Shares of advertising technology (adtech) company DoubleVerify Holdings(NYSE: DV) got crushed on Wednesday after the company reported quarterly financial results and reduced its full-year revenue guidance. As of noon ET, DoubleVerify stock was down a staggering 39%.
Here's the real problem
Financial results for the first quarter of 2024 weren't bad at all for DoubleVerify. Management expected revenue of $140 million, at best, for the quarter, and the company generated almost $141 million. Moreover, it was a profitable quarter, with $7 million in Q1 net income, which is good for a young, growing company.
The problem for DoubleVerify wasn't the Q1 report but, rather, the expectations for the rest of 2024. Management originally thought it could grow full-year revenue by about 22% year over year. But now it's expecting closer to 17% growth -- and that's a decent reduction.
Analysts were confused about how DoubleVerify could outperform in Q1 but expect underperformance for the year. Management clarified that some of its customers were pulling back on spending, most notably in April (after Q1 was over). And it lowered guidance, anticipating that the trend would continue. That's what investors didn't like hearing with the adtech stock today.
What should investors do now?
On one hand, the timing of the pullback for spending from DoubleVerify's customers is interesting. In April, the company issued an apology for displaying wrong data regarding advertising on social media platform X, formerly Twitter. According to the company, the data was wrong for almost five months and it's looking into what went wrong to prevent it from reoccurring.
Could the pullback in spending in April reflect a loss in confidence in DoubleVerify from its customers due to its mistake with X? It's possible.
On the other hand, the drop in DoubleVerify stock today feels like a bit of an overreaction. The company still expects to profitably grow its top line by double digits, which isn't indicative of a business that's falling apart. Therefore, now may be a good time for investors to dive deeper into DoubleVerify's business and take advantage of this long-term opportunity.
Should you invest $1,000 in DoubleVerify right now?
Before you buy stock in DoubleVerify, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and DoubleVerify wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $554,830!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of May 6, 2024
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DoubleVerify. The Motley Fool has a disclosure policy.
