DoubleVerify Stock Plunges Despite Strong Q2 Performance: Here's Why

DoubleVerify Holdings, Inc DV stock is trading lower Tuesday after it reported quarterly earnings of $0.07 per share, which beat the consensus of $0.06. The company reported quarterly sales of $133.74 million, which beat the consensus of $133.33 million.

DoubleVerify agreed to acquire Scibids Technology sas in cash and stock transaction valued at $125 million, with additional potential consideration based on certain performance metrics. Scibids builds AI that automates and optimizes an advertiser's programmatic buying of digital ad campaigns.

Several analysts reacted to the company's performance and acquisition.

KeyBanc analyst Justin Patterson maintained an Overweight rating on DoubleVerify with a $45 price target.

The 2Q revenue of $134 million (+22% Y/Y) bracketed Patterson's and Street's estimates of $135 million and $133 million. EBITDA of $40 million was above Patterson and Street estimates of $38 million.

He suspects results and guidance would have been more robust without MediaMath's bankruptcy, creating some near-term noise.

Given that shares were at a 52-week high heading into the print, Patterson suspects the lack of a beat and raise and acquisition will spark bear concerns about 2024 growth rates. 

Operationally, he saw nothing thesis-changing, and his 2023/2024/2025 EBITDA forecasts are essentially unchanged. 

Stifel analyst Mark Kelley reiterated a Buy rating with a price target of $44.

DV reported a marginally better 2Q, and the 3Q guide was ~in-line (left FY23 unchanged). 

In line with Kelley's views, before earnings season started, management noted a stable macro and advertising backdrop, and DV's reported impression growth was relatively steady with 1Q (consistent with his Meta Platforms Inc META/ Alphabet Inc GOOGL read-through). However, the MediaMath bankruptcy noise is causing slight disruption (advertisers switching DSPs). 

The company also announced the acquisition of Scibids for $125 million. Overall, the thesis remains intact, namely that DV's products remain a must-buy in the advertising world, and Kelley has yet to see the breadth of exposure to Meta work its way into numbers (launch in the coming months). His estimates are essentially unchanged.

Truist analyst Youssef Squali maintained a Buy rating with a $45 price target.

Squali remains constructive on DV following solid 2Q23 results and 3Q23/2023 outlook with ~25%+ Y/Y growth and ~31% profit margin. 

The results against overall digital ad spend growth in the high single digit (he estimated). 

Key growth drivers were higher ABS adoption, more excellent Social coverage (Meta, YouTube & TikTok), and international. DV continues to add clients with an 80%+ win rate, and 54% of the wins were greenfield. The acquisition of Scibids, an AI-based tool to help automate and optimize campaigns with a strong emphasis on performance, should help strengthen its offering, drive its appeal to DR advertisers, and broaden its TAM.

JMP Securities analyst Andrew Boone maintained a Market Outperform and lowered the price target from $45 to $43.

Boone's key takeaway from 2Q23 earnings is that DoubleVerify is accelerating and emphasizing its performance products by acquiring Scibids. He notes the opportunity for performance marketing tools is multiples of the fraud and brand safety tools opportunities. 

At the same time, there is differentiated attention given its MRC accreditation and DoubleVerify's early focus on the metric. While he acknowledges his lowered estimates from 2Q23, he believes DoubleVerify is operating well in a volatile ad market. At the same time, brand safety in the Facebook feed remains a significant catalyst for 2024.

While his DoubleVerify price target multiple is a premium to comps, we justify this based on his view that DV has a highly defensible business with numerous growth levers, including ABS, social, and attention to name a few, along with 30%+ EBITDA margins that he expects to expand as Meta brand safety ramps.

RBC Capital analyst Matthew Hedberg reiterated an Outperform and a $48 price target.

Solid execution despite an uneven macro led to an upside, albeit less than Q1, for both revenue and adj-EBITDA. 

Strength remained in secular drivers, including Social, retail media, and CTV, while both international and ABS carried the momentum from Q1, partially offset by slower ramp times in large enterprise displacement customers. 

Hedberg feels momentum should build in the second half of FY23 and into FY24. 

Price Action: DV shares traded lower by 14.60% at $35.95 on the last check Tuesday.