I am always on the lookout for companies with unique business models who solve pain points in an industry or vertical. One such pain point is in on-line advertising where advertisers and brands seek to confirm, if the huge amounts they spend on digital advertising is effective and targeted to their audiences.
DoubleVerify Holdings Inc. (NYSE:DV) is a media effectiveness platform that uses Artificial Intelligence to measure and improve outcomes for global brands in digital advertising. Founded in 2008, the company has evolved to address the changing needs of the digital advertising ecosystem.
DoubleVerify's brand safety solutions offer several significant benefits for advertisers seeking to protect their brand integrity in the digital landscape. Firstly, these solutions ensure that advertisements are placed in environments that align with a brand's values, significantly reducing the risk of ad placements on unsafe or inappropriate websites; in fact, 95% of clients reported fewer brand safety incidents after implementing these tools. Additionally, DoubleVerify's advanced technology provides real-time monitoring and reporting, allowing brands to make informed decisions about their media placements and optimize campaigns effectively. The company's extensive partnerships with over 9,000 publishers enhance the reliability of its brand safety measures, enabling advertisers to confidently navigate the complexities of digital advertising while safeguarding their reputation and maximizing campaign performance. Overall, DoubleVerify empowers brands with the transparency and control necessary to maintain a positive online presence.
DoubleVerify has the following Key Offerings and Capabilities
- Introduced brand safety and suitability solutions in 2010Expanded capabilities across programmatic, social, and CTV (internet connected TV) platformsProvides unbiased data analytics to increase ad effectiveness and Return on Investment (ROI).Proprietary DV Authentic Ad metric measures ad quality in real-timeSoftware platform integrated across the digital advertising ecosystem
- Data and Analytics
- Customer Base and Global Reach
- Industry Position
Unique Business Model
DoubleVerify generates revenue primarily through its advertising customers based on the volume of media transactions measured by its software platform. The company charges a Measured Transaction (JO:TCPJ) Fee for each ad analyzed. This model allows DoubleVerify to grow as its customers increase digital ad spending and as the company expands into new channels and platforms.The company has established long-term relationships with many of its customers, with an average relationship of about eight years for its top 25, 50, and 75 customers. A substantial portion of DoubleVerify's customer base has ongoing contractual agreements with the company. DoubleVerify has demonstrated an ability to increase revenue per customer by introducing new solutions. This strategy has resulted in a compound annual growth rate of 28% in average revenue for its top 100 customers from 2020 to 2023.Overall, DoubleVerify has shown strong historical revenue growth, achieving a compound annual growth rate of 33% from 2020 to 2023 across its entire business. This growth is driven by the company's ability to expand its services, retain long-term customers, and increase revenue from existing clients through new solutions.Customers and Verticals
Examples of DoubleVerifys' customers include major global companies and brands such as Colgate-Palmolive (NYSE:CL), Mondelez (NASDAQ:MDLZ), Pfizer (NYSE:PFE) and Ford as well as media and technology companies like Google (NASDAQ:GOOGL) and Warner media, Financial services companies, consumer goods companies like Samsung (KS:005930) and Coty (NYSE:COTY) as well as advertising and media agencies.Integration with Facebook (NASDAQ:META) Youtube and Reddit
DoubleVerify (NYSE:DV) also measures advertising on Facebook. Since 2017, DV has partnered with Facebook to provide fraud and viewability measurement for display and video ads on both Facebook and Instagram
. DV's services have expanded to include brand safety and suitability measurement across Facebook's platform, including Feeds and Reels. This partnership allows advertisers to independently authenticate campaign quality and protect their brands in user-generated media environments on Facebook. Additionally, DV's integration with Facebook includes post-bid brand safety and suitability measurement, offering advertisers comprehensive control over their ad placements. Similarly DoubleVerify (NYSE:DV) works with YouTube. The company has integrated its media authentication services with YouTube, allowing brand advertisers to measure the quality of their video ads on the platform. This integration includes viewability and digital fraud management services, enabling advertisers to ensure their ads are seen by real users in a safe environment. DV also works with emerging platforms like Reddit. DoubleVerify (NYSE:DV) collaborates with Reddit, a partnership that began in June 2022, focusing on enhancing brand safety and measurement capabilities for advertisers on the platform. DV provides a comprehensive suite of measurement tools, including brand safety, viewability, and invalid traffic detection, ensuring that ads are displayed in safe environments. The server-to-server integration allows for detailed in-geo reporting and thorough measurement of ad delivery on Reddit. Initial tests showed that over 99% of impressions measured by DV were adjacent to content deemed safe. Advertisers can refine their ad delivery based on insights from DV's reporting, aligning better with brand values.
