Digital Tubine Q3 Results

Revenues rose 338% to $310.2 million as reported; they were up 63% on a pro forma basis (the company wrapped acquisitions of AdColony Holdings and Fyber on April 29 and May 25 respectively).

Non-GAAP net income rose to $45.3 million from $14.5 million a year ago. Adjusted EBITDA jumped 191% to $47.9 million.

It’s guiding to revenues of $350 million-$355 million, above expectations for $340.7 million, and an in-line EPS of $0.41-$0.44.

Press Release:-
https://seekingalpha.com/pr/18540960-digital-turbine-reports…

Earnings call and transcript still to come…

Looks like the stock is coming off after its recent run up.

GM does continue to decline to a mere 30% but then we need to remember they are counting gross revenues not net apparently.

Ant

21 Likes

So the market cap on this one is 8.6 billion, pre the AH fall of 7%. Doing north of 300 million per quarter. Growing revenues nicely. Raised guidance.

For a company doing revenues now north of 1 billion a year, what am I missing here. Seems dirt cheap.

TMB

8 Likes

Not to mention positive earnings and net cash flow.

2 Likes

Let’s take a look at the YOY performance of the three companies before the acquisition in 2020Q4 report:
-original On Media Device 95.1M, YOY 142%
-ADCOLONY 58.3M, YOY 37%
-Fyber 102.9M, YOY 179%

I think most of investors are looking forward to the synergy effect after the merger, but the 2021Q1 result was a little bit disappointing. GM decreased to 34% and QOQ revenue growth of Fyber decreased to 10.5%.

In the just released 2021Q2, the situation got even worse:

  1. Original On Media Device revenue QOQ decreased from 26.3% Q4Q1 to 7.5% Q1Q2 *huge deceleration
  2. AdColony revenue revenue QOQ 8.4%> -1.5% *negative
    3.Fyber QOQ 10.2% >10.8% *flat
  3. Gross margin down from 34% to 30% (but this was predictable)

The revenue guidance for 2022Q3 seems slightly better but EPS guidance will be a “-13.64% decreasing”.
Considering this poor 2022Q2 report and the upcoming headwinds from Apple IDFA for all the mobile advertising industry, APPS seems not the best choice right now.

21 Likes

The revenue guidance for 2022Q3 seems slightly better but EPS guidance will be a “-13.64% decreasing”.
Considering this poor 2022Q2 report and the upcoming headwinds from Apple IDFA for all the mobile advertising industry, APPS seems not the best choice right now.

As mentioned gross margin is off gross revenues not net which needs to be considered - although that explains the level not the trend.
Revenue synergies have hardly begun to kick in and certainly not cost synergies yet.
BTW - They predominantly focus on Android not Apple handsets.

Ant

5 Likes

My friends in adtech say that supply chain issues are starting to cause halts in digital ad spending in Q4. After all, why generate demand for a product you’re having trouble supplying?

https://www.wsj.com/articles/supply-chain-crisis-has-compani…

I don’t follow APPS too closely yet but was this headwind mentioned in the call? Could be contributing.

7 Likes

It’s a potential hypothesis. I’d be more worried about the device activation side of the business if new devices aren’t getting to market. Having said that they say that they grew new mobile devices by 10% YoY in US and were 20% up in International markets after years of declines. Dynamic installs were up 25% YoY but is now only 15% of their business (down from 50% a year ago). So not a problem there so far.

As far as their top tier advertisers go, they list: McDonald’s, Starbucks, P&G, BP, Nestle. These guys aren’t having supply chain issues as far as I see.

FWIW - in the earnings call transcript they identify their exposure to Apple IDFA at 1% of consolidated revenues. (Their devices are 75% Android / 25% Apple and increasing towards Android). They see privacy vs antitrust as a false narrative as they can be an option of choice to consumers via Verizon, AT&T or Samsung or whoever and still protect privacy.

Other mentions…

They have an analyst day coming next week. They will be outlining how their growth strategy will raise gross margins above 30%.

Ant

9 Likes

“My friends in adtech say that supply chain issues are starting to cause halts in digital ad spending in Q4. After all, why generate demand for a product you’re having trouble supplying?”

I recently followed the SNAP earnings call and they projected what was considered to be ‘disappointing guidance’. The reason behind it was the same as we see here; supply chain issues impacting on advertising spend.

This now seems to be a trend and signals a slowdown for some companies that derive ‘most’ of their revenue from advertisement. Some of the bigger players are likely to be more robust in their defence of this. This could lead to a deceleration followed by an acceleration once the headwinds disappear.

2 Likes

From my personal notes,

  • Apple’s IDFA has low single digit percentage revenue impact this quarter. Higher than what I expected.
  • Content media (35M per quarter) expanding to Verizon and AT&T, starting to materialize next quarter. This is great news.
  • From CFO:

I’ll note, we are currently comfortable with our existing capital position to fund the remaining earnout obligations and the needs of the business operations with our available open revolving line, the cash on hand and the free cash flows generated from our business.

