Acquisitions And Investments Will Expand Future Market Opportunities

Key Takeaways

• Strategic acquisitions and investments in performance solutions are expected to unlock new revenue streams and enhance growth opportunities across digital ad spend channels.
  
• Expanding into end-to-end performance measurement and launching new products is set to bolster market reach and drive future revenue growth.
  
• Revenue volatility, competitive pressures, and market dependencies challenge DoubleVerify's growth, with modest projections despite new customers and transaction increases.

Catalysts

Provides media effectiveness platforms in the United States and internationally.

• The expansion into performance measurement and optimization through strategic acquisitions like DV Scibids and Rockerbox is expected to unlock new revenue from mid-market customers and direct response ad budgets, potentially impacting future revenue growth.
  
• Investments in pre-bid solutions across Meta and TikTok aim to capture shifting ad dollars to proprietary platforms, likely improving future revenue as these social media platforms account for a significant share of digital ad spend.
  
• The scaling of sell-side curation and decisioning solutions on major supply-side platforms (SSPs) is anticipated to drive higher attach rates of DV data to PMP and PG deals, aligning with the programmatic ecosystem's evolution and supporting future revenue growth.
  
• Enhancing DV's value proposition by expanding capabilities into comprehensive end-to-end performance measurement solutions is likely to increase the company's addressable market and support future revenue growth through potential cross-sell opportunities.
  
• The launch of new products, including content-level avoidance solutions for Meta's platforms, aims to provide advertisers with better control and precision in their campaigns, potentially leading to revenue growth through increased adoption of DV's solutions.

DoubleVerify Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming DoubleVerify Holdings's revenue will grow by 11.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.6% today to 11.0% in 3 years time.
• Analysts expect earnings to reach $100.4 million (and earnings per share of $0.55) by about March 2028, up from $56.2 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $117.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 38.5x on those 2028 earnings, down from 42.8x today. This future PE is greater than the current PE for the US Software industry at 28.2x.
• Analysts expect the number of shares outstanding to decline by 3.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.48%, as per the Simply Wall St company report.

DoubleVerify Holdings Future Earnings Per Share Growth

Risks

• DoubleVerify faced challenges with a major customer who significantly reduced its spend due to sharply escalating commodity costs, suggesting potential revenue volatility if similar cost pressures affect other clients.
  
• The absence of a post-election rebound in ad spend impacted Q4 results, indicating dependence on external market conditions that could affect future revenue stability.
  
• A shift of ad dollars from open web programmatic to proprietary platforms where DoubleVerify's solutions were not initially available could hinder its ability to fully capture ad spend, potentially impacting revenue growth.
  
• Competitive pricing pressure, particularly from onboarding Oracle clients at lower rates, may continue to drive down margins (MTF), affecting overall profitability.
  
• Despite increased transactions and new customer wins, DoubleVerify's guidance for 2025 reflects modest growth expectations, with factors such as the temporary loss of a large customer and time required to upsell newly acquired clients potentially limiting earnings growth potential.

Valuation

• The analysts have a consensus price target of $20.921 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 $26.0, and the most bearish reporting a price target of just $14.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $914.4 million, earnings will come to $100.4 million, and it would be trading on a PE ratio of 38.5x, assuming you use a discount rate of 7.5%.
• Given the current share price of $14.5, the analyst price target of $20.92 is 30.7% 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.