Digital Turbine Has Massive Potential

Digital Turbine (NASDAQ: APPS) is a digital advertising solution company. The company’s offerings benefit advertisers, publishers, and device manufacturers. 

In 2021, the stock underperformed the broader market, finishing up just 8% for the year after an incredible run in 2020. Can this stock regain its forward momentum in 2022?

I am neutral on APPS stock.

Expanding market opportunity

Digital Turbine estimates that there are 2.7 million apps available in the Google Play Store. An average user will have 30 apps on their mobile device. 

With this in mind, the mobile advertising market is expected to grow from an already massive $340 billion in 2021 to over $540 billion by 2025. Digital Turbine has relationships with over 500 advertisers and a reach of 1.5 billion users per month.

Part of this reach comes from the company’s recent strategic acquisitions of Appreciate, Fyber, and AdColony.

The Appreciate acquisition was completed in March 2021 and delivers Digital Turbine’s much-touted SingleTap technology. SingleTap allows device users to download an application at the push of a button outside of the app store. Advertisers love it because users are much more likely to download an app this way.

Next came the AdColony acquisition, which was completed just a month later, in April 2021. AdColony brings a demand-side mobile advertising platform that specializes in video advertising technology. This acquisition cost $400 million.

Finally, in May 2021, Digital Turbine completed the acquisition of Fyber for a value of up to $600 million. Fyber delivered a total of 650 million monthly unique users with a global reach of over 180 countries. These critical components are the basis for Digital Turbine’s end-to-end mobile advertising solution strategy.

Revenue Growth Accelerates

These acquisitions have given revenue, and growth, a serious boost. Revenue for fiscal Q2 2022 came in at $310 million, more than triple the revenue of the same quarter in fiscal 2021. This came on the back of $213 million in revenue for Q1 of fiscal 2022. This amounts to a quarterly increase of 46%.

Operating income remained in the black. However, it did not see the same increases as the top line. The company made an operating income of $25.6 million in Q1 2022 and $25.3 million in Q2 2022. Digital Turbine must take the acquisitions and scale them to further profitability over several years to make it successful.

Digital Turbine currently trades at a forward price-to-sales ratio of 3.6. The stock price has declined considerably as Wall Street reassesses growth stocks due to fears over inflation and rising interest rates. 

The stock currently trades nearly 50% off its 52-week highs. Still, the stock may have further to fall given the macroeconomic conditions.

Wall Street’s Take

Turning to Wall Street, analysts are extremely bullish on Digital Turbine stock, with a Strong Buy consensus rating based on five Buys and no Holds or Sells. The unanimous Buy ratings are telling.

The average Digital Turbine price target of $103.80 implies 95.6% upside potential.

Looking to 2022

2021 saw Digital Turbine stock take a breather after growing exponentially in 2020. The year also provided the company the opportunity to make several strategic acquisitions that fortified the company’s offering in the mobile advertising industry. 

Revenues predictably climbed significantly, and the company is producing operating profits. Now, Digital Turbine must show its ability to scale these businesses successfully. 

Analysts are extremely bullish on the company; however, macroeconomic conditions are unfavorable to growth stocks currently. For this reason, there are likely better entry points upcoming for investors looking to accumulate shares in Digital Turbine.

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