Digital Turbine - APPS

Investment Analysis Clubs Saul’s Investing Discussions
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For submission/discussion, loosely following Saul’s evaluation topics.
How I found it - usng a high growth screen I designed on Fidelity for high growth profitable firms.

What they do - Main product is a mobile app installation & advertising platform called DT Ignite. It’s been around in various forms since the late 00’s, with a spotty history and several acquisitions.

Writeups by trusted people - Fool 6/19
Lukas Wolfgram on SA (no idea if this guy is “trusted”, but it’s about the only public article on SA recently": allows developers to install their apps directly when the end-user activates a new phone. This gives apps immediate exposure with no friction of an install to the end-user. They’ve also developed software to install free apps from a single tap without going through an app store, folders that recommend apps based on what the user has already installed, and improved notifications to drive more engagement with apps after they’re installed.
Poster’s note: this software - DT Ignite - is also called “bloatware”. Carrier-labeled Android (and Kai) phones include it as part of the system software as part of the “price” for the discount you get when you buy the phone. It both pre-installs certain apps for which the developers have paid a fee, and pushes advertising to you as long as you leave it enabled, and if you need to do a factory reset. This is how the software exists on 230 million devices globally. So… this kind of marketing sw I have no particular passion for.
It’s not on iPhones.

Growth / improving metrics:

  • Good - 30% revenue growth & beat Q4, 38% last year, 35% last 5 years CAGR
    Revs outside US grew 4x YOY in 8/5/19 report
  • Ugly: struggled in 16-17. Note 7 recall, content arm failed. CEO latest con call 8/5/19: “We also saw a real stabilization of our big four partners. As you and others are aware, those have been in decline for a while."
  • Expecting 31-32m revenue (5% sequential, 30% YOY for quarter) next quarter
    Significant operating leverage - incremental revenues in latest quarter resulted in an operating income increase of 51%.

Valuation:

  • Trading at <5 P/S (forward 2020)
  • Late to the party? Up 4x this year (<1.85 to $7.50)

Big future?

  • Samsung new partnership internationally - expecting 4x country exposure this coming quarter (50 vs 12). Telefonica new carrier relationship (Spain).
  • 30m new devices onboarded to platform in last quarter (comparison 33m IPhones sold)
  • minus: single-tap install is “outside of their social media partner” and US adoption is not great
  • single-tap install is 30-200% greater than appstore type installs (because it’s easier for user)
  • No app is >10% of revenues
  • They have Pinterest, Twitter and Uber as customers
  • Expanding into “deeplinking” apps (install restaurant app instead of pushing user to home page)

Seems to me it all depends on their carrier partners, phone mfrs relationship…

TAM = @$100B mobile ad spend… but what really is TAM in this case? Advertising spend? Mobile phone users?
Competition? There are over 100 mobile advertising platforms listed at https://www.businessofapps.com/ads/cpi/

Recurring revenue
Ongoing relationships with Samsung and Jio for phones, relationships with carriers like T-Mobile, US Cellular, AT&T, Deutsche Telecom, Vodaphone, SingTel, America Movi, Cloudphone, MTS.
*Average holding period of Android phones is only 2.66 years, yielding recurring revenues

  • Samsung (international) partnership in 2018 may double (or more) the installed base.

Improving metrics:

  • Gross Margin: Gross profit up 78%; Non-GAAP margin 40% up from 31%
    Opex down as % of rev from 30 to 26%
    They had some convertible note get retired that cost them some net profit b/c stock went up

  • Profit Margin? Non-GAAP made .05 vs 01 loss
    Generated $4m FCF for the Q, $15m cash increase for year, $0 debt.

  • $-based Net Retention Rate? Could not determine.

History: spotty

  • Stock price crashed from $5+ to <$1 ‘15 to ‘17
  • Back in 14 it was Mandalay Digital
  • Bought a mobile user platform Appia in 16
  • Samsung Note 7 recall hit them hard in 17. Advertisers & Publishers revenue dropped sequentially in ‘17.A&P revenue of $3.6 million declined 19% sequentially and 49% year-over-year stemming from the continuing shift in advertiser budget allocation toward programmatic and RTB systems away from legacy business development deals.
  • Dropped its Content business in 2018. Now completely focused on OEMs & Operators, and App Advertising.

