Integral Ad Science (IAS)

Ad verification company Integral Ad Science (NASDAQ:IAS) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 17.1% year on year to $134.1 million. The company expects next quarter’s revenue to be around $143 million, close to analysts’ estimates. Its GAAP profit of $0.05 per share was $0.02 above analysts’ consensus estimates.

Company Overview

Founded in 2009, Integral Ad Science (NASDAQ:IAS) provides digital advertising verification and optimization solutions, ensuring that ads are viewable by real people in brand-safe environments across various platforms and devices.

Their cloud-based technology platform delivers independent measurement and verification of digital advertising across all devices, channels, and formats, including desktop, mobile, connected TV, social, display, and video.

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.

Competitors in the ad verification and digital advertising space include DoubleVerify (NYSE:DV) and privately-held companies such as Basis Technologies, and Tapjoy.

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last three years, Integral Ad Science grew its sales at a 16.7% annual rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the software sector, which enjoys a number of secular tailwinds. Luckily, there are other things to like about Integral Ad Science.

This quarter, Integral Ad Science reported year-on-year revenue growth of 17.1%, and its $134.1 million of revenue exceeded Wall Street’s estimates by 3.5%. Company management is currently guiding for a 10.8% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 10.1% over the next 12 months, a deceleration versus the last three years. Still, this projection is above average for the sector and indicates the market is forecasting some success for its newer products and services.

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

Integral Ad Science is extremely efficient at acquiring new customers, and its CAC payback period checked in at 8.2 months this quarter. The company’s rapid recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments.

Software is eating the world. It’s one of our favorite business models because once you develop the product, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.

Integral Ad Science’s robust unit economics are better than the broader software industry, an output of its asset-lite business model and pricing power. They also enable the company to fund large investments in new products and sales during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an excellent 78.5% gross margin over the last year. Said differently, roughly $78.54 was left to spend on selling, marketing, and R&D for every $100 in revenue.

Integral Ad Science’s gross profit margin came in at 77.5% this quarter, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Integral Ad Science has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 13%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Integral Ad Science’s operating margin rose by 11.3 percentage points over the last year, as its sales growth gave it operating leverage.

This quarter, Integral Ad Science generated an operating profit margin of 8.5%, up 8.1 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

If you’ve followed StockStory for a while, you know 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.

Integral Ad Science has shown robust cash profitability, driven by its attractive business model and cost-effective customer acquisition strategy that enable it to invest in new products and services rather than sales and marketing. The company’s free cash flow margin averaged 20.2% over the last year, quite impressive for a software business.

Integral Ad Science burned through $7.37 million of cash in Q1, equivalent to a negative 5.5% margin. The company’s cash burn was similar to its $2.26 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings.

Over the next year, analysts predict Integral Ad Science’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 20.2% for the last 12 months will increase to 24.4%, it options for capital deployment (investments, share buybacks, etc.).

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Integral Ad Science is a profitable, well-capitalized company with $59.12 million of cash and $38.28 million of debt on its balance sheet. This $20.84 million net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We enjoyed seeing Integral Ad Science beat analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also happy it raised its full-year revenue guidance. Zooming out, we think this was a solid quarter. The stock traded up 1.7% to $8.30 immediately after reporting.

Updated: July 11, 2025 at 12:07 AM EDT

Before investing in or passing on Integral Ad Science, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Integral Ad Science is a fine business. Although its revenue growth was a little slower over the last three years and analysts expect growth to slow over the next 12 months, its efficient sales strategy allows it to target and onboard new users at scale. Plus, Integral Ad Science’s expanding operating margin shows it’s becoming more efficient at building and selling its software.

Integral Ad Science’s price-to-sales ratio based on the next 12 months is 2.2x. Looking at the software landscape right now, Integral Ad Science trades at a pretty interesting price. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $13.39 on the company (compared to the current share price of $8.39), implying they see 59.6% upside in buying Integral Ad Science in the short term.