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Digital Turbine: Fairly Valued after Incredible Returns
Stock Analysis & Ideas

Digital Turbine: Fairly Valued after Incredible Returns

Digital Turbine, Inc (APPS) is a digital advertising solution company. It services advertisers, publishers, and device manufacturers. Digital Turbine has been public for more than ten years. However, the stock has only caught on with investors recently.

I am neutral on APPS stock. (See Analysts’ Top Stocks on TipRanks)

Digital Turbine Stock Has Made Incredible Returns

Between January 1, 2010, and December 31, 2018, Digital Turbine had a negative return and drastically underperformed the market. Since this time, the stock has made incredible gains. The stock has gained over 3,690% since January 1, 2019. An investment of $10,000 on that date would be worth over $378,000 today.

The major reason for these returns is the massive increase in revenue. The company made just $103.6M in top-line revenue in the Fiscal Year ending March 31, 2019. Over the trailing twelve months (TTM) it has brought in more than $700M.

This is an incredible growth rate. For the full Fiscal Year ended March 31, 2022, the company is expecting over $1.2B in revenues, followed by $1.6B in Fiscal Year 2023, another 33% increase.

This growth has the chance to continue well into the future. Digital Turbine estimates that the total mobile ad spend is $340B each year and growing. To service this market, the company has made several recent acquisitions to expand its offerings. They now offer services such as “single-tap” install and serve both the demand and supply side of the industry.

Accretive Acquisitions Leading to Profitability

In the Spring of 2021, the company acquired Fyber for $600M. This will allow the company to monetize the publishing side of digital advertising. Also in 2021, the company purchased AdColony for $400M. This acquisition allows for further market penetration into video advertising. Each of these acquisitions provide recurring revenues and have created new divisions in the company.

Digital Turbine’s growing revenues and acquisitions have allowed for increasing operating profits. The company has generated $78.6M in TTM operating profits and over $105M in EBITDA.

This is important because the acquisitions added over $230M in long-term debt to the balance sheet. This is not a significant amount of leverage given the increasing profits, and it seems unlikely that the company will need to raise additional capital to service it.

Digital Turbine has a market capitalization of approximately $6.6B. This gives the company a price-to-sales ratio of 5.5 on a forward basis. In addition, it has a forward EV-to-EBITDA ratio of 35.6.

Both numbers are above industry averages. However, given the growth rate and increasing profitability of Digital Turbine, the valuation is reasonable and the stock price will likely grow over the long term.

Wall Street Analysts

Turning to Wall Street, Digital Turbine has a Strong Buy consensus rating, based on four Buys and one Hold assigned in the past three months. Notably, the variation in price targets is vast. The top target comes in at $132 while the low target is just $60.

The average Digital Turbine price target of $104.80 implies 49.3% upside potential.

Conclusion on Digital Turbine

Digital Turbine has much to look forward to. Revenues have exploded, with operating profits and positive EBITDA following suit. The acquisitions have increased its addressable market considerably, and the digital advertising market itself is vast, providing a long runway for Digital Turbine.

There are also risks associated with the stock. The valuation, while not out of step with the market, is still quite high. In addition, the company also is not compatible with the iPhone and therefore is somewhat reliant upon Alphabet (GOOG) and its policies. Furthermore, growing tech stocks have also enjoyed quite a run, which may be diminishing as inflation fears worsen.

Digital Turbine is a stock to put on a watch list and is currently a Hold.

Disclosure: At the time of publication, Bradley Guichard did not have a position in securities mentioned in this article.

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