Digital Turbine (NASDAQ:APPS) Analysis: The Full Ad-Tech Stack

digital turbine stock analysis

If you have been stalking my Seedly comments or my Reddit comments (if you know my username hehe), then you might have seen my talking about Digital Turbine, or better known as APPS, at one point.

APPS is one of my largest positions in my portfolio, after loading up quite a bit during the tech dip this year.

But what really is Digital Turbine and what do they do?

Digital Turbine’s Business

When I first heard of Digital Turbine, I won’t lie, I thought it was a manufacturing company. Like y’know, one of those companies that made wind turbines to generate energy. So, initially I was like, manufacturing? Nah, not my type of company. That was when it was trading between USD10 – 13.

The second time I heard about it was in the same breath as The Trade Desk, Roku and Magnite. If you’re not familiar with these companies, these are all essentially in the advertising industry, specifically digital advertising.

And that was when I realised, Digital Turbine was an advertising company. A company that specialised in mobile advertising, more specifically, in distribution of ads.

Digital Turbine’s main business lies in helping app developers and advertisers get their apps and ads out to the market. They collaborate with mobile carriers, original equipment manufacturers (OEMs) and advertisers in a network of over 40 partners to reach more than 500 million devices (6). They achieve this in two main ways:

App Installs:

apps install digital turbine

This method mainly pushes the app to the users through making app discovery easier and reducing the friction required to download the app.

  1. Dynamic Install: The app is preinstalled on your device right after its activation.
  2. Games Folder: The app is shown to the users as a recommended app in their Games folder to be discovered
  3. App Widget: The app is shown in a discovery widget which is located on the home screen.
  4. App Wizard: During set-up, the user is recommended certain apps, app developers can choose to have their apps here to be discovered by the user.

 

Display Advertising:

display advertising digital turbine

This method is one that we are much more familiar with, where ads are displayed in notifications, on widgets, on browsers or in apps. Digital Turbine has complemented this with their SingleTap function, which allows apps in these ads to be installed in a single tap, without leaving the original page. This greatly reduces the friction for the user as they do not have to take as many steps to download an app, which might dissuade them from doing so.

Mobile Advertising Landscape

Mobile Advertising is no doubt a very lucrative industry. With increasing functionality available on our phones, from social networks, emails, banking, gaming and many more, phones have become indispensable in our daily lives. Especially with the onset of Covid-19, mobile phone usage has skyrocketed and so has the number of eyeballs on ads.

digital turbine industry

Photo by Rami Al-zayat on Unsplash

As such, as the world adjusts to the new normal, the mobile advertising industry is expected to grow at a compounded annual growth rate of 26% in the next 5 years, up to a whopping $266 billion!

Financial Performance

Now, how has Digital Turbine fared in all of this though? A good industry is nothing without the right execution after all.

Digital Turbine has actually done tremendously well, moving into the pandemic. In their last earnings report on 1 June, they reported a 142% year-on-year revenue growth for the quarter and a 126% year-on-year growth for the entire fiscal year.

In fact, for the last 5 years, their revenues have been growing at a CAGR of more than 58% per year!

digital turbine revenue

And for those of you who are afraid to invest in tech companies that are loss making, Digital Turbine has also got that covered, having been profitable since 2020. To top it off, their gross and net margins are still increasing, which bodes well for the long term sustainability of their business model.

digital turbine financials

Source: Morningstar

They’ve also increased their reach during the year, adding new operators such as AT&T and Verizon into their network.

digital turbine partners
Looking to the next quarter, with the completion of their 3 acquisitions, Digital Turbine is projecting a combined revenue of between $188 – 192 million. For reference, it was only $95 million this last quarter!

Digital Turbine’s Strategy and Acquisitions

Now the financials are great, but the final reason that makes me really bullish on Digital Turbine, is definitely its acquisitions. Digital Turbine has made 3 notable acquisitions in just a single quarter, namely: AdColony, Appreciate and Fyber.

AdColony

digital turbine adcolony

AdColony is a mobile marketing and advertising platform which reaches over 450 million users. Essentially, what I see for this acquisition is a vertical integration between Digital Turbine’s strength in distribution and AdColony’s strength in advertising and their client base which includes companies such as Disney and Amazon.

Appreciate

digital turbine appreciate

Appreciate is the smallest of the three acquisitions and is a demand-side platform for digital ads. This means that Appreciate serves as a point for advertisers to manage their ads and to bid for ads and to optimise their performance.

Fyber

digital turbine fyber

Fyber provides a wide range of advertising related services, most notably, its ad exchange, which allows publishers and advertisers to buy and sell ad space, usually in real time. This further increases the size and functions within Digital Turbine’s ecosystem, creating a more integrated solution for their clients.

Ecosystem

In essence, what Digital Turbine has come together to achieve, is an integrated, full-stack solution to link brands, advertisers and publishers all together to create a seamless network and experience for all of their users.

AdColony brings the demand-side whereas Fyber links them to the supply. Digital Turbine supports the entire system with their distribution capabilities and operator network.

These companies are also fast growing companies, especially Fyber, which is growing at triple digit rates. As such, beyond the integration and synergistic benefits, each of these lines will also contribute to the revenue and net income of Digital Turbine.

Closing Thoughts

I do believe that Digital Turbine is still a small company valued at only ~6 billion. With a strong ecosystem and management, I do believe that the road ahead looks promising for them. As the mobile advertising space continues to grow, I am certain that Digital Turbine is well-positioned to tackle the market and capitalise on its growth.

Although its P/E ratio may look ridiculously high at 110+, it’s P/S ratio is much better at ~19.3. Looking at forward P/S, taking a 2022 revenue of $1 billion, it’s forward P/S rests at just over 6 which is, in my opinion, pretty darn cheap for its growth rate. If you’re looking to get invested in this space, Digital Turbine is my pick for you.

Disclosure: Vested in shares. This article is neither a recommendation to buy or sell Digital Turbine shares and does not constitute financial advice.

Photo by Paul Hanaoka on Unsplash

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