Verve Group — ID-less targeting solutions

Verve Group operates an ad-software platform that matches global advertiser demand with publisher ad inventory, with the added benefit of the first-party data from its owned and operated content as well as integrations into 65k mobile apps, allowing it to optimise transactions. This owned and operated inventory also allows Verve to roll out changes to the SDKs for testing before going live with external publishers. Verve is best known for its capabilities in the mobile space, but it also covers the full range of digital devices served by programmatic advertising, including CTV, DOOH, retail media and audio/podcast. Verve has grown through acquisition and organically, with the pieces now in place to build further scale. Currently, revenues are 77% weighted to the supply (publisher) side (Q324), with ambitions to gain further penetration on the demand (advertiser) side. The group has been using AI and machine learning for several years in its ad-targeting capabilities and is well placed to take advantage of industry changes around privacy. Verve is headquartered in Sweden, but the bulk of its revenues are generated in North America.

Verve’s share price is up more than 250% over the year to date as successive upgrades to guidance have been taken onboard by the market and confidence in both management and market prospects has built. However, the valuation has yet to catch up with the peer set, where performance has been wildly divergent. Looking at average (median) EV/revenue and EV/EBITDA multiples across FY24 and FY25, parity across the peer set suggests a share price of €5.59, from the €4.75 calculated with the October Q3 trading update, as sector prospects have improved and share prices have moved sharply ahead. This is close to the €5.89 derived from our DCF (WACC: 10%, terminal growth of 2%), up from €5.28 previously. Both approaches result in figures well above the current share price of €3.36.

There are four key revenue growth drivers:

Adjusted EBITDA margins are set to increase as Jun is consolidated, but the degree of uplift is tempered by the continuing optimisation of the group and investment in new activities. The group’s balance sheet is financed through bond issuance, supplemented by a directed share issue to part-fund the Jun purchase. Leverage is coming back more quickly than originally anticipated and should be below 2.0x by end FY25 (Edison modelling: 1.9x). On a TTM basis to end September, the ratio was 2.6x.

The group is partially dependent on the health of the underlying digital US advertising market, which itself depends on the health of the US consumer economy. Indications are that the outturn for digital advertising spend in FY24 has been better than originally feared. Our 13% forecast revenue growth for Verve for FY25 is ahead of current industry growth expectations for FY25 (WPP’s GroupM is pencilling in pure-play digital, which excludes CTV and DOOH, growing 10.0%, with the whole market progressing 7.7% to $1.1tn; Dentsu’s forecasts are slightly lower at +9.2% and +5.9% respectively). The adtech ecosystem is highly complex and, arguably, does not act in the best interests of its end users, with multitudinous players and a lack of transparency. Verve has a goal of ‘making advertising better’, which should align it more closely with both demand and sell sides. Its financial performance depends additionally on the interest rate environment, given the extent of debt on the balance sheet. As this burden eases (as modelled), M&A opportunities should resume a stronger role in the group’s development.

Verve is emerging as a significant player in the adtech space, building on its leading position in mobile to offer a cross-platform, vertically integrated solution to both advertisers and publishers. Verve provides technical solutions for app publishers to monetise and advertise their apps and generate revenues. This is achieved by matching the ad publishers’ ad inventory with demand from advertising companies, targeting specific types of app users in particular geographies. Verve’s origins lie in the games segment, where gamigo was founded in 2000. It was purchased by CEO Remco Westermann out of Axel Springer in 2012 to form the core on which the gaming operation has been built. It was restructured over the next couple of years into a format that was better aligned to grow through M&A and achieve the critical mass needed to attract users and, crucially, the data that comes with them. A good variety of high-quality content is an essential element of driving user acquisition at a cost that will enable attractive returns.

