DoubleVerify (DV)

Digital ad verification company DoubleVerify (NYSE:DV) missed Wall Street’s revenue expectations in Q4 CY2025, but sales rose 7.9% year on year to $205.6 million. On the other hand, the company expects next quarter’s revenue to be around $180 million, close to analysts’ estimates. Its GAAP profit of $0.18 per share was 10.3% above analysts’ consensus estimates.

Company Overview

Using advanced analytics to evaluate over 17 billion digital ad transactions daily, DoubleVerify (NYSE:DV) provides AI-powered technology that verifies digital ads are viewable, fraud-free, brand-suitable, and displayed in the intended geographic location.

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 Integral Ad Science (NASDAQ:IAS), Oracle's Moat (NYSE:ORCL), Human Security (formerly White Ops), and Google's Active View (NASDAQ:GOOGL).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, DoubleVerify’s sales grew at a solid 25.1% compounded annual growth rate over the last five years. Its growth beat the average software company and shows its offerings resonate with customers.

Long-term growth is the most important, but within software, a half-decade historical view may miss new innovations or demand cycles. DoubleVerify’s recent performance shows its demand has slowed as its annualized revenue growth of 14.3% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs.

This quarter, DoubleVerify’s revenue grew by 7.9% year on year to $205.6 million, missing Wall Street’s estimates. Company management is currently guiding for a 9.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 10.5% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will face some demand challenges.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

DoubleVerify’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a highly competitive environment where there is little differentiation between DoubleVerify’s products and its peers.

For software companies like DoubleVerify, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

DoubleVerify’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 82.2% gross margin over the last year. That means DoubleVerify only paid its providers $17.84 for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. DoubleVerify has seen gross margins improve by 0.8 percentage points over the last 2 year, which is slightly better than average for software.

DoubleVerify’s gross profit margin came in at 82.5% this quarter, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

DoubleVerify has been an efficient company over the last year. It was one of the more profitable businesses in the software sector, boasting an average operating margin of 10.6%. 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 2 percentage points over the last two years. 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.

This quarter, DoubleVerify generated an operating margin profit margin of 18.4%, down 2 percentage points year on year. Since DoubleVerify’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

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.

DoubleVerify has shown robust cash profitability, driven by its attractive business model that enables it to reinvest or return capital to investors while maintaining a cash cushion. The company’s free cash flow margin averaged 23.1% over the last year, quite impressive for a software business.

DoubleVerify’s free cash flow clocked in at $62.15 million in Q4, equivalent to a 30.2% margin. This result was good as its margin was 14.5 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

Over the next year, analysts predict DoubleVerify’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 23.1% for the last 12 months will decrease to 18.4%.

Companies with more cash than debt have lower bankruptcy risk.

DoubleVerify is a profitable, well-capitalized company with $259 million of cash and $99.55 million of debt on its balance sheet. This $159.5 million net cash position is 10.4% 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 struggled to find many positives in these results. Its revenue missed and its EBITDA fell slightly short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 2.2% to $9.33 immediately following the results.

Before deciding whether to buy DoubleVerify or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

DoubleVerify isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was strong over the last five years, it’s expected to deteriorate over the next 12 months and its customer acquisition is less efficient than many comparable companies. And while the company’s admirable gross margin indicates excellent unit economics, the downside is its declining operating margin shows it’s becoming less efficient at building and selling its software.

DoubleVerify’s price-to-sales ratio based on the next 12 months is 1.9x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $13.78 on the company (compared to the current share price of $9.33).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.