DoubleVerify Holdings, Inc. ($DV)

Hi, everybody. This is Omar Dessouky. I'm a senior analyst at Bank of America, covering Internet, and I cover a number of companies active in the advertising technology space, such as AppLovin, DoubleVerify, Unity, Magnite, Digital Turbine and a couple of others. Today, I have a company I've been very interested in for quite a long time, DoubleVerify, and the CFO, Nicola Allais. And DoubleVerify has been active on the conference circuit. So I want to take a high-level view with this conversation because I think a lot of investors are going to be interested once DoubleVerify's revenues start to accelerate again. And I want to take a second to remind everybody that this was a very high-growth company at one point. And hopefully, we'll discover a little bit in this conversation what was repeatable during that high growth period and what was potentially unrepeatable during the high-growth period, so investors can think about the next high-growth period. So I'm going to frame this conversation chronologically, Nicola. There was the first phase in the open web scaling period, roughly 2019 to 2023. DoubleVerify's Activation segment, I think, compounded at very high rates, something like 30% to 40% or something like that, really, really high for 4 years. And even the non-ABS portfolio grew very quickly. I think it was sort of around like 20% to 23%, right? So amazing growth. You became a much bigger company. And during that period, you consistently raised guidance and beat expectations. Then there seemed to be a second phase, more of a transition period between '24 and '26 when growth slowed. And I wanted to be very explicit about what changed, what the market got wrong and how DV had executed. And then there's a third phase, which is now kind of looking forward. And let's dig into the current portfolio and think about how you think of guidance.

So let's go ahead and start just really as a kind of a background, that hypergrowth era, right? Can you look back at that era and that had one specific product that grew like gangbusters, Authentic Brand Suitability, 75% CAGR between 2019 and 2023. It was a new product, I think, in 2019 at the time. And the reason I want to focus on that is because it gives me the intuition that your business is very much a product portfolio-driven business. And if you find the right product for the right market, you can really change the game, right? So when you look back at that period, what were the 2 or 3 biggest drivers of DoubleVerify's growth?

Yes. So for those here who may be new to the story, just 1 minute as to what DoubleVerify does. So DoubleVerify helps advertisers make sure that their ads in the digital ecosystem are placed in environments that are brand safe, fraud-free in the right geography, and viewed by a human. And what we do that for advertisers wherever they spend. The idea for DoubleVerify is to verify wherever the advertiser is spending their dollars. The period that you just mentioned, Omar, is a little bit of where the dollars were at the time, which was in the open web, and we were scaling with our clients. There was hyper growth in the open web. We had the right products for us to be able to create sticky relationships with our clients, as they were spending more and more through channels that were new to the open web. You mentioned Authentic Brand Suitability. That is a product that was in the programmatic space of open web, which is where the dollars shifted to in that period. We don't control where advertisers are spending their dollars. We want to be able to verify wherever they're spending. And at the time, they were spending a lot through the programmatic channels and Authentic Brand Suitability was a perfect product for the advertisers to be able to use our services. What Authentic Brand Suitability does is on the programmatic side of the business, it allows advertisers to evaluate an ad impression even before they buy it. So even before they buy, the advertiser can use Authentic Brand Suitability to say, this is going to be a good impression for me or a bad impression for me. And that's naturally where the advertisers want to be. They want to be able to avoid spending dollars if they know it's going to be in the wrong space for them. So the growth that we saw -- the way we think about the growth vectors that we have is you're correct that it's product driven, but it's also vertical driven. So in the history of the company, we went deep in open web because that's where the advertisers were spending. We're now entering a phase where we're going to look at replicating that for social. I'm sure we'll talk about it. And soon thereafter, we will be doing the same thing for AI. So for us, it's where can we verify? Do we have access to the vertical? And can we do it for every single dollar that the advertiser is spending?

So your product developers came up with that product. Can you tell us a little bit about, like, how they were thinking at the time and what that process was to come up with such a gangbuster product because they could potentially do it again. So what is that process?

