December 3, 2023

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Integral Ad Science Turns A Profit But Faces Economic Headwinds (NASDAQ:IAS)

Marketing of Digital Technology Business Concept

Blue Planet Studio

A Quick Take On Integral Ad Science

Integral Ad Science (NASDAQ:IAS) went public in June 2021, raising approximately $270 million in gross proceeds from an IPO that priced at $18.00 per share.

The firm provides enterprises with a range of online advertising monitoring and related technologies to maximize their brand performance across digital platforms.

The near term prognosis for macroeconomic conditions isn’t good, with major retailers reporting poor results and negative outlooks.

I would otherwise be bullish on IAS, but due to economic headwinds, I’m on Hold for the time-being. The stock is worth putting on a watch list for future consideration.

Integral Ad Science Overview

New York, NY-based Integral Ad was founded to develop a cloud-based platform for independent measurement and verification of digital advertising units across various devices.

Management is headed by Chief Executive Officer Lisa Utzschneider, who has been with the firm since January 2019 and was previously Chief Revenue Officer and SVP at Yahoo!

The company’s primary offerings include:

  • Viewability

  • Ad Fraud

  • Brand Safety & Suitability

  • In Geo

  • Contextual Targeting

The company has numerous offices in countries and seeks medium and large advertisers and agencies through sales and marketing efforts.

IAS served 35% of the top 150 U.S. advertisers and the firm had over 2,000 total customers as of March 31, 2021.

Integral’s Market & Competition

According to a 2021 market research report by Fortune Business Insights, the global media monitoring tools market was an estimated $2.74 billion in 2020 and is forecast to reach $7.25 billion in 2028.

This represents a forecast CAGR of 13.2% from 2021 to 2028.

The main drivers for this expected growth are a continued transition of company advertising budget toward digital channels, increasing demand for monitoring and verification capabilities.

Also, the COVID-19 pandemic increased demand for online advertising as businesses with a significant offline presence sought to diversify their revenue streams during the pandemic.

Major competitive or other industry participants include:

  • DoubleVerify

  • Criteo

  • Oracle


Integral’s Recent Financial Performance

  • Total revenue by quarter has risen materially in the past 5 quarters:

Integral Ad Science 5 Quarter Total Revenue

5 Quarter Total Revenue (Seeking Alpha)

  • Gross profit by quarter has also grown markedly:

Integral Ad Science 5 Quarter Gross Profit

5 Quarter Gross Profit (Seeking Alpha)

  • Selling, G&A expenses as a percentage of total revenue by quarter have remained in the 40s percentage in the past 3 quarters:

Integral Ad Science 5 Quarter Selling, G&A % Of Revenue

5 Quarter Selling, G&A % Of Revenue (Seeking Alpha)

  • Operating income by quarter has been positive in the past 3 quarters since its IPO, which would have featured the expensing of a large amount of stock-based compensation:

Integral Ad Science 5 Quarter Operating Income

5 Quarter Operating Income (Seeking Alpha)

  • Earnings per share (Diluted) have turned positive in Q1 2022’s results:

Integral Ad Science 5 Quarter Earnings Per Share

5 Quarter Earnings Per Share (Seeking Alpha)

(All data in above charts is GAAP)

In the past 12 months, IAS’s stock price has dropped 49.3 percent vs. the U.S. S&P 500 index’s drop of around 11.4 percent, as the chart below indicates:

Integral Ad Science 52 Week Stock Price

52 Week Stock Price (Seeking Alpha)

Valuation And Other Metrics For Integral Ad

Below is a table of relevant capitalization and valuation figures for the company:



Enterprise Value


Market Capitalization


Enterprise Value / Sales [TTM]


Price / Sales [TTM]


Revenue Growth Rate [TTM]


Operating Cash Flow [TTM]


CapEx Ratio (Op C.F./CapEx)


Earnings Per Share (Fully Diluted)


(Source – Seeking Alpha)

As a reference, a relevant partial public comparable would be DoubleVerify Holdings (DV); shown below is a comparison of their primary valuation metrics:



Integral Ad Science


Enterprise Value / Sales [TTM]




Price / Sales [TTM]




Operating Cash Flow [TTM]




Revenue Growth Rate




(Source – Seeking Alpha)

A full comparison of the two companies’ performance metrics may be viewed here.

The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.

IAS’s most recent GAAP Rule of 40 calculation was 44% as of Q1 2022, so the firm has performed well in this regard, per the table below:

GAAP Rule of 40


Recent Rev. Growth %






(Source – Seeking Alpha)

Commentary On Integral Ad Science

In its last earnings call (Source – Seeking Alpha), covering Q1 2022’s results, management highlighted the growth of its programmatic advertising segment, which now accounts for over 50% of its advertising revenue.

Notably, the firm is expanding a partnership with TikTok ‘into new markets and products’, enabling marketers to better manage their campaigns on TikTok, which is a very large and fast-growing platform.

The company is also continuing its M&A activities, seeking to speed its go-to-market initiatives wherever it can to acquire capabilities at a reasonable price for the opportunity.

As to its financial results, revenue exceeded guidance, partially due to acquisition integration.

Gross profit margin dropped from 83% to 81% year-over-year due to increasing hosting costs, while Selling, G&A costs as a percentage of revenue remained relatively well-contained indicating promising operating leverage.

The company generated net profit for the first quarter as a public company, an important milestone.

Also, its net revenue retention percentage was 126%, with no churn in its top 100 customers, an impressive result.

For the balance sheet, the firm finished the quarter with $82.3 million in cash and equivalents and generated free cash flow of around $11 million for the quarter.

Looking ahead, management increased its full-year 2022 revenue guidance to $421 million at the midpoint and adjusted EBITDA margin expansion as it moves into its busiest seasonal periods.

Regarding valuation, the market is valuing IAS at an EV/Sales multiple of around 4.8x.

The SaaS Capital Index of publicly held SaaS software companies showed an average forward EV/Revenue multiple of around 7.5x at June 30, 2022, as the chart shows here:

SaaS Capital Index

SaaS Capital Index (SaaS Capital)

So, by comparison, IAS is currently valued by the market at a discount to the SaaS Capital Index, at least as of June 30, 2022.

The primary risk to the company’s outlook is a potential macroeconomic slowdown or recession, which may slow its sales cycle and reduce its revenue growth estimates.

A potential upside catalyst to the stock could include better-than-expected results from its partnership related to the TikTok platform.

IAS definitely has promise due to its growth potential and finally reaching breakeven while generating positive free cash flow.

However, the U.S. may already be in a recession and global ad spending may slow due to a significant global slowdown just ahead.

With major retailers such as Walmart reporting disappointing results and outlooks, the near-term prognosis for macroeconomic conditions isn’t good.

I would otherwise be bullish on IAS, but due to economic headwinds, I’m on Hold for the time-being.