The organic growth accelerated in Q2

Verve issued a positive earnings update for Q2 yesterday and raised its FY2024 guidance, driven by strong customer inflows and a structurally reduced fixed cost base, enhancing profitability. Organic revenue growth for Q2 was 26%, with the adjusted EBIT margin reaching 24%, significantly exceeding our estimates. Consequently, we have raised our estimates, and we increase the target price to SEK 35 (previously SEK 29) while reiterating our Accumulate recommendation.

Revenue growth accelerates to 27% in Q2

In Q2 2024, Verve's revenues grew by 27% y/y, with 26% organic growth, reaching 96.6 MEUR (Q2’23: 76.2 MEUR), surpassing both our estimate of 85.4 MEUR and the midpoint of consensus forecast of 87.3 MEUR. The number of new large software clients increased by 33% y/y to 851, adding over 200 new customers since Q2’23. We believe this reaffirms a recovering advertising market and showcase the strong demand for Verve’s privacy-centric solutions. Although we await the full Q2 report on August 29, key metrics such as net dollar expansion rates have likely continued to improve, indicating increased spending by existing customers. Additionally, ad impressions grew by 24% y/y, slightly slower than revenue growth, suggesting higher CPM levels for Verve, a positive indicator for the rest of the year.

Efficient cost management helped to improve margins

Strong revenue growth, coupled with effective cost control, led to improved profitability in Q2. Adjusted EBITDA reached 29.1 MEUR (Q2’23: 21.3 MEUR), with a margin of 30.1%, exceeding our estimate of 23.6 MEUR. Adjusted EBIT, after accounting for non-recurring costs and PPA amortization, was 23.2 MEUR (Q2’23: 16.6 MEUR), corresponding to a 24% margin, surpassing our 18.2 MEUR estimate by 27%. This outperformance in profitability, driven by efficient cost management, strengthens our conviction in even higher profitability for FY2024 than previously forecasted.

We are raising our short and mid-term estimates

Considering the stronger-than-expected Q2 performance, we have raised our short- and mid-term estimates. While the earlier-than-expected closing of the Jun Group acquisition positively impacts guidance by a few million, the core business (excl. Jun Group) is showing strong momentum. As a result, we have increased our FY2024 revenue growth estimate from 22% to 28%, with organic growth expected at 18%, up from 14%. Additionally, we have raised our adjusted EBIT by 14% to 105 MEUR (previously 91.5 MEUR), resulting in a 25% margin. For 2025-2026, we’ve only made minor adjustments to our revenue growth assumptions as economic volatility, geopolitical uncertainties, and the future of third-party cookies still presents near-term uncertainties. However, in absolute numbers, we now expect approx. an additional 20 MEUR in revenue per annum, which, combined with slightly improved margins, strengthens the investment case.

Still room for upside in the stock despite the recent surge

Based on our 2025 estimates, Verve trades at an adjusted EV/EBIT and adjusted EV/FCF of 6.6x and 11.2x. While the EV/EBIT multiple remains low in absolute numbers, the adjusted EV/FCF multiple aligns with the peer median (11x). However, we believe that the FCF-multiple is acceptable when looking further in the future. With the integration of Jun Group, Verve is expected to improve its capital structure over the coming years, supported by a stronger cash flow profile, better bond terms, and anticipated rate cuts. This is reflected in the adjusted 2026 EV/FCF multiple of 9x, which is below the peers’ median (10.8x). The DCF model, which we believe better reflects the company's long-term value creation, points to an upside for the stock (SEK 36.4/share) and reinforces our positive investment view.