Verve Q1’25 earnings preview: We will focus on guidance

Verve is set to release its Q1 results on Wednesday morning, May 28. We expect strong revenue growth in the quarter (Q1’25e: +32%), driven by the full integration of Jun Group and continued strong business momentum, alongside improved profitability. Given the heightened macroeconomic and geopolitical uncertainty following the quarter's close, we’ll be closely watching guidance and forward-looking commentary. In our view, this elevated uncertainty could lead to a wider range in the company’s full-year guidance.

Seasonally small quarter, but the year-on-year growth momentum will remain strong

Following the escalating macroeconomic and geopolitical uncertainty since the start of the year, we updated our estimates on April 9 (read here). We expect Q1 revenues to come in at 109 MEUR (Q1’24: 82 MEUR), representing a 32% increase year-on-year (of which 13% organic), whereas Jun Group’s contribution for the quarter is expected at 15 MEUR. Additionally, it's important to note that the digital advertising market typically experiences lower activity in the first quarter due to seasonal trends. This is incorporated in our Q1 revenue estimates, which imply a 25% quarter-on-quarter decrease.

In Q1, the open internet peer group we monitor grew on average 13% year-on-year (Q4’24: 13%, Q1’24: 20%), while the Walled Gardens ads businesses (Google, Amazon, Meta) saw a 14% year-on-year growth (Q4’24: 16%, Q1’24: 21%). As such, based on our estimates, we expect Verve to grow at a similar pace (organically) as the peer group but, when we incorporate the Jun Group contribution, to outpace it in total growth.

Margin improvements supported by Jun Group, scaling benefits, and cost efficiency

Moving down the income statement, we estimate the adjusted EBIT to come in at 25 MEUR (Q1’24: 17 MEUR), representing a 23% margin (Q1’24: 20%) and a 51% increase year-on-year. The expected margin increase is primarily attributed to the inclusion of Jun Group in the quarter, which carries better underlying profitability, but is also due to general scaling effects and sustained cost efficiency. Additionally, we estimate the adjusted EBITDA at 32 MEUR (Q1’24: 22 MEUR), equivalent to a 29% margin (Q1’24: 27%).

Verve’s cash flow is affected by seasonality and normally shows lower cash flows at the beginning of the year, as the company pays publishers after Q4. The cash flow profile typically improves as the year progresses, as do the rest of the financials. Hence, we expect the free cash flow to come down notably from the 42 MEUR in Q4, but show a clear improvement year-on-year (Q1’24: -1.9 MEUR), driven by strong earnings growth, improved working capital management, and a higher DSP exposure following the Jun Group acquisition.

One step closer to a fairer and more competitive open internet

The industry has seen some major developments recently. In mid April, Google was declared an illegal monopoly in the online advertising space in two instances by the U.S. courts. While Google will challenge this ruling, we think the signal that comes from this points to a more fair and competitive market for the open internet landscape in the long term, which would be favorable for players like Verve. However, the battle between Google and antitrust regulators will likely continue for a while, although it could prompt walled gardens to behave differently going forward.

Meanwhile, Google has reversed its plan to introduce a user choice prompt for third-party cookies in Chrome, opting to maintain the status quo. While this could be viewed as a step back for privacy in general, we believe that momentum toward cookieless solutions, driven by consumers and regulators, remains strong.

Poor economic visibility and weak consumer sentiment are expected to weigh on growth, but Verve continues to take market shares

We updated our estimates in early April. These estimates remain intact, projecting revenue to amount to 508 MEUR in 2025 (FY2024: 437 MEUR) and an adjusted EBIT of 131 MEUR (FY24: 107 MEUR), equivalent to a 25.7% margin (FY2024: 24.5%).

Recent market data suggest that Verve is gaining mobile SSP market share across both the Apple App Store and Google Play, ranking as the No. 1 SSP in several countries, including the U.S. We think this is encouraging and believe it supports our view that Verve has a very strong market position within privacy-first digital advertising. That said, as noted in our recent company report, we believe ongoing macroeconomic and geopolitical uncertainty, coupled with slowing U.S. GDP-growth (Q1’25: -0.3%) and continued weak consumer sentiment, are likely to weigh on ad spending in the near term and slow the organic growth momentum for Verve in 2025. In addition, the company will also face tougher comparison periods in 2025 given the strong growth in 2024. At the same time, secular tailwinds in segments such as CTV could help to mitigate these effects somewhat.

In light of these factors, we expect Verve’s full-year 2025 guidance to feature a wider range than usual, reflecting the current market volatility and reduced economic visibility.