Verve Q4'24: Strong execution all over

Verve delivered a strong beat in Q4, exceeding our estimates on both the top and bottom line. The company’s business momentum remains robust, with improving cost scalability driving strong margins. Despite the post-earnings rally, we still see an attractive return potential at current levels. As a result, we raise our target price to SEK 57 (was SEK 50) and upgrade our recommendation to Buy (was Accumulate).

Q4 exceeded our estimates by a wide margin

Verve reported a 46% year-on-year growth in Q4’24 (24% organic) to 144 MEUR, which exceeded our expectations (130 MEUR). Beyond stronger-than-expected contribution from Jun Group, it is evident that Verve’s core business momentum with ID-less targeting solutions as well as expansion into new ad formats both exceeded our expectations. The company’s key KPIs remained solid during the quarter, although the addition of large software clients moderated in Q4 compared to previous quarters. Nevertheless, Verve has accumulated a very solid base of new customers in 2024, providing a strong foundation for sustained growth in 2025 and beyond. Adjusted EBIT came in at 42 MEUR (Q4’23: 26.8 MEUR), translating to a 29% margin, which significantly exceeded our 32.2 MEUR estimate. The stronger EBIT was mainly driven by the higher-than-expected revenue, lower cost pressures from scaling new ad formats, and stronger-than-expected Jun Group revenue contribution (which carries better gross margins). Free cash flow totaled 42 MEUR, in line with our expectations, demonstrating continued improvements in cash conversion.

We raise our estimates, but we are somewhat cautious on the overall market development in 2025

Our 2025-2026 revenue estimates have been raised by 1-2% following the stronger-than-expected Q4 performance. However, despite the revenue beat, we remain somewhat cautious about the 2025 digital advertising market outlook due to rising macroeconomic and geopolitical uncertainties early in the year. This caution stems from heightened global economic risks, including potential and already unfolding policy shifts under the Trump administration, rising U.S. inflation expectations, and deteriorating U.S. consumer sentiment. Furthermore, we have increased our profitability estimates (adj. EBIT) by 4-7% in 2025-2026, resulting in higher margin assumptions, primarily driven by higher gross margin estimates and lower personnel expenses as a percentage of revenue. Over the long term, we have inched our revenue growth and EBIT margin assumptions a bit higher, reflecting our increased confidence in Verve’s positioning within privacy-first targeting solutions and overall profitability. These adjustments naturally had a positive impact on cash flows and our fair value.

Despite the post-earnings rally, the stock is still at attractive levels

The share price has been highly volatile in recent months, but Verve’s Q4 report reaffirms that the company’s fundamentals remain solid. Despite the strong rally on earnings day, we see the current share price as an attractive buying opportunity based on our updated estimates. 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 a steep discount to peers. While we believe Verve should not yet trade in line with peers, given that a large portion of its earnings and cash flow is currently allocated to interest payments, we expect the valuation gap to narrow in the coming years as the company deleverages its balance sheet. We believe Verve is well-positioned to do so, supported by strong growth fundamentals, enhanced earnings quality following the Jun Group acquisition, and improved working capital management. As a result, we see upside potential in the valuation multiples, and our DCF model, which better reflects Verve’s long-term value creation, points to a potential upside with a fair value estimate of SEK 57.7 per share, reinforcing our positive investment view.