Verve Q4’24 preview: Tougher comparison period will slow the organic growth in Q4

Verve is set to release its Q4 results on Thursday morning, February 27. We expect the company to show continued high organic growth, albeit at a lower pace than previous quarters due to a tougher comparison period. We anticipate a slight decline in adjusted operating margin year-on-year due to further expected cost pressures as Verve continues to scale into new ad formats. However, we expect these pressures to ease throughout 2025. Other focus areas in the report include FCFF and net debt trends, as well as updates on the integration and synergy realization of Jun Group. While we don’t anticipate a formal financial guidance for 2025 (we expect this in Q1’25), any forward-looking commentary for the current year will be closely watched.

The full contribution of Jun Group to boost top line in Q4, while organic growth is expected to slow q/q

We expect Q4 revenues to come in at 130 MEUR (Q4’23: 99 MEUR), representing a 32% increase year-on-year (of which 13% organic), whereas Jun Group’s contribution for the quarter is expected at 18.5 MEUR. This means that we expect the organic growth to decelerate notably on a year-on-year basis from the previous quarter (Q3’24: 31%), reflecting a tougher comparison period.

In Q4, the open internet peer group we monitor grew on average 19% year-on-year* (Q3’24: 17%, Q4’23: 17%) while Walled Gardens ads businesses (Google, Amazon, Meta) saw a 16% year-on-year growth (Q3’24: 16%, Q4’23: 21%). As such, based on our estimates, we expect Verve to grow at a slower pace (organically) compared to the peer group but, when incorporating the Jun Group contribution, outpace on total growth.

Looking at the full year of 2024, we estimate the organic growth rate to be 22% and given the general market growth in 2024 of some 10% and compared to e.g. Walled Gardens (avg. 18% y/y in 2024), Verve has clearly gained market share during 2024.

On another note, one of Verve’s closest competitors, the mobile-focused ad tech company Applovin, announced in its Q4 earnings call that it has signed a non-binding agreement to divest its entire app portfolio. Historically, both Applovin and Verve have emphasized the strategic advantage of first-party data from owned apps to enhance their ad tech capabilities. Given this shift, we aim to seek answers to whether Verve still considers its app portfolio to be a key strategic asset in conjunction with the earnings report. 

Expansion into new ad formats is expected to continue pressuring margins in the short term

Moving down the income statement, we estimate the adjusted EBIT to come in at 32.2 MEUR (Q4’23: 26.8 MEUR), representing a 25% margin (Q4’23: 27%) and a 20% increase year-on-year. The slight year-on-year margin decline, despite the Jun Group’s full contribution in the quarter, is primarily due to higher estimated near-term costs as Verve continues scaling new ad formats (e.g., full-screen and video ads). However, we expect margin contribution to improve over time as Verve gains traction and scales within these newer channels. Additionally, we estimate the adjusted EBITDA to increase 23% year-on-year to 38.9 MEUR (Q4’23: 31.7 MEUR), equivalent to a 30% margin (Q4’23: 32%). 

The fourth quarter is seasonally the strongest quarter across the income statement, and this trend typically extends to cash flows. However, following a significant working capital release in Q3, we expect FCFF to remain in line with the previous quarter, still reflecting improved cash conversion and an overall strong cash profile. For the full year 2024, our FCFF estimates stand at around 94 MEUR, a notable improvement compared to last year’s 23 MEUR, driven by strong earnings growth, improved working capital management, and a strengthened cash conversion profile following the acquisition of Jun Group. 

2025 market outlook remains solid, but rising macroeconomic risks cast uncertainty

Our 2025 estimates remain intact, where we project revenue to amount to 521 MEUR (FY2024e: 423 MEUR) and an adjusted EBIT of 133 MEUR (FY24: 97 MEUR), equivalent to a 25.5% margin (FY2024e: 23%).

After a relatively muted 2023, the global digital advertising market rebounded strongly in 2024, growing ~10% year-on-year (MAGNA Research, December 2024), despite a rather lukewarm economic climate. The U.S. market and digital ad formats expanded even faster, at 12% and 15%, respectively, with the U.S. remaining the dominant market (380 BNUSD). This growth was particularly driven by an unusually high number of major cyclical events, but also structural media innovations, including the rise of retail media, AI-driven targeting and placement, and improved short-form video monetization, which continues to attract larger marketing budgets. With the lack of major cyclical drivers, MAGNA expects ad spend growth to slow to 6% growth in 2025, with the US market to grow slightly slower at 4.9%, supported by a robust economic environment and increased demand for digital advertising and media innovation.

However, if there's one thing advertisers dislike, it's uncertainty. In his first month of his second term, President Trump has signed a wave of executive orders, called for mass government layoffs, and threatened tariffs on allies, reshaping both domestic and foreign policy. His abrupt exclusion of European nations from Russia-Ukraine peace talks has further heightened global tensions. At the same time, U.S. consumer sentiment in February hit a seven-month low, while inflation expectations surged 100 bps to 4.3%. These factors have amplified global uncertainty in 2025, which we view could weigh on advertising budgets if they persist.

That said, we believe Verve is well-positioned to continue to benefit from the industry’s transition toward privacy-first digital advertising. The company's strong inflow of large software clients from 2024 is expected to sustain a solid growth trajectory in 2025 and onwards. However, 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 weaken.

*Note that, as of February 24, 2025, only four out of the seven open-internet companies we monitor have reported.