Verve Q1'25: Short-term noise creates a compelling entry point

Verve’s revenue guidance for 2025 was above our pre-Q1 estimates, although the implied margin (at the midpoint) was a bit soft due to target investments to expand the sales organization. The macroeconomic outlook remains increasingly clouded, which is why our revised estimates align closer to the lower end of the guidance. However, following the post-earnings pullback in the share, we see a very attractive return potential in the next 12 months, based on our updated estimates. We reiterate our Buy recommendation and target price of SEK 45.

Investments in the organization weigh on short-term profits

Verve’s Q1 revenue amounted to 109 MEUR, representing a 32% growth year-on-year, of which 16% was organic. This was in line with our estimate (109 MEUR) and 3% below consensus forecast. While Q1 is generally a seasonally quiet quarter, we think the current geopolitical and economic uncertainty, which escalated toward the end of the quarter, was visible in some of the key KPIs. For instance, the net dollar expansion rate declined to 100% from 110% in Q4’24 as well as Q1’24. In addition, retention rate reached 94%, thus falling below the 2-year average of 96%. While we attribute these developments partly to the current uncertain market environment, we also believe that the retention rate in Q1 could also be due to “growing pains” following the strong customer intake in 2024 (+413). Adjusted EBIT came in at 23 MEUR (Q1’24: 17 MEUR), translating to a 21% margin, which fell short of our 25 MEUR estimate. The lower EBIT was mainly driven by higher-than-expected personnel expenses, as Verve continues to invest for future growth by expanding its sales and support organizations, primarily within the brand and agency side.

We raise our revenue estimates but maintain a conservative stance on the 2025 digital advertising outlook

In our April preview, we noted that heightened market uncertainty could lead Verve to issue a wider-than-usual FY25 guidance range, which ultimately played out. The midpoint of the revenue guidance was 8% above our prior forecast, while the lower end of the adjusted EBITDA range aligned with our expectations, although we had assumed a lower revenue base. Consequently, the midpoint implies a slight year-on-year contraction in adjusted EBITDA margin. According to the company, the margin trajectory in 2025 will largely depend on top-line performance, as Verve continues to invest in the organization to support stronger medium-term momentum. Reflecting on our pre-Q1 estimates, we think the guidance signaled the confidence in the near-term growth trajectory that we wanted to hear, particularly given the company’s visibility into much of Q2. That said, we remain conservative on the market outlook for the current year, given recent economic indicators and overall uncertainty. This is also reflected in our 2025 estimates, where we’ve increased our revenue estimate by 3% to 526 MEUR, while inching adjusted EBITDA down by 1% to 155 MEUR. These revisions flow through the forecast period, reflecting stronger top-line expectations paired with slightly lower short-term margins.

Post-earnings drop in share price presents a buying opportunity

The share price has witnessed large swings in recent months, which we primarily attribute to investors’ concern over the impact of the current macroeconomic and geopolitical uncertainty on advertising spending. While the outlook remains increasingly clouded, there are structural market tailwinds (e.g. privacy-first, shift from web to LLMs) that we believe will support Verve’s growth trajectory. In light of our estimate revisions, we think the post-earnings drop in the share price presents an attractive entry point into the share. Based on our estimates, Verve trades at an adjusted EV/EBIT of 7x-6x and an EV/FCFF (excl. earn-outs) of 9x-8x for 2025-2026e, which we believe remain on the low side and represent, to some extent, an unjustified discount to peers. As such, we see upside potential in the valuation multiples, and our DCF model, which better captures Verve’s long-term value creation, points to a potential upside with a fair value estimate of SEK 49.6 per share, reinforcing our positive investment view.