Through delivering content attractive to users, Verve has built an extensive pool of first-party data. The value and utility of this resource has risen markedly as concerns over privacy have climbed up the agenda of both regulators and the public over the last few years. With the changes made to Apple’s tracking to an opt-in basis and the vacillations on the withdrawal by Google of third-party cookie usage (now not going ahead as intended), the traditional model of monetisation through advertising has been fundamentally compromised.

As Media and Games Invest, Verve had a substantial user and audience base over the years. This resource enabled it to develop and assemble its own proprietary SDKs, bringing together a group of tools that enable the programming of mobile applications, now being used within more than 65k direct publisher integrations. This has the following advantages:

The group withdrew from massive multiplayer online games and sold its 7% stake in Enad Global 7 in Q422 (funds received in H123). Its last major game in development was withdrawn in September 2024.

With its data lake built on predominantly casual gamers, and fewer legacy providers, the mobile adtech in-app space has provided fertile ground for Verve to build its presence. This has been achieved through a combination of organic growth and acquisition.

Exhibit 1 shows the graphic the company has compiled to illustrate how the various elements have been added and integrated over time. The name was changed to Verve Group from MGI (Media and Games Invest) in 2024 (having previously been Media & Games Invest). Verve is now the key go-to-market brand (www.Verve.com) for both the mobile and the CTV programmatic offerings, with the brands of Smaato and PubNative subsumed more recently.

Verve describes itself as providing a platform that ‘matches global advertiser demand with publisher ad-supply, enhancing results through first-party data from its own content’. The group has a stated mission, Let’s make media better. It aims to do this through enabling better outcomes for advertisers, agencies and publishers with responsible advertising solutions, while focusing on emerging media channels. What is a better outcome? One that means a brand can use its budget to reach the right audiences, in the right places, at the right time, without unnecessary inefficiencies that leach value from the chain. For advertisers, this particularly means facilitating efficient customer acquisition; for publishers, it means best monetisation at scale.

The focus is on the open internet, optimising across the omnichannel customer journey. (In this context, the open internet is used to describe the web outside of what are termed the walled gardens – these being the likes of Facebook, X etc – where data is garnered and retained within the site rather than made available for independent use.)

Mobile is at the core of the business, with management estimating the organic market growth rate at 10% and CTV also a strong capability, with a slightly higher organic CAGR of 10.5%. Here the group has an estimated reach of 60% of US households. Verve is also addressing emerging opportunities, particularly in DOOH, where ad-serving can also be informed by additional data points such as time of day or live weather information. There is also work being done to build out the opportunity in retail media and in audio and podcasts (which are notably strong in Scandinavia).

The language around adtech is notorious for its use of obtuse terminology, which we attempt to demystify further in the section of this report describing the industry below. At its core, Verve provides a platform on which publishers can sell the ‘space’ within their digital content that is suitable for advertisements – otherwise known as ad inventory. This is done faster than the eye can detect, on a programmatic (automated) basis that allows advertisers to bid for the most suitable spaces and for the successful bidder to populate it with their content. Verve’s supply-side (ie from the publishers’ end) platform is now integrated into more than 65k apps through in-house written SDKs. Combined with the inventory available from Verve’s own games within gamigo, this gives a significant resource of inventory to the market, all on a privacy-first basis, ie with no personal identifiers used as part of the process. This is extremely important, given the rapid shifts happening in the digital advertising market. From the opposite end, ie the advertisers and their agencies, Verve is working with more than 85 third-party demand-side platforms (DSPs) as well as its own internal DSPs. This includes all the major names in the DSP space such as The Trade Desk, Amobee, Xandr, Criteo, BidSwitch and Display & Video 360.

Verve operates a self-serve, cloud-based platform, enabling advertisers to create, manage and optimise data-driven digital advertising campaigns across all relevant formats and devices. Clients are primarily Fortune 500 companies or the major holding company agencies. As indicated on the Q3 results call, Verve is now building direct relationships with agencies and advertisers, as well as via the DSPs. It works across the major agency groups, including Omnicom, IPG, Publicis, WPP and Dentsu (a client of Edison Investment Research), and major name advertisers ranging from Coca-Cola, HBO and PayPal through to Estée Lauder and Gillette.

