What happened
DoubleVerify (NYSE: DV) investors were in the red on Tuesday. Shares of the digital advertising analytics specialist were down 15% by 3:30 p.m. ET, compared to a 0.2% decline in the S&P 500. Shares remain far higher on the year, though. DoubleVerify investors have gained over 60% in 2023 while the wider market is up 19%.
Tuesday's spike came after the company announced quarterly results and revealed a new acquisition that will cost over $100 million.
So what
Second-quarter results were generally strong, with revenue rising 22% through the quarter that ended in late June. That increase was driven by higher transactions on its media analytics platform, along with a tilt toward higher-priced products. DoubleVerify won some big new clients in the quarter, too, including Walmart's Sam's Club and Pizza Hut.
Looking deeper into the results showed strength in several areas of the business. International growth was a standout, customer retention levels were healthy, and the company generated a modest profit. "We are pleased to have delivered another quarter of solid growth and profitability," CEO Mark Zagorski said in a statement.
While these results were impressive, Wall Street might have been hoping for faster growth considering the stock's rally in 2023. Investors might have been disappointed with the details of DoubleVerify's new acquisition, too. Management announced a deal to purchase an AI-powered digital advertising campaign service specialist, Scibids Technology, for $125 million.
The purchase will give the company new services and a fuller platform, but at a cost. DoubleVerify will pay roughly half of the purchase price in cash while funding the other half with stock. The prospect of a rising supply of stock is likely the most direct reason for the share price decline.
Now what
It will be several quarters before investors will have a clear picture of how this acquisition is impacting sales and earnings and whether it was worth the price. In the meantime, DoubleVerify projects continued positive operating momentum, with sales rising 23% in the current fiscal quarter and reaching about $560 million during the year for a 24% gain.
Assuming the company can protect its recent market share wins while filling out its portfolio, it has a good shot at boosting contract sizes and collecting more large customers over the next several quarters. Investors have to balance those positive prospects against the company's rallying share price when considering buying this growth stock.
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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends DoubleVerify and Walmart. The Motley Fool has a disclosure policy.
