Good morning. I'm Justin Patterson. I lead the internet research team at KeyBanc. I'm excited to have the whole DoubleVerify team up on stage with me today, with Mark Zagorski, CEO, and Nicola Allais, CFO. Gentlemen, welcome.
Great. Good to be here, Justin.
Of course. To kick things off, you know, let's just talk about the resilience of the business. The last year was a very challenging macro environment. This year has started off the same, yet DoubleVerify has been very different from a lot of the other ad tech businesses that you're often characterized with. Kind of talk through just what is really causing DoubleVerify to be very different than some of these other companies?
It's a great question, and I think, you know, kind of like to look at it in two main buckets. Basically, the nature of our product and the utility of it, and the kind of the nature of our business model. When we look at our product set and what we do, just taking a step back, is we provide ad transaction verification platform for advertisers. We ensure that their ads are brand safe, are delivered in a transaction that's fraud free, the ads are viewable and delivered in the aligned geography. Basically, what we do is ensure that transaction is verified, is a safe transaction for an advertiser. Our product is seen as a utility.
Advertisers, whether their ad spend is, you know, $10 million this year or $100 million next year, they want to ensure that every one of those impressions is not delivered in a fraudulent environment. Every one of those impressions is viewable by a real person. you know, in good times, no one wants to waste money. In bad times, no one really wants to waste money. I think, you know, the nature of what we provide, the service we provide is incredibly resilient. The business model around that as well is one in which, since we charge a fixed fee every time someone pings our database to send them that information or to verify that transaction, we're not subject to the changes in CPMs, right? That a lot of the media tech market is.
Whether that impression was bought for $8 today and was bought for $10 yesterday, we charge the same amount to verify that transaction. You'll see, we don't suffer the, you know, the wild swings in supply and demand that drives up or drives down percentage-based media companies or CPM companies. I'll say, like, the third kind of leg of that stool, which is really interesting, is a combination of both the utility of our product and our business model, is the nature of the fact that we are still driving growth through customer acquisition, right? It's a relatively new marketplace. It's a relatively new product. And, you know, we are still gaining new customers. We're not reliant on taking share from another customer to grow.
67%, for example, of our deals in Q4 were greenfield deals. These were people that weren't using any solution at all. We've got a huge number of growth drivers for us that drive behind us. We've got the utility of our product, but we also got the fact that our business model just isn't subject to the whims of supply and demand that others in the media market are.
Great. Let's kind of unpack that a little bit more from the product side. You mentioned verification. The ABS product has been quite the workhorse for DoubleVerify the past few years. You know, kind of talk through just how you characterize the opportunity for ABS today, as you move away from even just brand safety, how some of these more performance-centric products start to change the arc of the business.
ABS has been the gift that keeps giving at DV. I mean, the product did about $123 million last year. Q4, ABS volumes were up 50% year-over-year. In a quarter that, you know, challenged a lot of media companies, that product continues to grow. I think, you know, the real value prop there is the efficacy of the solution. What it is, it's a filtering solution in the programmatic platform. We work with folks like The Trade Desk, you just talked to Jeff, and Amazon and Google and just about every major DSP. We plug into those systems and allow our advertisers to filter out impressions that are not brand suitable for them, right? It's again, a utility.
Advertisers want to protect their brand. What they're also finding is, and this kind of dovetails in the second part of your question, is by taking the junk out of the system, stuff that's not brand suitable for them, what's left actually performs better. Although, you know, ABS, we would consider as a part of our protection, you know, prospect, so we're helping protect brands, what it actually does is it helps those campaigns actually perform better. We've seen, you know, really significant uptake of that product. Penetration with our core clients that are top 500 customers is still only around 65%, so we've got a great number of customers to still add on. When you look at our ABS growth last year, 40% of it was volume driven, so just customers spending more.
60% was what we'd consider kind of greenfield opportunities, either totally new customers turning it on or current customers who hadn't turned it on yet, turning it on. like, that product still has a ton of legs. There's still lots to grow there. You know, it actually has evolved from a protection product to a performance product, and I think that's why it continues to grow. It's just found another life as driving performance as well as protecting the brand.
Got it. When you kind of consider that product, existing products taking on new life, new products coming in, and then just this whole arc of new inventory coming into the channel, whether it's Netflix, other connected TV players, this whole retail media opportunity, has that really changed your perception of the TAM versus when you went public a few years ago?
