tags: [analyst/spruce-point-capital, thesis/fraud] ...

DoubleVerify Holdings, Inc. #

After conducting a thorough forensic financial review of DoubleVerify Holdings, Inc. (NYSE: DV), we have grave concerns about the accuracy of its financial reporting to investors, efficacy of its product suite, and the sustainability of its growth story. We outline why we believe our evidence points to potentially manipulative and deceptive financial reporting and accounting practices around its international business. International growth is a key pillar of its equity growth story, but also an area where CEO Zagorski previously failed to deliver growth in his previous role as CEO of Telaria. Our research indicates that DV will have increasing difficulty in combating slowing customer growth and margin pressures, thereby jeopardizing its ability to meet lofty Street expectations and preserve its industry-leading valuation multiple. Even worse, an industry expert recently outed “legacy fraud verification vendors” for selling a “useless” product and double-billing customers. This is alarming in context of DV recently updating its language about billing disputes with customers, citing a critical audit matter around revenue recognition, and reporting Days Sales and Payables Outstanding with a non-standard definition which we believe understates cash conversion by approximately a month. DV’s Chief Marketing Officer (CMO) was also CMO at Blinkx (renamed RhythmOne), a London AIM-listed company that was alleged by a Harvard professor to defraud advertisers.

DoubleVerify fashions itself as a technology leader in advertising measurement, verification and fraud prevention so that its corporate advertising clients can protect their brand value. Its purported value proposition is that it increases transparency for its clients in the digital advertising ecosystem to insure they receive the advertising impression value that they’re paying for. However, after conducting extensive research into DV, our impression is that it is hypocritical and falls dramatically short on its own transparency and ability to accurately measure and report its financial results to investors. As a result, we will lay out the case that DV’s own brand and intangible asset value is impaired, and that in order to salvage its credibility, it should convene a special committee to address our multiple concerns. We believe it is time for the Board to evaluate using its Clawback Policy to hold insiders accountable for their behaviors. We reiterate a “Strong Sell” opinion on DV with 35% — 45% ($15.90 — $18.80 per share) downside risk. We believe DV’s competitor Integral Ad Science (Nasdaq: IAS) offers superior value through better positioning to faster growing foreign markets, greater financial transparency, and stronger patent protection. As a result, we are long the stock and see 20% — 30% ($19.20 — $20.80 per share) upside potential as the valuation gap narrows.