Competitors
DoubleVerify (NYSE:DV) faces competition from several companies in the digital advertising and ad verification industry. Key competitors include Integral Ad Science (IAS), which helps brands, agencies, and publishers optimize campaigns; Nielsen, known for its audience insights and media measurement services; and MediaMath, which offers advertising management solutions. Other notable competitors are Equativ, focusing on advertising technology; Improvely, a player in ad fraud detection; and PerimeterX Bot Defender, which protects against bot attacks. HUMAN provides cybersecurity solutions to combat fraud, while companies like AdValify, Ad Lightning, AdSecure, Confiant, Fraudlogix, GeoEdge, and CHEQ offer various ad quality and security services. Additionally, Pixalate focuses on fraud protection and compliance analytics. Together, these competitors provide a range of services that overlap with DoubleVerify's offerings in areas such as ad verification, fraud detection, brand safety, and media measurement.Financial Condition
DoubleVerify has a pristine balance sheet with no long term debt and more cash than total debt.
Additionally the company generates lots of free cash flow albeit its stock based compensation expense (pink bars below) is also quite high. Though this issue is common with high growth, young tech companies, this is something the company will have to control if they wish to attract external investors.
Recent Performance
DoubleVerify achieved the high end of its guidance with 17% year on year revenue growth over the last quarter.Gross margin reached 83%, and adjusted EBITDA was $47 million, representing a 30% adjusted EBITDA margin. DoubleVerify continued to expand outside the US with more measurements outside the US than inside for the first time in its history. The company highlighted key brand wins like Philip Morris (NYSE:PM) and Bacardi across multiple geographies worldwide, Panera in the United States, Anheuser-Busch InBev (EBR:ABI) and British Petroleum in LatAm, Universal Pictures and Subway in EMEA and Amazon (NASDAQ:AMZN) Books, Dyson, Honda (NYSE:HMC) Mobility, JTI, Ajinomoto in APAC. Additionally, companies such as Haleon and Pepsi have signed up to use key Digital Video products.
DoubleVerify continued its blistering growth across key per share metrics and time periods as shown in the table below. Overall the pace of growth seems to be holding up.
| DoubleVerify Holdings Inc | Growth per share | Quarterly Growth vs Year ago | ||||
| DV | 5 Yr CAGR/ | TTM vs. 1 yr | Latest Q vs. Q year ago | 2nd Latest Q vs. y/y | 3rd Latest Q vs y/y | 4th latest Q vs. y/y |
| Revenue | 60.32% | 19.45% | 14.32% | 11.90% | 25.90% | 26.03% |
| EBITDA | 59.91% | 9.09% | -11.61% | -27.39% | 33.19% | 35.38% |
| EBIT | 71.95 | 3.90 | -24.24 | -50.00 | 35.59 | 37.35 |
| OCF | 60.93% | 51.02% | 229.03% | 44.00% | 39.44% | 9.68% |
| EPS | 60.93% | 51.02% | 229.03% | 44.00% | 39.44% | 9.68% |
| FCF | 64.86% | 94.59% | 288.10% | 42.57% | 91.49% | 71.15% |
| Book Value | 65.05% | 17.02% | 15.54% | 17.51% | 18.37% | 16.71% |
Valuation
The company is quite young so it's difficult to say how long the initial growth spurt will last but its safe to say that the current ~0% y/y revenue growth will start to slow down as the law of large numbers kick in.Gurufocus' GF Value estimates intrinsic value at just $40 per share. This is not so farfetched as the company flirted with this range as recently as at the start of 2024.
This is also close to the value where the median Price to Sales (PS) value over the last 3 years would place it.
DV Data by GuruFocus
The above two points tell me that the stock appears to be reasonably priced given its growth prospects. I also think the company may be an attractive takeover target by a larger tech company due to the attractiveness of its business model.
Conclusion
DoubleVerify has a lot going for it.DoubleVerify has a great business model which addresses a real need for advertisers.
Rapid growth and moat. The moat comes from being a trusted third party for verification of ad's as well as the network effect. As more content publishers and advertisers support and use Doubleverify its moat grows. DoubleVerify has a Solid balance sheet and cash flow and Valuation looks reasonable. The growth of digital advertising and globalization of advertising would imply a large market opportunity and growth runway. DoubleVerify could also make for attractive acquisition target for a strategic buyer. The company's $2.9 billion market cap will not be much of a stretch for a tech giant like Meta, Google or Adobe (NASDAQ:ADBE) even if you were to add a 50% premium to the share price.
On the downside Stock Based Compensation expense is high with potential for dilution of outside shareholders. Also PE of 48 implies that growth is baked into the price.
This content was originally published on Gurufocus.com