It's obviously you know, made it bigger. When you think about kind of totally new sectors emerging like retail media, which weren't considered part of the TAM, when we look at the addition of, you know, new coverage in places where arguably, you know, we never thought when we IPO'd that Facebook would ever open up to third parties, right? They did. TikTok, even as, you know, as recently as two to three years ago, wasn't like an advertising factor. All of those things have made the market that we're addressing that much bigger, right? Retail media is now expected to be over $40 billion in revenue and bigger than linear television, and by 2025. That, for us, grew 115% last year, right? Almost, you know.
Continues to grow via our relationships with Amazon and Walmart and Macy's and Target. Our social business continues to grow, you know, at over 30% a year, and that's driving. That's being driven by expansion on platforms like TikTok, where we just launched our brand safety solution. We still haven't even tapped into the Meta News Feed, right? Which is arguably, well, not arguably, is the largest social network on the planet, and the News Feed makes up the vast majority of impressions across that. You know, we look at unlocking, you know, this TAM down the road as something that we haven't built into, you know, our guide this year. We think there's huge opportunities for it down the road, again, when we IPO'd in 2021, these weren't even on the radar screen for us.
Right. To put kind of a finer point on retail media, you know, traditionally, DoubleVerify's worked with a lot of large advertisers. How does retail media really start to change that opportunity set and start to move down mid-market or even SMB?
Yeah. It's really opened up. As you noted, you know, we work with, you know, the biggest brands on the planet. The top 830 or so advertisers where we work with a little bit over 300 of them. We focus on enterprises, so folks like Unilever and Mondelēz and AT&T and Colgate. You know, these are big, big brands. That's always been our focus. When you go back to even, you know, if you look at, you know, our filings when we went public, it talked about we focus on enterprise clients. We never really contemplated the SMBs. We just didn't. They weren't on our radar screen. To employ our products seemed like a stretch for them.
What we found is there's a growing number of channel partners that are providing opportunities for us to touch some of these businesses. The first one was programmatic platforms. When we implement tools like ABS into those platforms and other brand safety solutions that are not as sophisticated as ABS, what we're finding is every quarter, anywhere from 10%-15% of the revenue that we get from a programmatic platform comes from advertisers we have no relationship with. They literally go into The Trade Desk UI, or they go into Amazon's UI and check a box and say, "Use DV Fraud Protection. Use DV Brand Safety Protection." Which is awesome, right? We'll take it all day long. We don't have to build a relationship there. As you noted, with retail media, we've seen the same phenomenon happen.
Small OEMs and small retailers who are buying through Amazon or buying through Target's network or buying through Kroger Precision Marketing, are employing our data in those applications without us ever having to talk to them. It's opened up an entirely new channel for us of reaching smaller businesses and an entirely new revenue source, again, which makes that TAM so much bigger.
Got it. You'd mentioned, you know, not factoring any really meaningful benefits in there from social, from the Meta Feed opening up, but, you know, this will be one for Nicola. Just when you step back, you look at something like that coming on, you look at CTV ramping up.
Sure.
How do you think about just the right level of investment needed today to really succeed in those categories?
Sure. We're obviously investing precisely for those kinds of opportunities that keep coming to us. The good news is that our R&D stack and what we're learning from working with existing platforms helps us for the investments on the new ones. The perfect example is the work that we'll have to do on Meta will have been informed by all the work that we've already done with TikTok, with Twitter and similar on CTV. You know, as I've already worked with some of the platforms. As Netflix comes online, you know, we'll be able to kind of accelerate the development of our product roadmap into these new integrations.
Overall, our investments are around R&D, especially in 2023 and 2024, it's gonna be around machine learning, AI, which will allow us to accelerate the time to market of our new products. We still continue to invest a lot in people. You know, we're one of the few companies that is continuing to add people because we feel like the opportunity is there for us to grow.
It certainly fits with the business. If I just look back at the past three years, I think net revenue retention has actually gone up each and every year.
Yeah.
Could you elaborate a little bit more on just what's driving that kind of very healthy NRR?
