In yesterday’s business update, Verve reported continued strong performance, with the organic growth accelerating to 31% in Q3, exceeding our expectations of 21%. The growth was driven by a strong onboarding of new large software clients, more spending from existing customers, and an overall strong demand for ID-less targeting solutions. We are getting increasing evidence that Verve’s mobile in-app capabilities and focus on privacy-centric targeting solutions is enhancing its competitive position, as reflected in its above-market growth rates and market share gains in recent quarters. This gives us a stronger conviction in the investment case going forward, leading us to revise our estimates upward. We reiterate our Accumulate recommendation with an increased target price of SEK 50 (previously SEK 38).

Organic growth accelerated in Q3

In Q3, Verve added 147 new large software clients q/q, representing a 45% growth y/y, bringing its client base close to 1,000 (excl. Jun Group). This is nearly double from two years ago. Moreover, we view positively on Verve continuing to take market share on iOS devices - where Apple removed its IDFA identifier in 2021 – with revenues increasing by 51% y/y, underscoring its ability to deliver value to customers through privacy-centric solutions. Additionally, Verve’s newer ad formats (full-screen & video ads) grew 230+% and 80+% q/q,  leading us to believe that Verve also experienced higher CPMs during the quarter, positively impacting top-line growth and profitability.

We raise our estimates

On the back of the stronger-than-expected organic revenue growth in Q3, coupled with the rapid inflow of new large customers, we have raised our estimates. For FY2024, we now expect revenues of 425 MEUR (prev. 413 MEUR), surpassing the upper limit of the company’s guidance. We believe Verve held off on raising its full-year guidance as a precautionary measure and a guidance update with the Q3 report on November 28 wouldn’t be surprising. Verve has demonstrated solid cost control this year, and we expect that the strong growth, along with an enhanced operating leverage, to support margin improvement for the remainder of the year. Verve's better-than-expected top-line performance in recent quarters, coupled with a rapidly expanding customer base, gives us the confidence to raise our estimates beyond FY2024. For 2025-2026, we’ve adjusted our revenue and adj. EBIT estimates upward by 4-5% and 6-10%, respectively. While ad budgets are inherently cyclical and sentiment can shift quickly, the rapid increase in large software clients should, in our view, support stronger and more sustainable growth going forward.

Strong business performance supports a further upside in the share

The share has nearly quadrupled since the beginning of the year, and for good reason. The company has demonstrated strong momentum in its core business, improved margins, and set the stage for a healthier capital structure and future cash generation through the acquisition of Jun Group, bond refinancing, and a capital raise. Despite the surge in the share price, we believe Verve is still reasonably priced. Based on our 2025 estimates and at our target price, Verve trades at an adjusted EV/FCFF multiple of 12x, in line with the peer median, but below the median in 2026. As we expect Verve to grow its FCFF at a faster pace than the peer median between 2024-2026 - the key driver of the FCFF multiple - we consider an EV/FCFF multiple on pair with the median to be acceptable, despite Verve’s current higher leverage compared to the peer group. Our DCF model, which we believe better captures the company’s long-term value creation, points to a potential upside for the stock at SEK 51.2 per share, further reinforcing our positive investment stance.