DoubleVerify (DV)

Digital media measurement and analytics provider DoubleVerify (NYSE:DV) announced better-than-expected revenue in Q1 CY2025, with sales up 17.2% year on year to $165.1 million. Guidance for next quarter’s revenue was better than expected at $171 million at the midpoint, 1.1% above analysts’ estimates. Its GAAP profit of $0.01 per share was in line with analysts’ consensus estimates.

Company Overview

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 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.

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, DoubleVerify grew its sales at a decent 23.5% compounded annual growth rate. Its growth was slightly above the average software company and shows its offerings resonate with customers.

This quarter, DoubleVerify reported year-on-year revenue growth of 17.2%, and its $165.1 million of revenue exceeded Wall Street’s estimates by 7.8%. Company management is currently guiding for a 9.7% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 8.1% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and indicates its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

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.

DoubleVerify is extremely efficient at acquiring new customers, and its CAC payback period checked in at 5.4 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give DoubleVerify more resources to pursue new product initiatives while maintaining the flexibility to increase 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.

DoubleVerify’s gross margin is one of the highest in the software sector, an output of its asset-lite business model and strong pricing power. It also enables 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 elite 82.3% gross margin over the last year. That means DoubleVerify only paid its providers $17.74 for every $100 in revenue.

DoubleVerify produced a 81.2% gross profit margin in Q1, 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.

While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

DoubleVerify has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 12.1%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, DoubleVerify’s operating margin decreased by 1 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, DoubleVerify generated an operating profit margin of 4.1%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

DoubleVerify 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 20.3% over the last year, quite impressive for a software business.

DoubleVerify’s free cash flow clocked in at $31.38 million in Q1, equivalent to a 19% margin. This cash profitability was in line with the comparable period last year but below its one-year average. We wouldn’t put too much weight on it because investment needs can be seasonal, causing short-term swings. Long-term trends are more important.

Over the next year, analysts’ consensus estimates show they’re expecting DoubleVerify’s free cash flow margin of 20.3% for the last 12 months to remain the same.

Companies with more cash than debt have lower bankruptcy risk.

DoubleVerify is a profitable, well-capitalized company with $174.3 million of cash and $105.3 million of debt on its balance sheet. This $68.95 million net cash position is 3.1% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly DoubleVerify blew past analysts’ EBITDA expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock remained flat at $14.13 immediately following the results.

Updated: May 21, 2025 at 10:20 PM EDT

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

DoubleVerify possesses a number of positive attributes. First off, its revenue growth was solid over the last three years. And while its declining operating margin shows it’s becoming less efficient at building and selling its software, its efficient sales strategy allows it to target and onboard new users at scale. On top of that, its admirable gross margin indicates excellent unit economics.

DoubleVerify’s price-to-sales ratio based on the next 12 months is 3.1x. When scanning the software space, DoubleVerify trades at a fair valuation. If you trust the business and its direction, this is an ideal time to buy.

Wall Street analysts have a consensus one-year price target of $18.53 on the company (compared to the current share price of $13.69), implying they see 35.3% upside in buying DoubleVerify in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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