On the supply side, the group has a wide range of publishers with which it has direct relationships, some of whom are represented in Exhibit 3 below. The focus remains clearly on the growth channels of mobile (albeit that this is now firmly established), CTV and DOOH, where Verve has strong market positioning (third-ranked on market share for North America after Magnite and Google Ad Exchange on Google Play; fourth on iOS, and fourth and sixth respectively in EMEA; second and top respectively in Latin America; third and second respectively in Asia Pacific, according to Pixalate).

It is worth noting that the group’s rankings are even higher when logged on Pixalate’s trust rankings for mobile supply-side platforms (SSPs), which takes into account issues such as prevalent fraud and brand safety. Verve is top ranked in each of North America, Latin America, EMEA and Asia-Pacific in Q324. This matters because of the poor levels of transparency and trust prevalent across the sector due to the degree of fraud and wastage.

Verve had a strong position as an SSP, as explained above, but was less prominent in the market as a DSP itself, although this was an area of focus to build a more evenly balanced operation. This process has been accelerated with the acquisition in the summer of Jun Group. The capital markets day (CMD) presentation highlighted that on a pro-forma basis the proportion of revenues from the DSP side of the business for Q224 increased from 14% to around 30%.

Jun also has a very high-quality client list, including media companies like the BBC, Condé Nast and CNET and brands such as Walmart, Costco, Honda and Pfizer. Its capabilities in machine learning and AI are advanced. They include a targeting algorithm, Schema, using first-party data (and zero-party data through polling where applicable) and combining with other targeting touch points such as past purchases and behavioural attributes, which is then mapped across inventory channels. Jun’s machine learning platform, Vera, then analyses information in real time from point-of-sale data and the other data sources to track and to optimise the campaign performance. The capabilities spread across media channels, including CTV and DOOH, with Jun estimating their network reach at more than 111 million and over 90% of North American households.

The key synergistic benefits of the deal include:

By having the ability to connect the supply and the demand side of the equation, the number of parties taking a slice of the fee naturally reduces, giving a far better deal for both advertiser and publisher.

Verve’s Moments.AI uses content analysis, keywords, semantics, and meta tags to analyse and assign a confidence score to provide contextual information, all within 10 milliseconds. These are aligned with over 700+ interest segments as defined by the Interactive Advertising Bureau, 11 GARM (Global Alliance for Responsible Media) brand safety segments, and a library of other contextual segments or mix-and-match to create bespoke segments.

Verve has also developed ATOM, which utilises signals from the device, using machine learning to build cohorts for targeting without the data leaving the device, so ensuring that the process remains privacy compliant, with no individually identifying data transferred.

The programmatic advertising industry developed in a manner that baked in large-scale inefficiency and a lack of transparency, meaning that advertisers derive a relatively small proportion of value from their spend. In a programmatic digital advertising market valued at around $460bn for FY24 (source: Dentsu), estimates of how much of that spend is wasted on fraud, made-for-advertising websites and brand safety-compromising sites range from 12% (Juniper) to 44% (Next&Co). Even if the lower figure is closer to the actual figure, it is a very substantial sum that is being wasted.

The LUMA Partners consultancy provides useful graphics, known as LUMAscapes, which clearly show the complexity of the market. While the one produced covering the mobile advertising market may not be quite so crowded as that for display, the sheer numbers of participants imply a considerable degree of inefficiency.

Given the complexity and the crowded landscape, the market is obviously not operating to the best interests of its users, who would prefer to deal efficiently, with fewer counterparties.

With pressure being brought to bear by the demand side and the supply side, consolidation at some point is inevitable. While a core group of four or five would probably be optimal to avoid too much concentration, it is unlikely that even twice that level will be reached due to the amount of private equity funding that has been invested. While this money has backed genuine innovation and technological creativity, many are not scalable and will eventually either fade away or become part of larger platforms at some stage. Verve has been doing exactly this – seeking out innovation that does more than add scale for its own sake.