I interpret this as no further share dilution. They will pay off the acquisition through existing debt.

  • Revenue mix of Android/iOS shifted from 65/35 to 75/25, mainly due to IDFA and advertisers cutting spend. They expect the iOS ad dollars to come back to advertising, but mix may shift more toward Andorid

(I digress - I believe that Apple’s IDFA change is to kick ad competitors out of iOS ecosystem for Apple to seize the ad dollars themselves. So even if the ad dollars come back, the majority will go to Apple and not other advertisers. So this part of revenue is permanently lost. https://twitter.com/PatrickMcGee_/status/1449608262492459011… )

  • To me the most perplexing part is their low revenue beat this quarter at $310M yet the much higher guidance (353M at mid point). The management team has never guided a >10% sequential increase:

https://discussion.fool.com/with-regard-to-guidance-this-is-thei…

You can see from last year that they always guided flat

2021 Q1 Actual 59
2021 Q2 Guide 60 Actual 71
2021 Q3 Guide 73.5 Actual 88
2021 Q4 Guide 82 Actual 95 (Q4 guidance was lower than Q3 actual. It was hidden in the annual revenue forecast of 298-300)

So this jump in guidance is surprising. I wonder if their new revenue mix has more seasonality than the old on-device business.

Personally, I think this earnings report left a lot to be desired in terms of growth rate but no major red flag. The guidance next quarter is very promising in a confusing way. Therefore, I’m going to trim my confidence in the company slightly and my position accordingly to add to other companies. I will tune into the Analyst Day to hear what they have to say.

6 Likes

After listening to the call and the numbers, I’m out. It’s a somewhat seasonal business, and a combination of a number of businesses, so figuring out what’s going on is a little complicated, but here’s why.

Four main reasons:

  1. Growth. Specifically trying to understand what type of underlying growth this combined monster will show going forward. The current quarter growth came in at $310m, which is 6% qoq, which annualises to about 26%. And for next q they are guiding for 30% yoy organic. So it looks to me that we may be dealing with a 30%-ish grower here going forward. Not a hypergrower.

  2. The CEO and his words. He said “diversification” a lot of times in the call, which simply is not what I’m looking for in a growth company: it’s a hedge/defensive talk. I also didn’t find his narrative concise and clear enough about what this new conglomeration of companies will be all about. It’s still just 3 companies under one hood.

  3. The gross margin. Declining and at 30% is just not good enough.

  4. It’s complicated. I really do not understand exactly what they do and which parts are the key ones because they do so many different things. Like a good old conglomerate…

I feel there are better places for my money at this stage, so I’m out.

-WSM

30 Likes

I double checked the growth numbers of the same time period for next quarter.

For calendar quarter ending Dec 31 2020, gross revenue, based on financials of pre acquisition filings:

Digital Turbine $88M
Fyber €90M ($109M on current exchange rate)
AdColony $65M
Appreciate $1M

Totaled at $263M

The pro forma growth based on mid-point guidance $353M next quarter is therefore 34%. In no growth portfolio is this ok. $APPS has become a turnaround stock again after the acquisitions.

Therefore I trimmed my oversized position at 30% to 5% and plan to completely exit at open this morning.

My costly mistake

I did this at 3PM during my work break when I could have done it the night before. Pulling out revenue figures from 4 different companies’s investor relations was not that hard, but I relied on ballpark estimate when I saw the earnings call and came to a very wrong growth estimate in my head (70+) when in reality it was 34%. If I had the correct number, I would have exited the position at open.

Lesson learned: have the spreadsheets ready during earnings season and don’t rely on memory! It was a very costly mistake in a matter of hours.

5 Likes

2) The CEO and his words. He said “diversification” a lot of times in the call, which simply is not what I’m looking for in a growth company: it’s a hedge/defensive talk. I also didn’t find his narrative concise and clear enough about what this new conglomeration of companies will be all about. It’s still just 3 companies under one hood.

4) It’s complicated. I really do not understand exactly what they do and which parts are the key ones because they do so many different things. Like a good old conglomerate…

Hi WSM

I get that this wasn’t a satisfying quarter in terms of the growth and margin front, however having been invested in complicated stories that have masked or obfuscated YoY organic comparisons (take Twilio or Lightspeed as an example) and having worked for a PE owned firm that re-organised every 10-11 months and changed the BU names and revenue line terms and completely mislabeled them in some cases, I actually have to disagree on #2 and #4 (especially).

The company has said very clearly that they are presenting the results the way they are even if it sounds like a conglomerate to satisfy the purposes of transparency and comparison. They also very clearly state that this is not the go forwards vision and strategy.

Frankly, I applaud them for this. They could have hidden a lot in their washing machine spin cycle and they have chosen absolute transparency.

Ant

9 Likes