Is Digital Turbine Stock A Buy?

Digital Turbine Inc (NASDAQ:APPS) describes itself as “an app delivery and monetization platform” that simplifies mobile ad delivery. 

As time goes by, mobile has increasingly become the dominant source of internet traffic, accounting for more than half of all users.

When technology stocks took center stage in 2020, the APPS share price experienced huge gains. With its share price leap in the rearview mirror now, is Digital Turbine stock a buy?

Digital Turbine stock price grew from a low of $3.48 per share at the start of the crisis to around $40 per share by year end. While it did temporarily go down heading into the election, it still fought off the tech slump caused by back-to-back announcements of effective COVID-19 vaccine candidates.

Still, it could be a risky play for investors jumping on board now. Its capacity to scale in a so-so economy is questionable according to bearish investors and analysts. So what are the chances of APPS succeeding?

Let’s get started.

Digital Turbine Enables Mobile Monetization

Digital Turbine is an application delivery and software monetization platform. The internet long ago shifted to a mobile-first ecosystem, and advertisers and marketers are quickly catching up to successful ways to leverage this.

Big brands understand that 88 percent of our time using mobile phones is spent in apps instead of internet browsing.

Even though building an app is an obvious answer for most brands, it’s not easy to create a successful app. Nor is it cheap – an average app development can cost anywhere from $100,000 to $1,000,000, with no guarantee of success.

Even major tech companies like Microsoft (MSFT) and Google (GOOG) or game developers like EA and Activision Blizzard have been known to create apps that flop.

Where Digital Turbine shines is that it makes it easier to get an app from an idea to a useful tool for consumers. It then serves ads to benefit everyone involved, including the developer and end user.

It’s a win-win situation that helps companies participate in the modern tech ecosystem, and it has a footprint in both the United States and Singapore.

Most importantly, it creates these apps for the original equipment manufacturers (OEMs) and mobile operators, so its apps are often locked into your phone.

This is crucial, as many apps don’t often get used beyond the first week. The stickiness of its work should keep it resilient through market changes, and the market will surely change several times over the next decade.

You may be buying the premise, but should you buy APPS stock?

Is Digital Turbine Stock A Buy?

Digital Turbine has a lofty a price-to-earnings ratio of nearly 130x that has translated to a market capitalization of north of $3 billion.

Its second fiscal quarter revenue was $70.9 million, with translated to a profit of $0.4 million.

Although not great, it’s up from a loss of $1.3 million in the same quarter of the prior year. Its EBITDA sat at $16.5 million mid-year. This shows the company truly earned its inflated stock price. However, should OEMs and mobile operators take a hit over the next year, Digital Turbine shares could dip as well.

Still, the company’s turnkey solutions provide a solid ecosystem for full end-to-end media management. It includes extensive reporting, robust campaign sourcing, and a yield management that translates to a variety of industries.

Of course, every company has risks for investors, and this APPS has its fair share to overcome.

Risks Of Buying Digital Turbine Stock

Digital Turbine’s valuation is already bloated compared to that of prior years.

It essentially grew from a penny stock to a $3.5 billion company that can flex its global muscle to acquire whatever it needs to expand. However, it’s also competing with a lot of technology giants, which we’ll discuss more shortly.

And the company’s competing in a slowing economy. The transition to a new White House Administration is slated to slow economic growth even more now that stimulus programs are on the cusp of ending. The concern is when wage and housing benefits disappear that GDP will do a U-turn.

This could mean less focus on mobile advertising spend, and that could put Digital Turbine at odds with some of the biggest players in the tech advertising space, including giants like Google and Facebook.

Who Competes With Digital Turbine?

In the 2000s before the App and Play stores, mobile games, ringtones, and apps were purchased directly from your phone provider. Instead of paying up front, it was included on your phone usage invoice and paid during your monthly installments.

You may not even remember the shift to buying your smartphone apps through Google and Apple. However, that shift in marketplaces is at the core of the Apple vs Epic Games lawsuit that dominated news headlines.

Meanwhile, tech giants like Google (GOOG) and Facebook (FB) face federal antitrust lawsuits in the U.S. and Europe. This is going to shift the digital power much like our political power is shifting over the next few years. That could spell trouble for Digital Turbine, which is a provider at the frontlines of much of the battles.

It also faces competition from the likes of AdRoll, Marin Software, Celtra, and more. The path won’t be easy, but the company’s installed base puts it in a good position strategically to capture market share.

Is Digital Turbine Stock A Buy? The Bottom Line

Digital Turbine creates turnkey app delivery and software monetization platforms for OEMs and other businesses. This is foundational software for some of the most important business-to-consumer (B2C) applications. That means the company is in a place to generate significant profits from the mobile-first internet.

A fly in the ointment is that investor interest in the tech sector risks becoming stale as the economy reopens. And Digital Turbine already enjoyed a joy ride as growth of 10x is now behind it. Past gains now cut into its growth potential over the next five years.

Still, it’s well-positioned to profit from a variety of issues affecting the tech industry. If it plays its cards right, the company could become a bigger market player than it already is.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.