My action: I took a small (2%) position this week, but purely based on the recent results and projections for good (not outstanding) growth in the next year. This company is not the next Trade Desk, but if they have finally hit some kind of stride with Ignite and their relationships, because the stock is not wildly overvalued at 4+ P/S it has a decent possibility of still doubling from here. Congratulations to the couple of people on NPI that bought it early this year at <$2, now it’s $7.60.

Hope people find this post useful. I learned something doing it.

FC

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Nice write-up, FlyingCircus!

However nice the write-up, according to the data presented in your post and looking at this company’s charts it seems to me that at this point APPS is not a growth stock favored by Saul but a turn-around stock and perhaps a value play, don’t you think?

Have a look at Saul’s Monday Morning Rules of the Board and you might agree that APPS falls under the off-topic list:

Investing subjects that are off topic include technical analysis and option trading subjects, including describing the details of your option positions, or value investing, or turn-around investing, or dividend or income investing…, etc. https://discussion.fool.com/monday-morning-rules-of-the-board-34…

Best,
I. M. Young, Assistant Board Manager

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it seems to me that at this point APPS is not a growth stock favored by Saul but a turn-around stock and perhaps a value play, don’t you think?
Guys

I truly appreciate the effort it takes to police the board…but how in the world are we discouraging people from writing about a company reaccelerating its revenue to the tune of >30%…with improving gross margins…and a large TAM in mobile advertising…

If this is a value play or turnaround play, then there are many stocks who are shifting gear and focus to address the new digital economy that the market will ignore that we will also ignore it’s hidden growth because things decelerate in the old in order to reaccelerate in the new economy

I do not own APPS. It is a small cap with lumpy revenue that I’d prefer to better understand. Looking at the charts I see revenue increasing at a CAGR of 67% since FY16…it improved margins from 31% to 40%…got out of debt…improved its cash position…

APPS appears to make money by improving how smartphone providers can convert advertisements within apps on your phone versus the traditional web based click advertisement. (My naive read of a single company slide deck and latest cc)

Long term margins expected to stay where they are (40%). Growth is primarily international and linked to cell phone replenishment cycles which are elongating as phones become more expensive…however…as 5G rolls out there is a large swell of device replacement.

I don’t have a great grasp on exactly how the company monetizes. I can’t tell what percentage of revenue is reoccurring via advertising kickbacks and what is part of these OEM contracts. There sales cycle looked very disaggregated…my analogy was thinking of midstream (pipelines) as APPS and downstream (gas stations) as their marketers and sales force.

APPS and this writeup are exactly what I hope to see reviewed on this board. The author found a company growing its revenue into a large market and presented the case for investment.

The valuation is certainly compressed when looking at just RevGrowth vs EV/S…however when you factor in 40% gross margins to 30% growth rate…they are really just seeing 12% growth in new cash fall into managements hands, not a large number and thus the compression.

Final note; the Glassdoor reviews were rather choppy and negative, pointing to hurry up and go being favored versus smooth scaling.

Please continue to encourage reviews and feedback. The more we all learn and contribute, the better we all are. I don’t think the purpose of this board is for everyone to sit back and only listen to a select few review stocks. Let’s be cautious of our policing.

Just a Fool’s OT, but hopefully with color added to the company review as a peace offering, request

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Not my board, and free to read, but my opinion is free to, and here it is:

The board is getting tiresome with the constant public berations and beatdowns associated with perceived deviances from board rules.

Digital Turbine is all about software/app-tech related to smartphones.
I am guessing you are looking at their chart showing them peaking back in 2006.
How many smartphones in 2006?

Guessing they changed their business model then.
Quick looks shows 4 years of increasing hyper-growth in revenue.
4 years sounds like a trend.

Guess what? It is a growth stock.

Alteryx has been around 20 years…may not be a turnaround stock due to when they had their IPO, but pretty sure they haven’t been growing this fast for 20 years (they would be a tad bit bigger by now).

I used to read this board more, and lately I am skimming aggressively because it seems half the posts are lectures of what not to post.

Dreamer

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A few Off-Topic Comments from a New Board Reader & Contributor:

  • I am very excited to have finally found this forum after being a TMF member for the past 20 months. I feel much smarter and more informed each day having participated in this forum.

  • Like products for sale in the marketplace, board members and board posts are exposed to free market forces and therefore I tend to favor and dedicate my time (i.e. purchase) to posts that garner the most favorable responses from the board community as well as those posts from board members I have read and have grown to appreciate.

  • Over time, board members or board posts that do not facilitate the primary purpose of this board may perhaps disappear or become irrelevant through natural selection.

