Although the S&P 500 is down 2% over the past six months, DoubleVerify’s stock price has fallen further to $10.06, losing shareholders 10.4% of their capital. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy DoubleVerify, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is DoubleVerify Not Exciting?
Even with the cheaper entry price, we're cautious about DoubleVerify. 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 14.3% 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. Shrinking Operating Margin
Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales 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.
Analyzing the trend in its profitability, DoubleVerify’s operating margin decreased by 2 percentage points 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 10.6%.
Final Judgment
DoubleVerify’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 2× forward price-to-sales (or $10.06 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at our favorite semiconductor picks and shovels play.
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