It's a powerful metric to describe how much the recurring nature of our business just continues to grow. The main drivers of that are what Mark already mentioned a little bit, which is expanding with existing customers into new sectors where we were not verifying before. We have very little churn, especially on the large clients, so that allows you to kind of stay with the clients and continue to grow with them. Of our top 100 customers, about 66% of them only use three of our products or fewer. Even within our top 100, we still have opportunity to sell new products. All of that kind of just gives you this ball effect of just more and more and more revenue for our existing clients.
Got it. That's actually a great setup for a Mark question right there.
All right.
Just, you know, as these products come to market, how does that conversation really change with advertisers, especially as they're also dealing with just the uncertainties of the macro environment and all of the platform and regulation change out there?
Yeah. You know, look, the nice thing about where we sit is the solutions that we're delivering are both protection and performance solutions. Depending on the environment, our sales motion can change over time. We like to say, you know, the CFO likes us because we save him money, and the CMO likes us 'cause we save his job, right? You know, depending on what the market environment is kind of who's more important in that dialogue. You know, if you asked us this 18 months ago, it was all about brand safety and suitability. We had social, you know, we had social upheaval, we had lots going on around the world that were creating a lot of angst with advertisers of where their ads would show up.
That was a very big selling point for us, like leaning heavily into the concerns of, "I do not want my ad next to that type of content." Today, it's all about saving money, and in this case, it's, "I don't want to waste a single dollar on an impression that can't be seen. I don't wanna waste a single dollar on fraud," right? Whether that is in the CTV environment, where we've seen fraud increase, and recently, you know, we launched an accredited Fully On-Screen solution that showed that one in four apps was running ads while the TV was off. You know, if you're a CFO and you see that, the first thing you do is call up your CMO and go, "Are we paying for that? You know, when I'm paying those $60 CPMs to, you know, platform X, are we paying for that?"
You know, we see that the tools that we're building and that we continue to adopt from our data set, you know, evolve over time, but play different roles for different people. I think the ROI drivers of filtering out content that's not brand safe, but also ensuring that impressions are seen and delivered and can convert, is becoming really important. Look, when we look at even in Q4, which was a tough quarter for a lot of ad tech companies, we grew at 27%. We closed more new deals in Q4 2022 than we did in Q4 2021. Higher number of deals, higher amount of ACV. That's, that means even in that challenging quarter for a lot of companies, advertisers are like, "We need this because the year coming up, my budget's gonna be smaller, and I need to save money."
You alluded to it a little bit there with viewability, but attention is also a very interesting metric to monitor right now. You've done some really interesting work just around those types of products. As you look at just where attention is today versus, say, viewability several years ago, kind of where are we on that transition, and what do you think really needs to change, whether it's just in advertiser mindsets, industry structure, so on and so forth, to turn this into the next big product?
I think we're super early innings for attention, but I think we've said this publicly, we think attention can be as big, if not bigger than the entire viewability industry. A, it can act as a proxy for things like reach and frequency. B, it is much closer to driving. Understanding how someone's attention is much closer to driving a transaction than a simple measure like viewability, right? For that to catch on, we always said there's three kind of steps to that process. The first is socialization, the second is standardization, and the third is commercialization. I think we're focusing very heavily on the first two aspects of that. On the socialization side, you know, last year, we launched a freemium version of attention metrics for all of our customers called the Attention Snapshot.
In Q4, we had over 3,000 individual advertiser engagements, so people log in and engage with our Attention Snapshot. We're getting people to understand it as a currency. We're getting people to understand it across the board. The standardization side took a big step forward in January, where we became the only MRC-accredited attention metric that exists on the planet today. I don't know about other planets, but on this planet, it's the only attention metric that's accredited.
I think, you know, and also we've been engaged now with the IAB on the panel that's putting together the standards for attention. I think once we start standardizing something, once we start getting people using it, the next step will be the commercialization. year-over-year, we had 100%, over 100% growth in our attention business. We are getting there. It's early days. We are by far the leader there. We're creating the category, we're defining it, and we're seeing more and more advertisers pick it up.
Great. I'll try one or two more before I open it up to the audience. Nicola.
Yeah.
You know, would love to hear about just how you think about value-based pricing for the business since, you know, if I look at a display ad versus a video ad, very different CPMs.
Yeah.
There's clearly a lot of value you're delivering. What do you think is just kind of the right balance there?