  • In my personal opinion, calling attention to posts that violate the rules of this board seems to only create a longer thread of more off-topic posts

  • Along the lines of “vote with your feet” concept; aren’t we all able to use the “Ignore Thread” feature if we do not want to be exposed to a board thread?

  • I understand the need for the board rules and concepts posted on the right side of the screen; I have read them each a number of times and fully agree with the concept.

My apologies for rambling thoughts of a “Newbie” that I don’t expect will have any impact; but felt I would share in the hopes that we recognize this situation and that the powers that be address it in a manner that allows this board to continue on as the free public good that it is.

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Peoples,

IM asked a question! However nice the write-up, according to the data presented in your post and looking at this company’s charts it seems to me that at this point APPS is not a growth stock favored by Saul but a turn-around stock and perhaps a value play, don’t you think?

He didn’t request that we end the thread. I think it’s a fair question. Let’s all chill.

My opinion? I’m intrigued, but will watch this one for a while before getting too interested, mostly because it’s a tiny company with just over 100m in annual revenue and a microcap valuation of well under $1 billion.

You are free to write up anything you think is a growth stock, but it’s also reasonable for someone to challenge whether the company is appropriate for the board! Having to defend the company you present is all part of the process.

Happy Tuesday!

Bear

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IM asked a question! However nice the write-up, according to the data presented in your post and looking at this company’s charts it seems to me that at this point APPS is not a growth stock favored by Saul but a turn-around stock and perhaps a value play, don’t you think?

He didn’t request that we end the thread. I think it’s a fair question. Let’s all chill.

My opinion? I’m intrigued, but will watch this one for a while before getting too interested, mostly because it’s a tiny company with just over 100m in annual revenue and a microcap valuation of well under $1 billion.

He didn’t ask the question and leave it there. he then posted the section of the rules (with bold letters and all) to show why turnaround stocks weren’t allowed as discussion.

Saul bought AYX in 2017, I believe.
They ended 2016 at $85m and had a whopping $131m by end of 2017. Just about same size.
And as many have pointed out, much of the gains of past 2-3 years are not merely just from fact that stocks have great rev growth, but that their multiples greatly expanded. AYX, TTD, MDB…all great examples of that, and all were $1-2b just 2 years ago.

I am not an owner of APPS right now, and I am not even saying anyone should buy the stock, but if you are looking to continue replicating gains of 2017-2018-2019 into next year and beyond, it makes sense to find some of these with lower market caps.

I know the board managers are all well-intentioned, and these are non-paying gigs.
But I don’t understand why you don’t just handle everything via “reply by email” and if the offender doesn’t cease, you just have their posts pulled if they don’t cooperated or are continual offenders.

Then you have less clutter of useless posts, and less clutter of replies to useless posts, which extend the threads for no reason.

Again - not my board. But I have greatly benefited from reading and contributing in the past and would like to continue to do so, but when it becomes examples such as no less than 6 guys all replying back to ethan to tell him they also think Saul is right about his response to ethans thoughts on portfolio mgmt, it is just excessively redundant and unnecessary. Those could have just been email replies to him.

No offense, but I would probably get more value out of 1 ethan questionably OT post than 10 posts by most others.

I won’t bring it up again. I am getting dangerously close to OT myself now. :slight_smile:

Dreamer

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IM asked a question! However nice the write-up, according to the data presented in your post and looking at this company’s charts it seems to me that at this point APPS is not a growth stock favored by Saul but a turn-around stock and perhaps a value play, don’t you think?

He didn’t request that we end the thread. I think it’s a fair question. Let’s all chill.

Ask yourself why he got the reaction he got! I got a very patronizing, unwarranted email from IM. Let him chill!

Context! Context! Context!

Denny Schlesinger

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IMY, well aware of the rules of the board and OT guidelines, been lurking here for almost a year. And I respect and agree with them. I completely understand the aspects of APPs that might lead one to that judgement, but there are several aspects that do not. And I understand IMY’s perspective. I really appreciate JAF’s thoughtful response.

I specifically posted about it here to solicit other investors’ opinions about whether it is a sustainable technology “new growth” story after getting through some longer “ramp” time than a couple of years. As Dreamer said, because AYX has been around a long time, should it have not been raised because one could call it a “turnaround or value” play?

I have no desire to start yet another maelstrom of off-topic debate about what is off topic for this board. I’ll just suggest that JAF’s and Dreamer’s responses challenging the above “flag for OT” should be considered.

And END THE THREAD.

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