Patent For ATOM Technology Will Capitalize On Growing Demand For Cookie-Less Advertising

Key Takeaways

• ID-Less Solutions and Fullscreen Video Ads drive growth, with cookie-less advertising expected to enhance future revenue.
  
• Expansion in the U.S. and Jun Group acquisition fuel organic growth, with improved net margins and financial health anticipated.
  
• Heavy reliance on ID-less advertising and the U.S. market introduces risks that could affect future growth, revenues, and operational stability amidst evolving challenges.

Catalysts

Operates a software platform for the automated buying and selling of digital advertising space in North America and Europe.

• The strong revenue and EBITDA growth of 45% year-over-year, driven by ID-Less Solutions and Fullscreen Video Ads, suggests a future increase in revenue and earnings as these solutions gain further market adoption.
  
• The acquisition of Jun Group and the expected synergies from integrating its CTV sales with Verve's existing offerings are anticipated to enhance organic growth and increase revenue in future periods.
  
• The company’s expansion in the U.S. market, where it has achieved critical mass with 80% of its revenues coming from that region, indicates potential for continued revenue growth and improved net margins due to efficient scale.
  
• The focus on ID-Less Solutions and the patent obtained for ATOM technology positions the company to capitalize on the growing demand for cookie-less advertising, which is expected to boost future revenue growth.
  
• The strong free cash flow generation and ongoing deleveraging efforts promise an improvement in earnings as interest expenses decrease, further enhancing the company's financial health and profitability.

Verve Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Verve Group's revenue will grow by 13.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.7% today to 13.7% in 3 years time.
• Analysts expect earnings to reach €83.7 million (and earnings per share of €0.53) by about February 2028, up from €19.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.3x on those 2028 earnings, down from 34.0x today. This future PE is lower than the current PE for the DE Media industry at 33.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.95%, as per the Simply Wall St company report.

Verve Group Future Earnings Per Share Growth

Risks

• The shift towards ID-less advertising, while pioneering, also introduces execution risk as the approach is still evolving and market acceptance is uncertain; this may impact future revenue growth if the strategy does not scale as expected.
  
• Dependence on the U.S. market, which contributes 80% of revenues, poses a geographical concentration risk; if economic conditions or advertising trends shift negatively in the U.S., this could significantly impact revenues and earnings.
  
• The transition in top management with a new CFO could create interim operational uncertainties, possibly affecting financial oversight and strategic initiatives, and thus impacting net margins and earnings.
  
• The rapid acquisition strategy, seen with Jun Group, entails integration risks and could lead to unforeseen costs, affecting EBITDA margins and free cash flow if anticipated synergies do not materialize.
  
• Increased competition in offering ID-less solutions might erode the company's market share and pricing power, impacting revenue growth and potentially squeezing profit margins.

Valuation

• The analysts have a consensus price target of €4.706 for Verve Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €6.7, and the most bearish reporting a price target of just €1.68.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €610.4 million, earnings will come to €83.7 million, and it would be trading on a PE ratio of 15.3x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of €3.52, the analyst price target of €4.71 is 25.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.