Verve Group's Earnings Quality and Shareholder Dilution: A Deep Dive into Sustainable Profitability

Verve Group (ETR:M8G), a pioneer in cookie-less advertising technology, has emerged as a key player in the evolving digital ad ecosystem. Its business model, centered on privacy-compliant solutions, aligns with global regulatory shifts and consumer demand for data transparency. However, for investors, the critical question remains: Can Verve sustain its profitability while managing the risks of shareholder dilution and debt?

Earnings Quality: A Mixed Picture of Growth and Volatility

Verve's operating cash flow has shown robust growth over the past five years, averaging 25.2% annually. For the fiscal year ending December 2024, the company reported €136.995 million in operating cash flow, translating to €0.71 per share. This reflects strong execution in its core business, driven by the adoption of its ID-less advertising platform and the integration of Jun Group, which boosted DSP-side revenue to 30% of pro forma Q2 2024 revenue.

Yet, the most recent quarterly operating cash flow per share dropped to €0.03 in June 2025, a stark contrast to the annual average. While the company attributes this to short-term operational fluctuations, the volatility raises concerns about the consistency of its cash-generating ability. A would reveal whether this dip is an anomaly or a sign of underlying challenges.

Net income and adjusted EBITDA metrics also tell a story of growth. For FY24, adjusted EBITDA is projected at €131 million, with margins expanding to 30% of revenue. By FY26, the company aims for €188 million in adjusted EBITDA, supported by AI-driven targeting and a 7% revenue growth forecast. However, the reliance on non-GAAP metrics like adjusted EBITDA—while useful for highlighting operational performance—hides the impact of accruals and debt servicing costs.

Shareholder Dilution: A Double-Edged Sword

In June 2025, Verve executed a directed share issue of 12.858 million new shares, raising SEK 360 million (approximately €31.5 million) at a 6.9% discount to its share price. This increased the total outstanding shares by 6.4%, diluting existing shareholders' ownership. While the funds will support growth initiatives like AI expansion and retail media ventures, the dilution risks eroding long-term value if the returns from these investments fall short of expectations.

The company's net leverage ratio, at 2.6x trailing EBITDA as of September 2024, is expected to decline to 1.8x by FY25. This improvement is partly due to strong operating performance but also hinges on the effective use of raised capital. A would contextualize its debt management relative to competitors.

Strategic Risks and Opportunities

Verve's cookie-less model is a strategic strength, but it also faces headwinds. The adtech sector is prone to fraud and inefficiencies, and Verve's reliance on first-party data from 65,000 mobile app integrations could be vulnerable to shifts in user behavior or regulatory changes. Additionally, the departure of CFO Paul Echt in December 2024 and the transition to Christian Duus may introduce short-term operational risks.

On the positive side, Verve's valuation remains attractive. With a current share price of €3.39 and an intrinsic value estimated at €5.59 based on EV/EBITDA and EV/revenue multiples, the stock appears undervalued. A highlights its 258.3% rally since December 2024, driven by improved guidance and market re-rating.

Investment Implications

For long-term investors, Verve presents a compelling case: a scalable business model in a high-growth sector, strong EBITDA margins, and a clear path to deleveraging. However, the risks of shareholder dilution and operational volatility cannot be ignored. The key to sustainable profitability lies in:
1. Maintaining operating cash flow growth despite quarterly fluctuations.
2. Deploying raised capital effectively to justify the 6.4% dilution.
3. Expanding margins through AI-driven efficiency gains and strategic acquisitions.

Investors should monitor Verve's ability to balance growth with capital discipline. If the company can reduce leverage to 1.5x by FY25 while sustaining EBITDA expansion, the upside potential remains significant. Conversely, repeated dilution or a slowdown in operating cash flow could erode confidence.

In conclusion, Verve Group's earnings quality is underpinned by a resilient business model, but its long-term success will depend on navigating dilution risks and executing its strategic vision with precision. For those willing to tolerate short-term volatility, the rewards could be substantial.