DV share slide 17% on weak outlook; A temporary setback or a sign of trouble ahead?

Digital ad verification company DV (formerly known as DoubleVerify) recently released its Q4 earnings report, revealing earnings per share (EPS) of $0.19. This was $0.03 lower than the consensus estimate of $0.22. Despite the earnings miss, revenues for the quarter increased by 28.9% year-over-year to $172.23 million, slightly surpassing the consensus estimate of $171.85 million.

While DV's Q4 earnings report showed a positive revenue growth, the company issued downside guidance for Q1, forecasting revenues of $136 million to $140 million, compared to the consensus of $146.91 million. Additionally, DV issued downside guidance for the full fiscal year 2024, expecting revenues of $688 million to $704 million, compared to the consensus of $707.09 million.

Despite the downside guidance, analysts remain optimistic about DV's prospects. Truist views the slowdown in revenue growth as a temporary setback, unrelated to pricing pressures. DV has been winning deals while maintaining or raising prices, indicating that the company's competitive position remains strong. The growth and margins are expected to accelerate starting in Q2 2024, driven by ABS adoption, greater Social coverage (Meta, YouTube, and TikTok), international expansion, and Scibids AI.

DV's client win rate is consistently high, with 80% or more of its wins being new customers. This demonstrates the company's ability to grow faster than its market and peers. However, investors may be concerned about the comments from competitor IAS regarding price cuts, which could impact DV's multiple.

Overall, DV's earnings report highlights both positive and negative aspects of the company's performance. While the downside guidance may be concerning, the company's strong client win rate and competitive position suggest that it remains a viable investment opportunity for long-term investors. As DV continues to innovate and expand its offerings, the company is well-positioned to capitalize on the growing demand for advertising measurement solutions