Verve: There is light in the darkness

We have lowered our estimates in response to ongoing macroeconomic and geopolitical uncertainty, persistently weak U.S. consumer sentiment, and an increased likelihood of slowing U.S. GDP growth, which collectively impacts advertising spending negatively. Despite these downward revisions, we continue to view Verve as undervalued, both in absolute terms and relative to peers. As such, we reiterate our Buy recommendation, while lowering our target price to SEK 45 (previously SEK 57), reflecting the revised estimates and a higher risk premium in our cost of capital.

We see increasing risks of slowing advertising spending amid the current uncertain macro- and geopolitical environment

As noted in previous research reports and comments, if there’s one thing advertisers don’t like, it’s uncertainty. It is fair to say that the level of uncertainty has increased notably since the start of the year, with geopolitical tensions and macroeconomic instability intensifying. Meanwhile, U.S. consumer sentiment has continued to weaken, with the March reading marking the lowest level since November 2022, driven by rising concerns around unemployment and inflation. With marketing expenses often being among the first things companies cut in uncertain or tougher times, we see increasing risks of slowing ad spending going forward. While a U.S. tariff rollout was, to some extent and in some form, anticipated, the actual tariff outcome presented last week was higher than market expectations. The growing risk of a broader trade war, coupled with weak economic visibility and earnings uncertainty, has resulted in rising equity risk premiums. Although policy shifts could occur rapidly, we believe restoring confidence will take time, and confidence is a key driver of advertising investments. Therefore, we currently anticipate a prolonged impact on ad spending until stability returns.

Our short-term estimates have been trimmed somewhat

Reflecting these conditions, several industry analysts have revised down their forecasts for U.S. advertising growth in 2025 (e.g., MAGNA from 4.9% to 4.3%, Madison and Wall from 4.5% to 3.6%). Corporate polls (e.g., Gartner) also reveal growing intent from companies to cut marketing budgets as early as Q2’25. Based on these signals and the current uncertain environment, we have revised our estimates primarily for 2025, with some carryover impact into 2026–2027. We now expect Verve's revenue to grow by 16% year-on-year in 2025, (prev. 21%) of which 8% is organic, reaching 508 MEUR (FY24: 437 MEUR). Our adjusted EBIT forecasts have been lowered by 6-7% across 2025–2027. Despite these revisions, we still expect the company to continue to grow faster than the market due to its positioning in privacy-first digital advertising, strong inflow of new large software clients in 2024, and focus on the faster-growing segments in digital advertising. 

Despite earnings revisions, the stock is still trading at cheap levels

Since our latest update (Feb 28, 2025), the share price is down about 30%. While Verve is not directly unaffected by the current environment, we believe the share price development has been disproportionately severe. Based on our updated estimates, Verve trades at an adjusted EV/EBIT of 6-5x and EV/ FCFF (excl. earn-outs) of 8-7x for 2025-2026. Even when accounting for the sector-wide multiple contraction since our last update, Verve still trades at a notable discount and below our acceptable valuation range (EV/adj.EBIT 8-12x, EV/FCFF: 9-12x). Although current conditions justify a valuation toward the lower end of that range, we see a very attractive upside from current levels. We’ve also modestly increased our cost of equity and WACC assumptions by 0.7 percentage points (CoE: 11.8%, WACC: 11%) to reflect higher risk premiums. Our DCF model, which better reflects Verve’s long-term value creation, points to a potential upside with a fair value estimate of SEK 47.5 per share, reinforcing our positive investment view.