Investing.com -- Baird downgraded DoubleVerify (NYSE:DV) and Integral Ad Science to Neutral from Outperform, citing growing concerns about execution challenges, macroeconomic uncertainty, and stagnant investor sentiment.
The firm said that while the long-term investment cases remain compelling, near-term risks make it difficult to recommend the shares.
Baird highlighted a series of issues that have increased its concerns over time, including attrition in spending from some large DV customers. There is also a competitive pricing pressure from Moat in securing new wins.
A slower-than-expected adoption of new products in fiscal 2024 and frequent surprises in quarterly results and guidance also dogs the companies.
While each of these factors may be manageable individually, their cumulative impact heightens concerns about the competitive landscape and the visibility into future performance, Baird said.
Baird noted that macroeconomic uncertainty poses an additional risk, particularly as advertisers may deprioritize solutions like DV and IAS in a challenging environment.
The firm highlighted vulnerabilities in the consumer packaged goods (CPG) and retail verticals, which have shown limited visibility and inconsistent performance over the past year.
Regardless of the ultimate macro impact, the uncertainty adds another reason for investors to be patient in revisiting these stocks.
Baird believes investor fatigue in the category, coupled with a lack of obvious catalysts and limited visibility, will likely keep sentiment stagnant for the near term.
While valuation compression might normally present a buying opportunity, concerns around free cash flow conversion and stock-based compensation (SBC) make the current levels less attractive.
Despite the downgrade, Baird acknowledged the long-term merits of the investment case, pointing to a large total addressable market (TAM), continued product innovation, and the importance of these solutions to advertisers.
However, the firm finds it difficult to recommend the shares with conviction given recent challenges and ongoing uncertainties.
This content was originally published on Investing.com