Yes. So the process -- so the company started with measurement products. Measurement is very simple. An ad runs and we tell the advertiser, how the ad did. Advertisers like that. But they, of course, would rather have the information available before they actually bid. And what Authentic Brand Suitability did, what our product development team realized is that they could use the information that we were capturing on the measurement side to create a product on the programmatic side, pre-bid side. So Authentic Brand Suitability captures the data that we collect anyway on the measurement side and creates a loop so that the advertiser can feed what they learn post running the ad into a product that's [ pre-bidding ]. That loop is a loop that the product team has been able now to replicate in social. So in social, which is now the next phase of growth for the company, we've been able to create that loop again. So in order to use an equivalent of Authentic Brand Suitability in social, you need to use our measurement product because that's the data that feeds the product. That loop is very unique, and it's really at the core of what we do to be able to help the advertisers both pre and post. And so the product team really thinks about all that all day long to try to replicate that loop. What's -- one part of the equation that we haven't talked about is integrations. Now in the open web, it's easy to launch a product, information is available. What is a little bit trickier to do on the social platform is that you need to integrate with every single platform. That is where the product team gets very creative, right? It's what kind of information is going to be available to us from the social platforms and what are we going to be able to do with that level of information. The last -- you mentioned a period in the last 24 months has been a very critical period from a product perspective because the walled gardens have granted us access. They have finally provided information that allows us to create an Authentic Brand Suitability like product for social.

So before we move on to that, obviously, that's important. I still think there's some good information we can get from looking at the past, which is how do your product developers know what your customers want, right? Now what's that partnership like during the development process? Are there surveys? Are there like initial tests with a small set of customers? Or do you just sort of know what they want? And how is that knowledge of your customer enhanced now that you've been through the cycle once?

Yes. So one of the key things for DoubleVerify is we work with the largest brands in the world. Out of the 1,000 largest global brands in the world, we work with about half of them right now, and the number is growing. What that allows us to have is a commercial relationship with the client where we understand what they're looking for and that informs how the product development team thinks about what the next product might be. And so this will be quarterly business reviews of the clients where we hear about their pain points, and we tell them the types of products that we're working through. And that partnership then engages the advertisers to then speak to the platforms to say, hey, what DoubleVerify provides is actually something that's really necessary for us and they become kind of the spokespeople for verification to be available in all the verticals. So it's a back and forth. We like to do tests. If we're able to get to a test period of our products, we have a high likelihood of winning that engagement because our products are superior in terms of brand safety and suitability and the levers that the advertiser can turn. That relationship with the client is really what's going to lead us to how we do AI and how we do verification in AI. The partners that we have with the advertisers is really the front line talking to the platform and saying, hey, we need verification to be able to spend dollars on your platform.

Got it. So then looking forward, I think your suite of tools for measurement on social sort of started, I think it was like beginning of '25 with measurement, and it took a little while to get the -- for the prebid up and running. It's up and running now and you're scaling. So I assume that was also done in partnership with your advertiser clients, right?

Correct. Correct.

So you have pretty good visibility to that.

Yes. The key part of that conversation, why is social only now, right? 70% of all digital ad spend. So why are we talking about verifying into the social platforms today? It's been a vector for a very long time. The reason why we're talking about it now is because the social platforms ultimately agreed that verification was useful in their space, right? This is not the open web where you can just build a product. You need access to data. That's where the advertisers played a large role, right? They said, okay, we're not going to spend a lot on social until you have verification available. We now have the tools to replicate what we did in the open web on social. And that's, as you said, only in the last 24 months.

Got it. So let's now kind of maybe talk a little bit about your '26 guidance, I think is what a lot of investors are interested. The stock is trading really cheap. And if I was -- let me ask it in a different way. I think you guided to 8% to 10% revenue growth for '26. And can you talk about the growth drivers factored into that guidance? Some of the ways you're driving the bottom line improvement?

Sure. So we -- the foundation for the model is net revenue retention. So we exited last year with 109% net revenue retention. And the reason why that is, is because our clients stay with us for a very long time. So the average tenure of our top 75 clients is over 8 years, and the average spend by client has increased. So the top 100 clients used to spend $2.2 million a few years ago, they now spend $4.3 million a year with us. So the basis for the model is NRR. And last year, we exited the year at 109%. So you'd say why are we guiding to 8% to 10%. We're in a time where we have just launched our social products. They're growing much faster than that rate. In Q1, we grew 23% social measurement. We grew over 90% for social activation, of course, off a smaller base. But that's the driver of what is going to become the overall driver of the company once it scales. So to answer your question, we start with 109%, which is the NRR. We have inside the business channels that are growing extremely fast, but they're still on a small scale.

