Digital Turbine: Rapidly Growing Advertising Player That's Cheaply Valued
Summary
- Digital Turbine is growing at triple digits and is showing no signs of slowing down.
- It has been on an acquisition spree as it looks to solidify its offering and increase the lifetime value of each of its preinstalled devices.
- This stock is priced at 17x forward sales, but this is much cheaper than its two peers.
- Looking for more investing ideas like this one? Get them exclusively at Deep Value Returns. Learn More »
Investment Thesis
Digital Turbine (NASDAQ:APPS) is an application and content discovery mobile advertising platform. More recently, it's made a few meaningful acquisitions that will enhance its reach and breadth.
Digital Turbine is growing its revenues at more than 100% y/y and is still priced at 19x forward sales, although arguably it's actually priced closer to 17x forward sales.
This stock is very much worthwhile considering, here's why:
What's Digital Turbine? Why Should I Care?
Digital Turbine is a dynamic company that's rapidly growing from a mobile preinstall application platform towards a content discovery platform. Indeed, on the back of its AdColony acquisition, Digital Turbine has dramatically increased the reach of its platform.
For context, rough estimates put Digital Turbine's platform as reaching approximately 600 million devices if we factor in the 65 million added during Q3 2021 to the +500 million already reported back in November 2020.
In simple terms, Digital Turbine is no longer reliant on just the pre-install arrangement via Android (GOOG) (GOOGL) and Samsung (OTCPK:SSNLF). Indeed, in the past, investors were overly troubled that Digital Turbine was too concentrated with carrier networks such as Verizon (VZ) and AT&T (T). However, its recent reports point out that no single customer now accounts for more than 10% of its total revenues.
Moreover, Digital Turbine, together with its recent AdColony acquisition (closing in mid-April 2021), will mean that Digital Turbine will also be able to work on iOS (AAPL).
But What About the Competition?
However, what sets Digital Turbine apart from other companies is that it will be able to simplify content discovery for top brands and deliver it directly to the device via its Single Tap feature.
Furthermore, the biggest driver of the bullish thesis has to be that Digital Turbine is not only rapidly growing (we'll address this soon), but that more than 50% of its revenues are now recurring, compared with just 10% during Q3 2020.
Simply put, rather than Digital Turbine getting a one-off payment by brands to get on consumers' devices via its carefully curated preinstalled application on consumers' phones, Digital Turbine has rapidly become much more than that.
While some investors have made the nod that Digital Turbine could one day become similar to The Trade Desk (TTD), I contend that Digital Turbine is much more diversified than The Trade Desk.
Indeed, if you follow this space, you'll know that The Trade Desk competes with a myriad of other players for advertising dollars, from Google and Facebook's (FB) own walled gardens to many other smaller players.
However, in the case of Digital Turbine, once it gets preinstalled on the consumer's phone, for example by Verizon, there's no other competing company/app on the consumer's phone.
Then, Digital Turbine is able to select which 5/6 apps it installs on the consumer's phone, depending on which brand has paid for a slot. For example, let's say that Uber (UBER) has paid to be on a consumer's phone, that consumer is much more likely to order via Uber than say for example Lyft (LYFT) because its app is already on the phone.
Revenue Growth Rates & Market Sentiment
Source: author's work
As you can see above, Digital Turbine is growing at such a rapid pace that many investors are troubled and question the sustainability of its revenue growth rates.
For context, as you can see above, in the past year, Digital Turbine's stock is up 2,000%. If you don't know my work, I'm a value investor. Hence, I know better than most that stocks don't up 2,000% in a year. That's simply not what happens.
However, I'm not a chartist either. I work off valuation, and try to get a grasp on whether I'm overpaying for a company or not.
Valuation - Why This Makes Sense to Me
As a useful comparison, one of Digital Turbine's peers, ironSource (IRSO) grew by 83% in 2020 to $332 million. However, for 2021 it's guiding to grow at roughly 37% to $455 million.
Source: ironSource March 2021 Presentation
Given that it's expected to go public with a price tag of $11 billion. This implies that this stock is priced at 24x forward sales.
Another useful comparison is The Trade Desk. That company is expected to grow in the high 30% in 2021, while its stock is priced at 27x forward sales.
Meanwhile, Digital Turbine is expected to grow the fastest amongst this peer group, and it's still only priced at 19x forward sales. However, I suspect that this figure is very conservative and that Digital Turbine is more likely to grow its revenues closer to $420 million, particularly given its two recent acquisitions, putting its stock closer 17x forward sales.
The Bottom Line
Digital Turbine is a native app and content discovery platform mostly aimed at mobile devices via mobile carriers. Digital Turbine is growing its top-line at approximately triple digits.
Yet, for now, the market remains unsure as to the sustainability of its growth rates and is unwilling to press ahead and reprice its shares much higher. We are still about 2 months away until its Q4 2021 results are reported - stay tuned for updates.
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This article was written by
Michael Wiggins De Oliveira is an energy specialist whose primary focus is capitalizing on “the Great Energy Transition” - the confluence of decarbonization, digitalization with AI, and deglobalization - to achieve greater investment returns. Through his 9+ years analyzing countless companies, Michael has accumulated outstanding professional experience in the energy sector and a following of over 40K on Seeking Alpha.
Michael is the leader of the investing group Deep Value Returns. Features of the group include: Insights through his concentrated portfolio of value stocks, timely updates on stock picks, a weekly webinar for live advice, and "hand-holding" as-needed for new and experienced investors alike. Deep Value Returns also has an active, vibrant, and kind community easily accessible via chat. Learn more.Analyst’s Disclosure: I am/we are long APPS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (41)
open.spotify.com/...
I like Michael's analysis but 1) there are limited pre-installed apps in any decent android phone and 2 others are also installing it - i.e. Samsung can also preload app.
Cheers 60