For a long time, the influence of big tech has dictated how funds have flowed, with Alphabet, Meta, Apple, Amazon and Alibaba controlling the narrative. Their ‘walled gardens’, such as Facebook, Amazon and Google, account for around one-third of time spent on the internet but around two-thirds of advertising spend. With the growth of mobile and a lack of innovation in the user experience, the time spent in walled gardens has been falling over the last decade, but the influence of this handful of huge participants has reached the stage of meaningful pushback from regulators on both sides of the Atlantic and the oligopoly is no longer immune, with a possible break up of Alphabet/Google on the cards to curb its influence in search.

In retail media, one of the fastest-growing areas of ad spend, Amazon is leveraging its huge quantities of first-party data, which it uses to determine its most advantageous sales categories. However, the status quo is unlikely to shift straight away.

Increasing recognition of the limitations for competition of the walled gardens has been pushing more participants to see what can be done on the open web. As businesses on the open web scale, there is always the danger that they become their own walled gardens protecting and harnessing their own data. Organisations such as Disney and Walmart have enormous troves of first-party data that is only currently being used to a limited extent. The development of the CTV market is building similar large data lakes for the likes of Netflix.

With such a shifting landscape, being an efficient and transparent partner of scale is an attractive concept, and it is this territory that Verve is seeking to occupy. It is also important to continue to innovate and be flexible to meet the needs of a demanding client base, which may include further acquisitions.

The development of AI and machine learning tools and techniques has been going on for years, pretty much under the radar. In the last year or so, the extent of this preparation has been becoming clearer. What is not yet clear, though, is what impact it will have on the marketing services industry and whether the divide between the winners and the losers will broaden. The obvious applications are in version generations and iterations and tailoring for different markets. Whether this extends to genuine hyper-personalisation remains to be seen.

The use case for AI in media planning and buying is even more obvious, particularly for programmatic advertising and for optimising campaigns across media channels.

It also serves to increase the value inherent in first-party data, which is increasingly understood by those who generate and control it.

Below is the interview we recorded with CEO Remco Westermann at the CMD in Stockholm in August.

The senior management team is headed by Remco Westermann, who has been CEO and chairman since 2012. He has extensive experience in the mobile and online entertainment industry. He founded Bob Mobile (which he exited in 2012 and which later became CLIQ Digital, a client of Edison Investment Research) and helped build the mobile media company Sonera Zed, managing its German subsidiary as CEO. Previously, Remco was a manager at leading companies such as Balance Point and a consultant at Rost & Co. In the dynamic, highly competitive and fast-growing games market, Remco has built up a leading and fast-growing online games company through a successful M&A strategy, following the acquisition and repositioning of gamigo in 2012. In 2018, Verve came about via a reverse merger. Remco has an indirect holding in 24.4% of the equity.

Paul Echt has been group CFO since 2018, prior to which he gained more than 10 years’ experience in the tech and finance industry as a finance manager. He previously held positions at UniCredit Bank in Berlin, Munich and New York and Shopgate in San Francisco. Paul holds 45,320 shares in the company. With the recent Q3 results, Paul has announced that he is stepping down on 31 December 2024 but will remain in an advisory role for a further six months to ensure a smooth transition. The new CFO designate is Christian Duus, who joins from Adform, where he had been CFO since 2019, having previously been senior VP of corporate development and commercial operations. Before joining Adform, Christian was at Bain & Company for many years. He is a Danish national but is based in Stockholm, where Verve has its headquarters.

COO Jens Knauber joined in 2012 with more than 10 years’ experience as a manager in the gaming industry, with over 300 published games. He held a series of leadership positions at Hamburg publisher dtp entertainment and has a strong background in games publishing with a wide global network in the gaming industry. He is responsible for gamigo.

