Description

Business Description

DoubleVerify (DV) is a leading software platform in the ad verification space. The company was founded in 2008 by Oren Netzer and Alex Liverant, two former employees from CheckM8, a now defunct enterprise ad management company. The story began when Netzer saw an ad for Target while reading the NY Times from Tel Aviv. After discovering that Target was not launching in Israel and that he had been erroneously targeted, Netzer realized the pervasive inaccuracies and inefficiencies present in digital advertising. Netzer teamed up with Liverant shortly after to develop solutions to solve this problem. The company quicky grew from the two founders to several hundred employees and received several rounds of venture funding before being acquired by Providence Equity Partners in 2017. Providence took the company public this past April.             

DV provides solutions to increase transparency in digital ads, including fraud detection, brand safety, and viewability. The company’s solutions ensure customer’s ads are displayed in a fraud-free environment in their intended geographies. DV generates revenue based on the volume of media transactions measured, charging a contractually fixed Media Transaction fee per 1,000 impressions.  The company has a diverse client-base of blue-chip advertisers (including Pfizer, Ford, and Colgate), advertising agencies, and, more recently, supply-side publishers. In 2020, DV measured 3.2 trillion transactions (+33% YoY) for over 1,000 customers. The market is dominated by three players – DV, MOAT (acquired by Oracle), and Integral Ad Science (owned by Vista). There are a number of other private players that compete in the space as well, including companies such as White Ops and Confiant.       

Thesis

DV is a high-quality software business trading at a significant valuation discount to peers. DV’s business model benefits from secular tailwinds, strong margins, and a long potential runway for durable growth. The company has the potential to be a long-term compounder for the following reasons:

Attractive Sector Tailwinds -  DV stands to benefit as advertisers continue shifting more spend to digital. The company estimates their TAM is $13bn and expects it to grow to $20bn by 2025, representing a ~9% expected CAGR. Furthermore, estimates suggest ad verification is significantly underpenetrated (less than 25% today), implying a long runway to maturity. There are several other secular changes in the industry that benefit DV, including 3^rd party cookie deprecation (which caters to DV’s contextual approach) and the rise of connected TV or ‘CTV’ (discussed more below).      

Network Effects – DV benefits from network effects as one of the largest ad verification platforms. Many of the walled garden platforms like Facebook want to reduce their number of integrations, so sticking with the largest makes sense. Furthermore, new platforms seeking to integrate will naturally turn to players with the largest client bases. Advertisers follow a similar trend, seeking to consolidate solutions. Finally, as DV measures more media transactions over time, the company builds its IP/data sets, which can be used to further enhance its solutions.   

Strong Growth Drivers - DV has several levers to drive future growth. The company has invested heavily into new media platform capabilities, including CTV, for which ad spend is expected to double from 2020 to 2023. DV has partnership agreements with numerous CTV platforms, including Amazon and Roku. The company’s product launches also provide growth opportunities – as an example, its Authentic Brand Safety solution launched in 2018 drove ~$20mm new revenue in the following year. DV is also primarily U.S. based and only recently started its international expansion in 2018 – this represents another growth avenue for the company.

Strong Margins and Retention – In addition to a 50% revenue CAGR from 2017-2020, the company has been highly profitable with mid-80% gross margins and 30%+ EBITDA margins. Additionally, for the past three years, the company has posted gross retention rates of 95%+ (100% for the top 75 customers) and net retention rates of >120%. 

Valuation 

Compared to other high-quality software comps at comparable growth rates, DV shares are trading at >20% discount on a forward sales multiple basis to the average of the group, despite being much higher margin. Trading to the group average would imply $46-48 per share, representing 26-30% upside to current prices. 

Note: Financials are from Bloomberg, and all forward projections are based on Bloomberg consensus. Net cash figure is estimated and adjusted for IPO proceeds.  

Risks

As a newly issued IPO with limited trading history, may be vulnerable in market sell-offs, and PE ownership overhang

Cyclical downturn in ad spending

Highly competitive industry 

Disclaimer

This document is for informational purposes only. All content in this report represents the author's opinion. The author obtained all information herein from sources believed to be accurate and reliable. However, such information is presented “as is,” without warranty of any kind — whether express or implied. All expressions of opinion are subject to change without notice, and the author does not undertake to update or supplement this report or any information contained herein. This report is not a recommendation to purchase the shares of any company, including DoubleVerify Holdings Inc. The information included in this document reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity. Any or all forward-looking statements, assumptions, expectations, projections, intentions or beliefs about future events included in this document may turn out to be wrong. Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. Investors should conduct independent due diligence, with assistance from professional financial, legal and tax experts, on all securities, companies, and commodities discussed in this document and develop a stand-alone judgment prior to making any investment decision.

Catalyst

Earnings

Compounder