• by Dave Morgan , Featured Contributor, May 9, 2024

As every investor knows, stocks go up and stocks go down -- always.

Still, many in the ad-tech world were surprised to see the stock price of DoubleVerify, the market leader in digital ad verification and a darling of Wall Street over the past few years, drop more than 35% in price in after-hours trading, after reducing full-year guidance in its first quarter 2024 earnings announcement, to a price that is 60% below where it was trading just three months ago.

I don’t usually write about stocks (and don't personally invest in public companies in the market where I work). And I have enormous respect for the leadership team at DoubleVerify, where I have many friends. However, there are some systemic issues at play in what happened to the stock that everyone in the digital ad-tech market should pay attention to.

It’s significant to note that the company did not take its guidance down by very much -- from 22% to 17%. Not what one would expect to cause a $2+ billion drop in market capitalization for a $5 billion stock.

What gives? I am no expert on the vagaries of public stock trading, but here are some of my thoughts given I have spent the past 30 years building companies in ad tech:

Market doubts on the efficacy of digital ad verification today. If you’ve been alive in the world of digital advertising these past nine months, you’ve seen, read or heard about the scourge of “made-for-advertising” sites that have been surreptitiously draining off advertisers' money -- and groups like the Association of National Advertisers and the Video Advertising Bureau calling out this fraud. Curiously, as has been reported, this was happening in spite of ad verification being used on many, many billions of dollars of affected campaigns.

Business model shifts of verification companies to optimization. As verification companies have been openly acknowledging, particularly over the past year, their profits and growth are from ad optimization (largely fueled by data captured in verification), not verification. Verification companies' origins and brands may have been built in verification, but that’s not where most of their profits come from today.

Growth and opacity of dominant walled gardens. Walled gardens like Google, Meta and Amazon are growing in the share they take of all digital ad dollars (now, the vast majority), but they self-manage their own logs for verification, not offering any real transparency. Thus, the overall market opportunity for third-party intermediaries is limited, since the walled gardens aren’t really being verified -- and also don’t really permit third parties to scrape their data to optimize ads subsequently run on their platforms.

Maybe many ad-tech investors are focused on momentum, not fundamentals. A likely answer to why the stock dropped so much so fast on such a small guidance miss is that a significant number of the investors didn’t really have that much confidence in the company to begin with. Maybe they’ve been buyers of ad-tech stocks these past few years for momentum gains, not because of the core fundamentals of the sector and companies.

To be clear, I do believe in the long-term fundamentals of DoubleVerify, the market opportunity in true verification of digital ads, and the opportunities for companies (with full transparency) to help marketers better optimize their campaigns across the digital ad ecosystem. I also believe that techniques and opportunities will develop for companies like DoubleVerify to truly bring third-party verification and optimization to the walled gardens.

Clearly, investors at the moment either don’t like what they’re seeing and hearing, or wonder about the inherent conflicts between ad verification and optimization, or are convinced that the walled gardens will become increasingly impenetrable by third parties.

Time will tell here. Everyone needs to learn from this shift in DoubleVerify stock, watch how the company and investors move forward, and ask themselves how well they are positioned to avoid it happening to them.

What do you think?