Sameer Sondhi is the group’s chief revenue officer as well as CEO of Verve Adtech and was appointed CRO in 2022. Prior to joining the group, Sameer was SVP and general manager of global business development at InMobi. He has over 25 years’ experience in the mobile industry across mobile content data services, media and messaging.

Alex Stil is Verve’s chief commercial officer, appointed in July 2024 to manage the strategic expansion of the demand side of the group, improve the client experience and increase market presence. He is a serial digital entrepreneur and business leader, with notable achievements in digital media and adtech, including at GroupM, where he was president of GroupM Services EMEA.

There are a number of factors that investors should bear in mind when investing in Verve:

We evaluate Verve compared to three sets of peers: (relatively) pure adtech, ad software combined with content (games or other) and (relatively) pure gaming. Although this leads to a cumbersome peer table, it allows us to see the slightly different dynamics. Adtech performance in the year to date has been very mixed, with particularly strong performances from Viant Technology, Nexxen, The Trade Desk and Magnite, with Digital Turbine, Perion and DoubleVerify at the other end of the scale. The median performance has been a gain of 5%, down from 9% when we last carried out this exercise in September. Ad software and content companies also had a mixed showing, with AppLovin continuing to perform particularly strongly (+749% year to date), while the purer gaming companies have (on average) underperformed.

Looking at average EV/revenue and EV/EBITDA multiples across FY24 and FY25, parity across the peer set would suggest a share price of €5.59, from the €4.75 calculated with the October Q3 trading update, as sector prospects have improved and share prices have moved sharply ahead. This is a little below the figure derived from our DCF of €5.89 (WACC: 10%, terminal growth of 2%), up from €5.28 previously.

Both approaches result in figures well above the current share price of €3.36, which has nearly trebled over the year to date as the market has gained confidence in both Verve’s financial performance and improved sentiment around the sector.

We have only made marginal adjustments to our forecasts on the back of the recent Q324 figures, as shown here. We are using this opportunity to introduce our first thoughts on the trajectory through FY26, based on the group’s momentum and thoughts on market CAGRs. This is for a revenue uplift of 7% on the prior year and a further small uplift in adjusted EBITDA margin from 34.3% to 34.5%.

We show below the progression in ad impressions, which combines with CPMs (cost per mille, ie the price of advertising impressions) to indicate the health of the market and point towards the group revenue figure. Verve also discloses its total client numbers and those generating revenues of at least $100k. It should be borne in mind that a client may move backwards and forwards over that threshold as its own business waxes and wanes. Looking across these quarterly statistics, the slowdown through FY23 is clear, as is the pick-up in the market from Q423 which is reflected in Verve’s revenue. In Q324, 77% of revenues were from the SSP side, with this including Jun (9M24: 83%).

At the start of the current financial year, management guidance was for FY24 revenues of €350–370m, generating adjusted EBITDA of €100–110m (a margin of 29.2% at the mid-point). At mid-year, with the acquisition of Jun Group, this was raised to €380–400m, with adjusted EBITDA coming in at €115–125m (margin of 30.8%). At the time of the CMD/half-year figures and with a strong August trading period, a further upgrade was indicated, with revenue guidance lifted to €400–420m and adjusted EBITDA to €125–135m (margin 31.7%).

On the back of the recent Q324 figures, we have shifted our modelling to the top end of the revenue guidance, edging our adjusted EBITDA number ahead from €130m to €131m. While the medium-term outlook is still somewhat uncertain, we have maintained our FY25 forecasts at the previous level. It is worth pointing out that the pro-forma revenue figure for FY24, including 12 months of contribution from Jun Group, is €447m, implying an underlying FY25 growth rate of 13%. This is ahead of current industry growth expectations for FY25 (WPP’s GroupM is pencilling in pure-play digital, which excludes CTV and DOOH, growing 10.0%, with the whole market progressing 7.7% to $1.1tn; Dentsu’s forecasts are slightly lower at +9.2% and +5.9% respectively).