And kind of comparing back to the ABS days, right? ABS, I think, probably opened a lot of new accounts for you.

Yes.

Right? I guess the question now is, is this new product also going to open kind of new accounts for you? Or is it mainly increasing your share of wallet within your existing clients at this point, what you think?

So I think -- it's a good question. I think the motion of having pre-bid and post-bid for social is going to allow us to verify advertising spend for clients that we already have. So it will be an upsell motion because now it's available. What is going to attract new clients is the new products that we've launched since. So we've been talking up until now basically about verification, right, post-bid and pre-bid. We have since -- over the last 3 years, we've acquired 2 companies that allow us to do not just verification, but also optimization. That's a company that's called Scibids, where after we say to an advertiser, hey, this is a good impression for you to bid on. Scibids allows them to, even within that inventory, to bid against the ones that will actually optimize their return on investment. That's an optimization tool. And then last year, we bought a company that is going to allow us to do proof. So not only verification, but optimization and now proof. So the answer to your question is, I think the way we are going to continue to gain share is that we now have a 3-pronged approach. It's not just verification. Verification, optimization and proof is pretty unique in the market. No one else really has the breadth of those 3 products, and that's how we're kind of winning new clients. So I'll give you one example. This is a competitive market. And when an RFP comes up, we always go and we lead with verification, optimization, proof. There's a client that's using a peer verification partner in the space, ran an RFP, decided they didn't want to switch their provider, but we were able to say to them, why don't you try optimization with us anyway. So now we have their optimization business, not yet the verification business. And that allows us to create a relationship that, at some point, will get us the verification business too.

So are we talking about kind of expanding past the kind of Fortune 500? Or are we talking about competitive share gain?

Yes, that's a good question. So first, it is share gain. We work with half of the top 1,000 advertisers. Now that we have a differentiated product, we feel good about being able to win more of those clients. And the bread and butter of our business is the large brands because those are the brands that are the most keenly aware of what it means to have a brand safety violation. We do have businesses that are below the top 1,000 advertisers, and that generally comes through the DSP, the programmatic part of the business. So we are active in there. We have specific teams that go after those clients to try to grow them into a larger engagement. But really, the larger part of our business is the top 1,000 clients. And now that we have this differentiated product, we think we can gain share there.

Okay. Now your clients are large. They're quite interesting, right, because you have sort of the CMO and then you have international offices, right, each of which do their own advertising thing. So within any client, there are multiple stakeholders.

Yes. Correct.

Tell me how your portfolio potentially helps you kind of penetrate some of those pockets that you haven't been able to yet.

Yes. So every client is a little bit different. And I'll start by saying some clients go the global mandate way of things, right? Everybody needs to use DV, no matter where you are in the world and that becomes a global mandate that still requires us to go market by market to help turn on the product. And some of the clients will be more willing to let the markets decide which product -- which verification partner to work with. It's obviously -- we have a relationship at the CMO level, as you say. And so what we try to do is create the value proposition there so that they can engage every single market to turn on DoubleVerify. What we've done in the last 3 years is we -- our share of revenue outside the U.S. is small today. It's smaller than the share of dollars that are being spent outside of the U.S. in terms of digital advertising. But now we have the people on the ground to kind of win the on-the-ground RFPs and RFIs for clients that are, let's say, in APAC or in EMEA. And so that's going to continue to be a growth vector for us. The most important thing for us is to have the relationship at the brand. As some of you know, there's agencies involved in the space. Clients change agencies all the time. We want to have the relationship with the brand so that we can continue the relationship no matter which agency is also involved.

And just maybe developing that a little bit, do these big brands, are they familiar with both -- the frameworks of both you and your other primary competitors? So it's sort of like Moody's and S&P ratings. Everybody knows the ratings methodology? Or do they usually kind of only know one and there would be a switching cost like to move to the other vendor?

So they will generally know all the players in the market. An RFP generally starts with 2 or 3 names of companies. There are a whole bunch of single point solutions also that get involved. So I don't think -- this is a known space. There are not a lot of players that do everything that we do. So every advertiser will know. I think the onus is on us to show the differentiation with optimization and proof to kind of gain a market differentiation that's not just about price for verification. And that's been -- the players have been the same for 10-plus years. I don't think the market has changed too much on that.

