EBITDA guidance for the full year)
- Gross Margin (GAAP): 81.1%, in line with the same quarter last year
- Free Cash Flow of $25.38 million, down 46.4% from the previous quarter
- Market Capitalization: $5.33 billion
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.
Advertising Software
The digital advertising market is large, growing, and becoming more diverse, both in terms of audiences and media. As a result, there is a growing need for 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 three years, growing from $67.59 million in Q1 2021 to $140.8 million this quarter.
This quarter, DoubleVerify's quarterly revenue was once again up 14.8% year on year. However, the company's revenue actually decreased by $31.45 million in Q1 compared to the $28.26 million increase in Q4 CY2023. Regardless, we aren't too concerned because DoubleVerify's sales seem to follow a seasonal pattern and management is guiding for revenue to rebound in the coming quarter.
Next quarter's guidance suggests that DoubleVerify is expecting revenue to grow 15.1% year on year to $154 million, slowing down from the 21.8% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 23.6% over the next 12 months before the earnings results announcement.
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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 81.1% in Q1.
That means that for every $1 in revenue the company had $0.81 left to spend on developing new products, sales and marketing, and general administrative overhead. Despite its recent drop, DoubleVerify still has an excellent gross margin that allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.
Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. DoubleVerify's free cash flow came in at $25.38 million in Q1, up 46.5% year on year.
DoubleVerify has generated $110.8 million in free cash flow over the last 12 months, a solid 18.8% of revenue. This strong FCF margin stems from its asset-lite business model, giving it optionality and plenty of cash to reinvest in its business.
Key Takeaways from DoubleVerify's Q1 Results
It was encouraging to see DoubleVerify narrowly top analysts' revenue expectations this quarter. On the other hand, its full-year revenue guidance was lowered and is now below expectations, as is adjusted EBITDA guidance. Overall, the results could have been better, and after competitor Integral Ad Science (NASDAQ:IAS) warned of pricing competition in the market last quarter (which DV denied seeing), this result is certainly bad for sentiment and puts into question what short to medium-term topline projections should look like. The company is down 21.5% on the results and currently trades at $24 per share.
Is Now The Time?
DoubleVerify may have had a tough quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.
There are numerous reasons why we think DoubleVerify is one of the best software as service companies out there. While we'd expect growth rates to moderate from here, its revenue growth has been strong over the last three years. Additionally, its efficient customer acquisition hints at the potential for strong profitability, and its customers are increasing their spending quite quickly, suggesting they love the product.
The market is certainly expecting long-term growth from DoubleVerify given its price-to-sales ratio based on the next 12 months is 7.4x. But looking at the tech landscape today, DoubleVerify's qualities really stand out. We are big fans at this price, even more so when considering the company is trading at a discount to its similar-growth peers.
Wall Street analysts covering the company had a one-year price target of $40.89 right before these results (compared to the current share price of $24), implying they see short-term upside potential in DoubleVerify.
To get the best start with StockStory, check out our most recent Stock picks, and then sign up for our earnings alerts by adding companies to your watchlist here. We typically have the quarterly earnings results analyzed within seconds of the data being released. Especially for companies reporting pre-market, this often gives investors the chance to react to the results before everyone else has fully absorbed the information.