In terms of the expense lines, the largest is purchased services and other operating expenses, which includes line items such as revenue shares, payment costs, direct advertising expenses, royalties and server and technology costs. They amounted to 56.1% of revenue in FY23, down from 58.1% in FY22. For the first nine months of FY24 (9M24), the percentage was 64.5% (9M23: 66.9%). The full-year effect is smaller due to the inherent weighting of revenues to the fourth quarter.

Employee expenses are running at 26.7% of revenues over 9M24 (9M23: 27.0%).

Jun Group has historically generated a higher underlying adjusted EBITDA margin than that of Verve: 48.1% in the trailing 12 months to June 2024. Rather than reflect the full benefit, we have assumed that most of the uplift will be ploughed back into the integration and repositioning of the group. The medium-term margin prospects, though, are enhanced. Management has outlined the potential revenue synergies from the combination at around $9m, with the EBITDA synergy benefit coming in at around $8m. We regard this as feasible. Verve gets a better deal on cloud services and the combined scale should open up improved terms with other third-party vendors.

Management considered a traditional rights issue to fund the purchase of Jun Group, but instead opted for a directed share issue, which could be done more quickly and cheaply and allowed the group greater control. This was successfully accomplished in June 2024, with the issue of 27.1m new shares, raising SEK450m (c €40m at the then exchange rate). The subscription rate was SEK16.60 (€1.475) and Bodhivas and Oaktree followed their investment to maintain the capital structure unchanged.

The purchase price of €120m was paid at the closing date at the end of August. Two additional payments of €25m are due 12 months and 18 months after the closing date (included in our modelling). Details of the subsequent bond issue are included in the section on the balance sheet, below.

It can be quite distortive to look at any one particular annual accounting period and get a clear picture of how any company uses its cash resource, so we find greater insight from looking over a more extended period. Exhibit 10 below shows clearly the scale of the operations Verve has built over the years and the timing of the heaviest investment in building the group’s platform and capabilities, peaking in FY21.

In Exhibit 11 below, we look at the generation and absorption of cash over the four years from FY19 to FY24e, as the group has undergone the transition to its current business model. This shows more clearly the investment that has been made in terms of capital spend on developing the platforms, tools and offering and the cumulative spend on acquisitions that have given the group the wider capabilities to provide to its clients. As would be expected from a group in this rapid build investment phase, the value delivered to shareholders has been in capital appreciation rather than distribution.

Having slowed the earlier frenetic pace of acquisitions, the Jun Group deal marked a return to the fray to accelerate the group’s build in capability and capacity on the supply side, as described above.

Across the portfolio, 90% of the bonds now mature in 2026 and 2027, giving plenty of room for manoeuvre on refinancing options in what may be a more favourable interest rate environment. We expect to see further newsflow on this during H125.

Approximately 65% of the group’s bond interest rates are hedged.

An earlier acquisition, AxesInMotion, did not reach EBITDA targets set at the time of purchase due to market weakness post pandemic. This prompted a release of the earnout during FY23, distorting the group’s reported financial performance. There is now no further earnout liability on the group balance sheet, following the reversal of the previously outstanding €15.6m.

With the Q324 results, Verve took an impairment charge of €2.3m on a mobile game that had been in development for three years and which underperformed on its launch in July. This was the last game under development in the pipeline.

As at end September, Verve was carrying €377.7m of net interest-bearing debt, being cash and cash equivalents of €119.0m and debt of €496.7m. Our modelling indicates a year-end net debt figure of €370.0m, which may well be improved on if the supportive trading conditions continue through Q424. On a TTM basis to end September, net leverage was 2.6x, close to the intended range for the full year. Our modelling suggests leverage falling to 2.4x pro forma for the financial year to December, with 1.9x for the following year and 1.4x for FY26. This level would indicate a greater appetite for M&A.