Digital Turbine (APPS) facilitates content discovery and supplies it directly to mobile devices. The company’s on-device media platform enables customers to smoothly find content, acquire users, gain engagement, and achieve operational efficiencies and monetization avenues.
Digital Turbine’s results have been snowballing over the past several quarters, while the company has been reporting net income, which is quite impressive considering its growth pace.
The stock is currently trading at less than half its 52-week high levels of $102.56, at just $44. I remain optimistic with regards to the company’s growth going forward, while the stock appears to be cheap from a forward earnings perspective. While risks remain, I am bullish on the stock.
Ongoing Performance
Digital Turbine’s latest results came in quite strong, with revenues growing 338% year-over-year to $310.2 million in Q2 2022. The company’s first full quarter as a consolidated entity following its AdClony acquisition showed evidence of the economic benefits driven by Digital Turbine’s now-greater scope and scale capabilities.
Management is now steering the company for further success going forward with its fully distinguished end-to-end platform. Revenue synergies are already surfacing ahead of management’s previous estimates.
This goes for margins and net income prospects as well, with the company posting elevated profitability levels. Q2 2022 adjusted net income was $45.3 million, or $0.44 per share, versus adjusted net income of $14.5 million, or $0.15 per share, in the prior-year period.
For its upcoming earnings, the company projects revenues of between $350 million and $355 million, implying growth of around 300%, and adjusted EPS of between $0.41 and $0.44. Hence, the company is to sustain its explosive growth while retaining a positive bottom line.
The Valuation
Based on a run-rate of around $350 million in quarterly revenues according to management’s guidance, the stock is currently trading at a forward P/S of around 3, which is seemingly an attractive multiple based on the company’s growth rate. However, note Digital Turbine enjoys gross margins in the single digits, specifically of 9.4% in its latest report. Hence, the low multiple on sales.
From a forward income perspective, the company is expected to deliver adjusted EPS of around $1.62 in FY 2022, suggesting a forward P/E of around 27.2.
From this standpoint, the stock indeed looks cheap as the company’s margins should only grow following higher revenues and operating synergies.
The Risk
Following Apple’s updated privacy regulations, the company has launched new features that give users control of their personal data. While Digital Turbine’s Ignite Software operates mostly on Android phones, Google may release similar updates that damage the company’s business model.
That said, Ignite Software is likely able to collect first-party data on the devices based on management. Still, there’s definitely risk here.
Wall Street’s Take
Turning to Wall Street, Digital Turbine has a Strong Buy consensus rating, based on four Buys assigned in the past three months. At $96.75, the average Digital Turbine price target implies 119.5% upside potential.
Conclusion
Digital Turbine has caught lightning in a bottle with its robust platform, resulting in its results skyrocketing lately.
While risks remain around the company’s business model, the stock appears to be reasonably valued, and management’s guidance points towards great results in the short term.
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