What a brutal six months it’s been for DoubleVerify. The stock has dropped 26.4% and now trades at $14.55, rattling many shareholders. This may have investors wondering how to approach the situation.
Following the pullback, is this a buying opportunity for DV? Find out in our full research report, it’s free.
Why Do Investors Watch DV Stock?
When Oren Netzer saw a digital ad for US-based Target while sitting in his Tel Aviv apartment, he knew there was an unsolved problem, so he started DoubleVerify (NYSE: DV), a provider of advertising solutions to businesses that helps with ad verification, fraud prevention, and brand safety.
Three Things to Like:
1. Elite Gross Margin Powers Best-In-Class Business Model
What makes the software-as-a-service model so attractive is that once the software is developed, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.
DoubleVerify’s gross margin is one of the highest in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an elite 82.3% gross margin over the last year. That means DoubleVerify only paid its providers $17.74 for every $100 in revenue. 
2. Customer Acquisition Costs Are Recovered in Record Time
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
DoubleVerify is extremely efficient at acquiring new customers, and its CAC payback period checked in at 5.4 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give DoubleVerify more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.
3. Operating Margin Reveals a Well-Run Organization
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.
DoubleVerify has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 12.1%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Final Judgment
DoubleVerify is an interesting business with potential. With the recent decline, the stock trades at 3.3× forward price-to-sales (or $14.55 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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