Verve Q3’24 earnings preview: Focus on privacy-first targeting solutions is paying off

Verve is set to release its Q3 results on Thursday morning, November 28. We already know that Q3 will show accelerated organic revenue growth to 31%, given the business update in late October. This sustained high growth highlights Verve’s solid position in privacy-first targeting solutions and mobile in-app advertising, as demonstrated by its significant customer expansion and increased market share on iOS devices in recent quarters. Following the update, we revised our estimates upwards (see here). With the top line more or less known, we will take a closer look at the cost side, free cash flow, net debt, and any updates on the integration and synergy realization of Jun Group. Additionally, any forward-looking insights regarding 2025 will be of particular interest, given the company’s impressive momentum over the past year. 

Verve is outpacing its competitors

We expect Q3 revenues to come in at 114.6 MEUR (Q3’23: 78.3 MEUR), representing a 46% increase y/y, of which 31% organic (i.e. organic growth in line with the company update). With Jun Group being consolidated to the Group financials from August 1, we expect a 12 MEUR contribution to the top line in the quarter (2 months contribution).

The U.S. digital advertising market is showing robust growth in 2024, rebounding strongly after a relatively weak 2023. In Q3, the open internet peer group that we are monitoring grew on average 22% y/y while the corresponding figure for the Walled Gardens (Google, Amazon, Meta) was 16% y/y. As such, Verve is growing at a faster pace compared to the peer group and this trend mirrors the dynamics observed in the previous quarter. These figures not only underscore the healthy expansion of the broader market but also highlight Verve's outperformance and gained market shares.

In terms of profitability, we estimate the adjusted EBIT to be 31.8 MEUR, marking an impressive 72% increase y/y (Q3’23: 18.4 MEUR), translating to an adjusted EBIT margin of 27.7% (Q2’23: 23.5%). In addition to the strong revenue growth, we expect earnings growth to continue to be boosted by the company’s solid cost control shown during the year, coupled with stronger operating leverage as a result of the integration of Jun Group. Additionally, the adjusted EBITDA is estimated at 37.5 MEUR, reflecting a 62% increase from the corresponding period (Q3’23: 23.1 MEUR), equivalent to a 32.7% margin.

As with the revenue, Verve typically experiences stronger cash flows in the second half of the year and with the integration of Jun Group, which has stronger margins and cash conversion capabilities, we expect Verve to generate FCFF north of 60 MEUR in H2. However, we recognize that Verve typically ties up cash as a result of growth, and the sustained high growth rates could lead to temporary delays in cash release. That said, the company’s securitization program and Jun Group’s shorter cash collection cycles, attributable to its demand-side operations, should help offset these potential challenges.

A potential Chrome and Google separation in the making?

Google’s announcement earlier this year regarding potentially replacing third-party cookie deprecation in Chrome with an opt-out mechanism created a wave of uncertainty in the industry. While there hasn’t been any news on that area, attention has recently shifted to the DOJ's proposal for Google to divest its Chrome browser to address antitrust concerns over its dominance in search and advertising. If enacted, this move could have a major impact on the industry. Separating Chrome from Google’s advertising ecosystem might reduce its dominance, creating a more competitive landscape and opening opportunities for open internet players such as Verve. Additionally, an independent Chrome could enforce stricter privacy standards, accelerating the shift away from third-party cookies and increasing demand for cookie-less targeting solutions, which is a key strength of Verve.

However, the legal process is expected to be lengthy, with a final decision anticipated by August 2025. It would be interesting to hear any comments/insights from Verve on this subject in the report.

The presidential switch in 2025 adds some uncertainties to the economic outlook

Following the company update on October 30, we revised our estimates. For 2024, we estimate revenues at 425 MEUR (FY23: 322 MEUR) and an adjusted EBIT of 110 MEUR (FY23: 77 MEUR), equivalent to a 26% margin. Our revenue forecast exceeds the upper end of the company’s guidance range (400–420 MEUR), which we consider quite conservative given its recent strong performance.

The digital advertising market has been recovering strongly in 2024, particularly in the U.S., where both walled gardens and the open internet have grown at robust double-digit rates. This rebound aligns with solid U.S. economic performance throughout the year, driven largely by resilient consumer spending. Inflation has significantly declined from previous highs, the labor market has gradually cooled (which enables further rate cuts), and consumer sentiment has improved steadily since July.

These factors collectively point to a favorable outlook for the U.S. economy heading into 2025, which would support continued growth in the advertising market. However, uncertainties remain. The return of Donald Trump to the White House in 2025 could bring policy shifts, such as tax cuts and steep tariffs. While these changes might stimulate short-term economic growth, they could also widen the fiscal deficit and reignite inflation. This scenario could delay interest rate reductions and result in higher long-term rates, potentially dampening consumer spending and advertising budgets.

Despite these uncertainties, Verve is well-positioned to benefit from the ongoing shift toward privacy-first digital advertising, which is expected to sustain its growth over the coming quarters. That said, it is important to recognize that Verve, like other companies with exposure to the digital advertising industry, is not immune to challenges if broader market conditions deteriorate.