We believe the ROI on what the advertisers spending with us is very large, right? It's multiples. We think our cost is probably 1%-2% of what the media buy is. There's clear headroom there. Our approach right now is really to become the currency and to verify as much as we can, as fast as we can. We're trying to remove the friction of any sort of pricing changes that would impact a decision that the advertiser's making. The opportunity is obviously there. You know, we saw it even when we bifurcated the price of display and video last year. You know, the reaction from the advertisers was there was none, basically. There's opportunity, there's headroom, but we're first looking to become a currency in the market.
Got it. Just, you know, thinking forward financially for the course of this year, solid start for Q1, solid end to Q4. 2023 guidance, you know, also I think better than feared, given just the macro dynamic out there.
Yeah.
Kinda talk about just the assumptions underlying the growth and the margin profile for the year.
On the top line, we think the guidance is a realistic guidance. It assumes an 8% growth in the market. That's one of the functions of that guidance number. It essentially assumes growth of current customers with current products. It has, you know, very modest assumptions in terms of accelerated Netflix revenue, TikTok revenue, no Meta revenue. It's what we think is a realistic guidance on the revenue line. On the EBITDA side, you know, we keep our eyes on a 30% margin, which we feel is healthy and gives us the ability to continue to invest in the business, right? We could certainly do better on the margin, but we're not going to just because we're looking at the top line growth opportunity.
Got it. Perhaps thinking a bit longer term around that, you mentioned earlier product is the biggest investment area.
Yeah.
AI is likely gonna have a lot of efficiencies as that ramps up.
Sure. Yeah.
How should we be thinking about just the return on R&D spend the next several years given just where the gross margin profile-
Yeah.
of the business is?
I mean, naturally it should expand. you know, as you look at implementing AI machine learning tools into the business. What it's really going to do. The way we think about it, is that it's just going to accelerate the revenue growth, right? It's just going to get us more and more penetrated into the market and gain market share. That's Even midterm, that's really what we're focused on. I think the 30% margin is probably something that we will continue to invest in.
Great. All right. I think we have time for one or two from the audience, if there are any takers. All right. Oh, we do have one.
The big social platforms, how do you expect those to gather it?
Yeah. It's a great question, and, you know, I'll give a recent example. We launched TikTok with our IVT and fraud solution a little bit over a year ago, and we saw a nice scaling of that business month-over-month, to the point where it became our third largest social network that we measure after YouTube and Facebook. Where we saw the accelerant really hit is when we launched brand safety in December of this year, and between December and January. One month-over-month, we saw a 31% increase in the number of advertisers who turned it on. Not campaigns, not impressions, advertisers. We know that, you know, once brand safety hits, you know, platform revenue, particularly on social platforms, is really when it starts to accelerate.
You know, with the asterisks of going, you know, platforms like Twitter and TikTok, which we've launched brand safety across, both of them in the last two to three months, have not throttled advertiser launches across that. We do expect Meta will probably be a bit more tempered in how they let advertisers use the solution, so we'll scale a bit more slowly. We're looking at a, you know, a solid 2024 impact from that as it starts to roll in.
All right. Well, I will wrap it up then.
Yes.
Let's talk about capital allocation, the standard one on every investor's mind right now. You know, would love to hear about just how you're thinking about build versus buy philosophy. You have done some M&A in the past. Are you now at just a point where you kinda look at the pipeline and think, "Eh, we're comfortable with current R&D?" Or are you looking to get a little more aggressive given the market conditions?
Our view on M&A is, hasn't changed, right? Which is it shouldn't distract from the strong organic growth, right? We're looking at acquisitions that would accelerate the roadmap or put us in new geographies where we're not. Frankly, right now we're just being patient on valuations around, you know, small tuck-ins that would be around the technology of what we do. It is definitely one of the prongs for our strategy. We'll be patient.
Got it.
Speed, speed. If it gets us faster to where we want-
Yes.
You know, If it accelerates the roadmap, yes.
Yeah.
Speed to buy, no. We'll wait until the right-
No, no, we can wait on that.
Speed to growth.
Yeah.
For sure.
We still have that race Mark. It's a pleasure today. Thanks so much for attending, guys.
Yeah. Thanks, Justin. Thanks, everyone.