Yes, probably -- Okay. Got it. Got it. So maybe let's go product by product here. So thinking about the open web portfolio, you talked about social being the driver of growth. So is open web essentially stable? Is it flat, declining? Like how do you guys think of that going forward?

Yes. So again, we want to verify where the dollars are going. So we don't make the decision to say we're more open web focused or social focused. What we know is that the advertisers are spending more on social. And what's important for us is to have the tools there that we now have to be able to verify as more dollars go there. And that's the part that we control, right? So we control 23% growth in measurement for social, 90-plus percent growth in social activation. The open web is still a vast environment. There are a lot of dollars that are going through it. Digital ad spend in total is going up single digit every year. We don't participate in the media buying. So this is about us being available wherever the advertiser is going. Of course, open web is not growing as fast as social or CTV or soon AI. We need to remain involved in the space just because dollars are still going there, of course. But for us, what we control is just being able to be available as the dollars move to social from mobile, online, video and display.

So is it safe to say that like you're sort of deemphasizing R&D investment in that area that's less high growth and allocating it more to these other high-growth areas?

Yes. So that's a very interesting question because the -- what we do is we have a DV authentic ad metric that applies to any environment, right? The technology behind it is the same regardless of the environment. What's different is the integration into the different social apps as opposed to open web. So whatever development we're doing for social applies to open web as well. So we're launching an attention product that will work both open web or social. We're launching CTV, Do-Not-Air products that are currently bought through the open web channels. At some point, they might be bought directly, they might be bought differently. But right now, that's a product that's launching in the open web buying space. So the emphasis on R&D is really how much better can our DV authentic ad become, and that applies to wherever the advertiser is spending. So we don't have really 2 teams, right? It's improve the product and it will be applied wherever the advertiser is spending.

Okay. And then let's talk about Authentic Brand Suitability. So are there any major unlocks that could drive another phase of big growth for that product? Because I think it's been sort of mid- to high single digits recently.

Yes. So Authentic Brand Suitability is -- if you think of the scale of the business, let's just talk a little bit of numbers here. If you think of the measurement side of the business for open web is about $120 million or so. The Authentic Brand Suitability and Core Programmatic Suitability products are over twice that amount. The reason why it's twice that amount is because the advertisers want to be able to prevent bidding on bad things, so they like that product. And it's also priced twice as much. That product is now over 70% penetrated in our top 500 clients. It's been a runaway success because we've talked about the power of the product. The next vectors of growth for that product is going to be new clients for sure, because it is a pretty unique product that's not readily available in the market anyway. So new clients and then continuing to kind of sell the product into the lower base. It is a premium priced product. So the ability for a client that's, let's say, who's only spending in APAC on mobile for fraud, they might not be so interested in ABS. So I think the answer to your question is it's very powerful. It's unique. The growth vector now that it's already 70-plus percent penetrated in top 500 is obviously not what it's been to get us there. The real focus for us is replicate that 1% to 2% -- 1 to 2x ratio measurement to activation that we have on open web on social. And right now, the activation on social is really, really small.

What -- okay. So social is growing very fast. But are there any kind of bottlenecks to scaling at all at the moment that you're working on alleviating?

So if we were having this conversation 12 months ago, we would say the bottleneck was that we were not available to provide a pre-bid product that's akin to Authentic Brand Suitability. That has now been open. So we're able now to receive information, especially from Meta, which is a large player there, that allows us to do a pre-bid product for social that's close to what we do on the open web. It's not exactly the same because on open web, you can actually bid on impressions of our data. On social, it's a prescreen tool. The unlock is we have a road map. We still need to integrate into TikTok to launch that product, and we need to continue to refine the level of data that we get from Meta to create a really powerful product. But considering where we were 12 months ago where we had no data, we are in a much better position now to ramp that product.

Got it. So let me ask you, we only have 6 minutes left here. I was wanting to talk about Authentic AdVantage, Scibids, Rockerbox and MAP, but then there's also this topic of the LLM platform -- advertising opportunity. So which of those 2 do you think is more important to address?

Well, I think -- I mean, for new investors, the LLM is the big opportunity next.

Yes. Well, then let's talk about that. How should investors think about advertising on the LLM platforms as a source of growth for you?

