As though the next 6 months weren’t exciting enough for Digital Turbine with its triple digit organic growth, new solution launches and acquisitions that add multiples of scale to the business, this deal should really top things off nicely.
This is one set of results I really can’t wait for though there’s a bit of a wait as they announce off cycle.
I took a position in Digital Turbine. Held it for a short period then sold it with a net gain. A while later, I repeated that activity. I’m just not able to build much confidence in this company.
Here’s why - I don’t understand exactly how they generate income.
Obviously, they do have revenue. Their statements clearly show that they have revenue. It’s just not clear to me as to where it comes from.
The ticker is APPS. It appears that they have something to do with providing apps and content to Android devices. But I thought that the Google Play Store did that almost always. I don’t have an understanding of what role Digital Turbine plays in hosting apps on Android. And the next step, who pays for Digital Turbine to do so. I’m having trouble with the adage “follow the money.”
Ant, can you clarify this? What does this company do? Who benefits from their activity? How do they generate revenue? Who pays them?
This has probably been overtaken by the results announcement but if you read the transcript it helps you really understand what Digital Turbine does in each of its business segments…
“We also believe it demonstrates how well we are now positioned with real scale to attack the $300 billion plus mobile media market. More specifically, we will begin reporting our business across three segments. The first is our On-Device Media business, which includes our App Media, Content Media and SingleTap businesses. The segment – second segment is our AdColony business and the third segment is our Fyber business. Given that Digital Turbine, AdColony and Fyber have all been public companies, we believe reporting these segments in the short term will provide investors the best comparison and transparency of results. Also to make comparisons easier for investors, I’m going to refer to the AdColony and Fyber results as if we had owned them for the full quarter. We believe this will be an easier apples-to-apples measurement versus the stub-quarters that may be a bit more confusing.”
Effectively the old Digital Turbine is growing 93% organically and the rest of the gain is juiced by new acquisitions.
"I’m having trouble with the adage “follow the money.”
From today’s SEC filing, see “Revenue Recognition” on pages 8 & 9 for Digital Turbine’s description of where their revenues come from:
Page 14 provides an overview:
On Device Media - media distribution:
“the legacy single operating and reporting segment of Digital Turbine prior to the AdColony and Fyber acquisitions. This segment generates revenues from services that deliver mobile application media or content media to end users. This segment’s customers are mobile device carriers and OEMs that pay for the distribution of media. The other reporting segments are not dependent on these mobile device carrier and OEM relationships.”
In App Media - Ad Colony:
“This segment is inclusive of the acquired AdColony business and generates revenues from services provided as an end-to-end platform for brands, agencies, publishers, and application developers to deliver advertising to consumers on mobile devices around the world. IAM-A customers are primarily advertisers.”
In App Media - Fyber:
“This segment is inclusive of the acquired Fyber business and generates revenues from services provided to mobile application developers and digital publishers to monetize their content through advanced technologies, innovative advertisement formats, and data-driven decision making. IAM-F customers are primarily publishers.”
Pages 8 and 9 provide details on #2 and #3. It seems that they are going for vertical integration, and have covered both the supply side and demand side for mobile advertising.
Risk factors start on page 33. Two that caught my eye:
P.40: “A majority of our revenues are currently being derived from a limited number of wireless carriers and customers. If any one of these carriers or customers were to terminate their agreement with us or if they were unable to fulfill their payment obligations, our financial condition and results of operations would suffer. In our Media Distribution business, we rely on wireless carriers and OEMs to distribute our product and services and therefore the success of our Media Distribution business is highly dependent on maintaining successful relationships with the carriers and OEMs.”
P.42: "We operate in a highly competitive and fragmented mobile app ecosystem composed of divisions of large, well-established companies as well as public and privately-held companies. The large companies in our ecosystem may play multiple different roles given the breadth of their businesses.
Our primary competition for media distribution comes from the Google Play application store. Broadly, our media distribution platform faces competition from existing operator solutions built internally, as well as companies providing application and content media products and services, such as: Facebook, Snapchat, IronSource, WPP, Omnicom, Criteo, QuinStreet, InMobi, Cheetah Mobile, Baidu, Tremor International, Magnite, Brightcove, Applovin, and others. These companies can be both customers for Digital Turbine products, as well as competitors in certain cases. We compete with smaller competitors, but the more material competition is internally-developed operator solutions and specific media distribution solutions built in-house by OEMs and wireless operators. Some of our existing wireless operators could make a strategic decision to develop their own solutions rather than continue to use our suite of products, which could be a material source of competition.
Advertisers typically engage with several advertising platforms and networks to purchase advertisements on mobile devices and apps, looking to optimize their marketing investments. Such advertising platform companies vary in size and include players such as Facebook, Google, Amazon, and Unity Software, as well as various private companies. Several of these platforms are also our partners and clients.
We compete with other demand-side platform providers, some of which are smaller, privately-held companies and others are divisions of large, well-established companies such as AT&T, Google, and Adobe.
The Company will also compete with in-house solutions used by companies that choose to coordinate mobile advertising across their own properties. They, or other companies that offer competing mobile advertising solutions, may establish or strengthen cooperative relationships with their mobile operator partners, application developers, advertisers or other parties, thereby limiting the Company’s ability to promote its services and generate revenue."
I have no insights as to the likelihood or impact magnitude of these risks. So far they seem to have navigated through them. Haven’t listened to the earnings call yet.