Integration With Meta And TikTok Will Expand Future Advertising Reach

Key Takeaways

• Expansion into social and retail media platforms, including Meta and TikTok, is set to increase revenue and earnings by tapping into growing advertising environments.
  
• Strategic partnerships and enhanced AI-driven performance solutions bolster market share and earnings potential, leveraging opportunities with major enterprises and new advertisers.
  
• Ad spend cutbacks and competitive shifts challenge DoubleVerify's short-term growth, as new solutions and competitive pricing strategy pose risks to immediate financial performance.

Catalysts

Provides a software platform for digital media measurement, and data analytics in the United States and internationally.

• The anticipated launch of DoubleVerify's pre-bid social solutions on Meta platforms in early 2025 is expected to drive increased adoption of social measurement and activation, potentially impacting revenue growth positively.
  
• Winning 70% of the RFPs from former Moat advertisers could enhance DoubleVerify's market share and revenue through the long-term upsell of premium verification and optimization services to new major enterprise clients like P&G and Google.
  
• The expansion of the company's measurement and activation solutions on platforms like TikTok and retail media networks may bolster revenue and earnings by enabling DoubleVerify to tap into rapidly growing advertising environments.
  
• The integration of Scibids AI enables DoubleVerify to offer enhanced performance solutions, potentially expanding revenue streams as more advertisers adopt these tools for better media effectiveness.
  
• Strategic partnerships with platforms and publishers such as LinkedIn, Netflix, and Spotify are expected to generate new and recurring revenue from DoubleVerify's supply side business, strengthening earnings potential.

DoubleVerify Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming DoubleVerify Holdings's revenue will grow by 13.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.3% today to 13.1% in 3 years time.
• Analysts expect earnings to reach $123.1 million (and earnings per share of $0.66) by about January 2028, up from $65.9 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 42.1x on those 2028 earnings, down from 53.0x today. This future PE is lower than the current PE for the US Software industry at 43.6x.
• Analysts expect the number of shares outstanding to grow by 3.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.01%, as per the Simply Wall St company report.

DoubleVerify Holdings Future Earnings Per Share Growth

Risks

• Several large customers scaled back on ad spend, impacting DoubleVerify’s revenue from premium products, which could limit revenue growth in the near term.
  
• The shift of ad dollars from open exchange programmatic to walled gardens, where DoubleVerify’s activation solutions are not available, could impact revenue streams.
  
• The gradual ramp-up and adoption of new solutions, such as pre-bid social solutions on Meta, may delay anticipated revenue and growth, thus affecting short-term financial performance.
  
• Brand spending softening before elections due to political ad spending crowd-out could result in lower revenue in the affected quarters, with uncertainty around how quickly traditional ad spending will rebound.
  
• The competitive pricing strategy to secure clients from Oracle's Moat may initially limit profitability and revenue impact, given that significant upsells are expected over a longer period.

Valuation

• The analysts have a consensus price target of $22.85 for DoubleVerify Holdings 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 $30.0, and the most bearish reporting a price target of just $15.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $939.5 million, earnings will come to $123.1 million, and it would be trading on a PE ratio of 42.1x, assuming you use a discount rate of 7.0%.
• Given the current share price of $20.67, the analyst's price target of $22.85 is 9.5% 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.