So LLM is really exciting for us. And so the way to think about it for what we do is there's $1 trillion of digital ad spend. There's about $400 billion that's search. Up until today, verification is not available on search. It's a one-player field. Verification is not available on the search part of the ecosystem. What LLMs will do is they will create a new environment. And we've heard some players saying OpenAI. So there would be $100 billion of ad spend on their platform alone in 2029 or 2030. We believe -- and we're not the only ones. We think that the dollars that will first shift to LLMs are dollars that were on search. If that happens, that opens up the TAM for us. This will be new dollars that we have not been able to do up until today. The LLM platforms know they will need verification because it's a competitive space, unlike search. This is a very competitive space. There are plenty of platforms. And in order to have advertisers who are currently testing it, right, spend a lot of dollars. The advertisers that we have a relationship with will say to the platform, hey, we need verification in here, right? It's a new environment. Brand suitability is a big deal. Those are conversations that are happening now. When those conversations unlock an opportunity for us to verify the inventory that's going there, it expands the TAM pretty dramatically for us. That's the next wave, right? We talked about open web. We talked about social and now we're talking about LLM advertising that is a TAM expansion for us, which is very, very, very exciting.

Okay. Well, that is exciting. And of course, we're interested in knowing like when. So let me -- let's just maybe start off with the R&D process. Like are you -- you're in an R&D process now, I assume, and you're already engaged with those LLM builders.

Absolutely. Yes. And the environment -- so what does product development look like? Product development for that environment is to learn the environment, to understand where the ads are going to be positioned because it's a chat, right, very specific to every single person. So to learn the environment to understand what the drivers of brand safety and suitability will be. So we can do a lot of that work ourselves, right? We're just learning. Now the interesting thing with the LLMs, the way it's set up today is that unlike social, which is user-generated content that has many parameters, text, video, song, image, the chat environments right now are really text-driven, which is something that we've been doing for 10-plus years. So in theory, that is an environment that we know very well and that allows us to do a lot of prework. We are speaking with some of the platforms right now to essentially understand how they're thinking about building their ad business, right? They don't have one today. So they're turning to us and saying, hey, can you help us understand how we should think about how to build the business. So we're having those conversations allow us to raise the awareness of verification. And then on the other side, the advertisers are testing dollars, but they've said very clearly, they're not going to spend a lot into those platforms until there's verification. So the answer as to when is hard to answer because there are competing priorities within the LLMs anyway. But those are active conversations right now.

What do you think is the kind of potential for self-verification, right? Because all of these platforms have their own tools, right, in whatever the open web and social, they have their own tools, which some advertisers don't trust, and that's why they have an independent source like you. So I guess like the high-level question here is how much will that new LLM space look like the other spaces that you've been in, in terms of market structure?

Yes, yes, so third-party independent verification is important to advertisers. They are today -- we're now a business that's been scaling for several years, even though free tools are available on every single platform, right? You can go to a programmatic DSP and use their free tools to verify. You can give your money to Meta and allow Meta to say, don't worry, we'll take care of where your dollars are going to be spent. The reality is the advertiser wants a third party to make sure that what they're hearing from the platform is correct. So that's one. Two is the advertisers want a measure that is the same across everywhere they spend, right? No single advertiser is just going to spend on the LLMs. They're going to spend across social, open web and LLMs, which means that they want to be able to have a benchmark like the DV product that says, this is more brand safe or this is not as brand safe, and that allows them to make decisions around spend. So I think third-party independent with a benchmark that's the same everywhere is really critical for the large brands.

And maybe we can just finish on this last question here, Nicola. So when you say it's really critical, is it just really critical? Or is it required? Because I -- in some of my own expert readings, I've heard that in some cases, it's actually in the corporate governance that they have to have third-party verification. So like how widespread is that?

I think -- look, it's going to depend on every single advertiser. But no CMO -- we're not a very expensive product compared to the amount of dollars that they're spending, right? The ratio of our cost to the media spend is small on purpose in a way, right? Because it allows the CMO to say, it's required. I don't want to be the one CMO that's not using verification and then has a brand safety violation that kills my brand reputation. So whether it's in the governance or not, I think every CMO of a sophisticated company will say, I need this product.

Okay. Well, that's in there. Appreciate it.

Yes. Thanks for having me.