On Wednesday, DoubleVerify (NYSE: NYSE:DV), a software platform for digital media measurement and analytics, received a rating downgrade from KeyBanc Capital Markets. The firm adjusted its rating from Overweight to Sector Weight, indicating a shift in their outlook on the company's stock.
The downgrade was prompted by the company's performance in the first quarter, which KeyBanc believes indicates a slower-than-anticipated growth in social and Connected TV (CTV) sectors. The analyst pointed out that the uplift expected from these areas is taking longer to materialize. This assessment led to the change in stock rating, signaling a more cautious stance on DoubleVerify's near-term growth prospects.
Another concern raised by KeyBanc was the issue of customer concentration, suggesting that DoubleVerify relies more heavily on a smaller number of customers than previously thought. This reliance poses a risk, as it may affect the company's ability to diversify its revenue streams and maintain stable growth.
The analyst also highlighted the risk of DoubleVerify's stock being de-rated in comparison to its peers. The after-hours trading price of DoubleVerify's stock was noted to be at 13.1 times the estimated 2025 enterprise value to EBITDA (EV/EBITDA), which is significantly higher than the 8 times EV/EBITDA at which shares of its peer, Integral Ad Science (IAS), were trading.
KeyBanc concluded that until there is clearer evidence of DoubleVerify's social and CTV products gaining momentum, it is challenging to envision the company achieving a sustainable growth rate exceeding 20%. This perspective has led to a more neutral expectation of DoubleVerify's stock performance in the sector.
InvestingPro Insights
In light of the recent downgrade by KeyBanc Capital Markets, investors may find the real-time data and InvestingPro Tips on DoubleVerify (DV) informative for their investment decisions. With a market capitalization of approximately $5.25 billion and a high P/E ratio of 71.43, DoubleVerify is trading at a premium relative to its earnings. This aligns with KeyBanc's concerns about the stock being de-rated compared to its peers.
Despite the downgrade, the company's fundamentals reveal some strengths. DoubleVerify holds a gross profit margin of over 81%, underscoring its ability to maintain profitability in its operations. This is a positive sign for investors looking for companies with strong profit margins. Additionally, DoubleVerify is profitable over the last twelve months, and analysts predict it will remain profitable this year, which may provide some confidence in its financial health.
InvestingPro Tips suggest that DoubleVerify holds more cash than debt on its balance sheet, indicating a solid liquidity position. This financial stability is critical for investors considering the risks associated with customer concentration highlighted by KeyBanc. Furthermore, with liquid assets exceeding short-term obligations, DoubleVerify appears well-positioned to manage its liabilities in the near future.
For investors seeking more in-depth analysis and additional InvestingPro Tips for DoubleVerify, they can explore the 13 tips available on InvestingPro. To access this valuable information, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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