DoubleVerify (NYSE:DV) has been holding its own since going public back in April. The digital ad software company got hit along with other high-growth stocks in May, but after a solid first-quarter 2021 earnings report, shares are back to where they started when they made their publicly traded debut.
The digital advertising industry is making a fast rebound this year in the wake of pandemic lockdowns, and DoubleVerify is a top beneficiary from consumers spending extra time streaming TV and on social media. It isn't cheap, but add this stock to your watch list.
No lost cookies here
DoubleVerify's software does just what its name implies: It verifies the quality and performance of digital ads. It's an analytics platform that CEO Mark Zagorski calls a "core utility" for marketers around the globe, helping them ensure their campaigns are viewed by real people in the intended geography.
After pandemic lockdowns caused many companies to tap the brakes on advertising last year, the industry is making a comeback -- and more dollars are flowing to digital channels like never before. Zagorski said digital ad spend (excluding internet search-based ads) is expected to be up 11% worldwide in 2021, impressive considering total spend is approaching $500 billion a year.
In spite of this growth, though, digital ads are hardly an open feeding trough. There are big changes many marketing firms are having to contend with, most notably the elimination of third-party cookies (software that tracks web and app activity for the purpose of targeted ads to the user) by tech giants Apple (NASDAQ:AAPL) and Alphabet's (NASDAQ:GOOGL)(NASDAQ:GOOG) Google. For many companies, this has meant lost revenue as they look for a way to replace income they were previously getting via cookies on Apple iOS and Google Android devices.
This hasn't been the case for DoubleVerify. The company's software is cookie-less. Regardless of the chosen platform (streaming TV, social media, search, etc.), its advertising analytics platform provides insight on a marketing campaign's effectiveness without the need to collect any individual end-user data. That's been a key component to the company's overseas growth.
Digital ads are already a well-developed industry here in the U.S., but DoubleVerify's no-cookie software is now quickly growing internationally, too. The company reported 65% year-over-year growth in revenue in Europe, the Middle East, and Africa in the first quarter and 76% growth in the Asia Pacific region, for a grand total of just 25% of sales outside of the Americas.
Put simply, this is a fast-growing company with a global digital ad niche that isn't being hurt by Apple and Google's big changes this year. With no shortage of room to expand overseas, this small company could be just getting started.
Is the price tag too high?
As for overall specifics, DoubleVerify's total Q1 revenue was $67.6 million (up 32% from a year ago). Adjusted EBITDA was up 41% to $21.7 million, and free cash flow increased 82% to $17.5 million. Management said to expect full-year 2021 sales to be up 33% at the midpoint of guidance to $324 million, and adjusted EBITDA to be up 42% to $104 million. Clearly, DoubleVerify checks all the right boxes for investors looking for growth opportunities: steadily growing sales benefiting from a massive secular growth trend, and a highly profitable operation to boot.
But as of this writing, the company is valued at a market cap of $5.7 billion -- or nearly 18 times current-year expected sales. It's a premium to be sure, but not totally unreasonable given the company's expected steady double-digit percentage growth and highly profitable business. Plus, DoubleVerify paid off the $22 million it had in debt subsequent to the end of the first quarter using the $282 million in cash it received from its IPO (which was added to the $49.8 million in cash and equivalents on hand pre-IPO).
Simply put, there's lots of upside for DoubleVerify to expand as marketers look for ways to make their ad campaigns more efficient and effective, and digital ad spending in general is on the rise around the globe. This software company has plenty of liquidity on hand to expand its presence, and shares trade for a not-totally unreasonable valuation for investors looking at the potential over the next decade. DoubleVerify stock looks like a compelling proposition right now if you plan to buy and hold for the long term.