Digital Turbine is Looking Like a Buy
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Back in April 2013, things were looking bleak for tech startup Digital Turbine (NASDAQ:APPS). The Austin, Texas-based company had just done a 1-for-5 reverse stock split and was struggling to find its way in the world of e-commerce.
Then the pandemic hit accelerating the adoption of mobile e-commerce and entertainment. Suddenly mobile e-commerce was all the rage for businesses, advertisers, and app developers. This helped breathe new life into Digital Turbine stock. A year into the pandemic it went from less than $4 to more than $100.
A reckoning soon followed. Despite putting up some strong numbers, Digital Turbine was among the high-flying technology stocks in the crosshairs for a sharp selloff.
But heading into this week's earnings report, the stock was starting to perk up. With the company making strides in the rapidly growing mobile e-commerce space, it won't be long before Digital Turbine returns to the $100 level.
How Did Digital Turbine Perform in Fiscal Q4?
Fiscal 2021 fourth-quarter revenue increased 142% to $95.1 million topping the $88 million analyst consensus. Digital Turbine also beat on the bottom line as adjusted EPS of $0.25 was comfortably ahead of the $0.19 expectation. This marked the fourth straight quarter that the company exceeded earnings estimates by a healthy margin.
The strong performance was driven by elevated global demand for Digital Turbine's app media and content media offerings. This trend has persisted since the onset of COVID-19 as businesses across many industries shifted their focus to digital storefronts.
Management also provided some encouraging guidance for the first quarter of fiscal 2022. It sees revenue coming in around $190 million at the midpoint and adjusted EPS of $0.31. In the first quarter of last year Digital Turbine recorded $59 million in revenue and EPS of $0.11 so there is much more where the recent performance came from. Much of the growth will be inorganic but more importantly, the company is building a strong stable of software offerings at a time when mobile e-commerce is booming.
What are Digital Turbine's Growth Prospects?
Following the big statement Digital Turbine made in fiscal 2021, the new fiscal year should be even better. That's because the company now has three other brands to complement the core business—Appreciate, AdColony, and Fyber.
While the $314 million in revenue for 2021 was impressive (following the prior year's $139 million), it pales in comparison to what's ahead. That's because the acquisitions are expected to bring annual revenue to more than $1 billion—and profitable revenue at that.
Don't expect Digital Turbine to be satisfied with the milestone. It has its sights set on a global mobile media advertising market that is estimated to grow from $340 billion this year to more than $540 billion by 2025. The market is dominated by Google and Facebook which together account for roughly 80% of mobile ad revenue. But given the growth in mobile ad spending ahead, there should be plenty of chances for challengers like Digital Turbine to grab a chunk of the action.
With the recent addition of advertising technology firm Fyber, Digital Turbine can now offer customers the world's largest independent growth platform for mobile media. This will be a valuable proposition for app publishers, marketing agencies, and enterprises that are looking to growth their digital presence.
Perhaps the most exciting development at Digital Turbine is the early success of the SingleTap Installs product. Attained through the buyout of Appreciate, SingleTap Installs helps businesses acquire users through a one-step app installation process that doesn't redirect you away from the site. The new product is generating a staggering $1 million in revenue per week.
International growth is also a big part of the company's growth puzzle. It has a presence in 23 countries but has only scratched the surface in building out an overseas footprint.
Is Digital Turbine Stock a Buy?
The market reaction to the company's post-market earnings announcement was positive. Digital Turbine stock added to its regular session gain in after-hours trading. That momentum continued into Wednesday's open as it climbed above $70. An hour later the bottom fell out from under it amid a bout of profit-taking and potential shorting.
Digital Turbine then found support at the $64 level as investors swooped in to capitalize on the nonsensical selloff. Those that bought the dip are likely in for some nice short-term gains. Longer-term, they could have a double on their hands.
The Street's response to the Q4 report has been rather bullish. Three sell-side firms have called Digital Turbine a 'buy' assigning price targets of $100 to $132. Even the more cautious 'hold' opinion and $86 target from Canaccord Genuity represents 32% upside from present levels.
The modern consumer is very much a mobile consumer. Shopping and viewing habits on mobile devices are only expected to perpetuate as the world embraces the convenience of being able to shop and be entertained on-the-go. For this reason, Digital Turbine could be cranking out some strong growth and shareholder returns.
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