Over the past six months, DoubleVerify’s shares (currently trading at $9.45) have posted a disappointing 7.3% loss, well below the S&P 500’s 13.2% gain. This might have investors contemplating their next move.
Is there a buying opportunity in DoubleVerify, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think DoubleVerify Will Underperform?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons there are better opportunities than DV and a stock we'd rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within software, a stretched historical view may miss new innovations or demand cycles. DoubleVerify’s recent performance shows its demand has slowed as its annualized revenue growth of 13.7% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. 
2. Long Payback Periods Delay Returns
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
DoubleVerify’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a highly competitive environment where there is little differentiation between DoubleVerify’s products and its peers.
3. Operating Margin in Limbo
While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.
Looking at the trend in its profitability, DoubleVerify’s operating margin might fluctuated slightly but has generally stayed the same over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its operating margin for the trailing 12 months was 11.5%.
Final Judgment
DoubleVerify falls short of our quality standards. Following the recent decline, the stock trades at 1.8× forward price-to-sales (or $9.45 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are superior stocks to buy right now. Let us point you toward the Amazon and PayPal of Latin America.
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