Since there are renewed interest in the company I want to present my personal investment thesis on $APPS. I don’t know if this counts as a high-growth company based on board rules or not, so please feel free to take it down if it isn’t. Thank you Saul for a wonderful place for discussion.
Their revenue by quarter
2019 22 24 30 27 = 103
2020 31 33 36 39 = 139
2021 59 71 88 (guiding 82) = 300
Acquisition of Mobile Posse happened in 2020 Q4 ($39M revenue) with $70M cash ear out and no share dilution.
Pro forma revenue growth after acquisition:
QoQ growth: 20%, 23% in the last two quarters. (20% QoQ = 107% YoY annualized)
Their gross margin is in the 40-43% range for the last few quarters.
Who is their customer?
They are a B2B business and their customers are marketers that want to acquire mobile app users.
This part is my guess: I think they have a unique place on the market by being the ad exchange between telecom/phone manufacturers and the advertisers. It doesn’t make sense for telecom companies to have a team testing different app versions/android versions/phone models in order to start an advertising business. The revenue is too small for them to make the unit economies work. Mobile developers are expensive.
They have two main lines of businesses
#1 App Install
- They sell pre-installed slots on Android phones to App advertisers. This is one time revenue per phone.
- SingleTap: this is a new business ($1M per month) that allows advertisers to skip Google App Store and directly install apps when phone users click on ads. They claim this is recurring revenue.
#2 Content Media (called Display Advertising on the site)
- This comes from the Mobile Posse acquisition.
- It looks like they build white-labeled software for Telecom companies e.g. T-Mobile that turns the telecom company’s app into an advertising engine. I may be wrong on this.
- They claim this to be recurring revenue.
Recurring revenue has become >50% of the total revenue in the last two quarters.
One thing that pops out about in the financials was their lower margin (40-43%) compared to SaaS stocks. In their 10-Q
You can see that of the $88.6M revenue, they paid $50M, or 56% of their revenue, in License fees and revenue share.
My guess is that they are sharing ad revenue with telecom companies. In other words, they create value for the telecom company by letting them collect license fees. Due to this, I believe it is unlikely for telecom companies to start their own team and run the ad business - it’s hard to beat the easy money.
TAM for App Install
What’s their TAM? I don’t think they ever give a number like many of the SaaS company do. Here’s my attempt to estimate:
2.5 billion android users in the world
500M devices per year if each user replaces their phone once every 5 years
At $1 RPD per phone, the TAM for App Install is $500M.
Current App Install revenue is about $200M/year, so the penetration is quite high.
But on the other hand, what’s the real RPD to expect?
Copy pasting the metrics from here: https://www.businessofapps.com/ads/cpi/research/cost-per-ins…
(I can’t say if this is accurate or not but it is in line with the marketing metrics I’m familiar with)
Android costs: $0.44 globally and $1.72 in the US
Cost per install on Facebook: $1.8
Cost per install on Instagram: $2.23
Cost per install on Twitter: $2.53
Assuming that $APPS sells a total of 9 slots to advertisers. I would say the realistic RPD is around $5, or $0.5 per app, which pushes the realistic TAM to $2.5b/year.
If I am a mobile advertiser, I see working with $APPS a steal compared to Google or Facebook.
The CEO has said in the call repeatedly that their customers are seeing the conversion returns from their platform. In the meantime they lock in the ad rates for 6 months so the revenue in the calls are reflecting the price point they set 6 months ago.
I have no estimate the TAM for Content Media.
Some other things
Other things that boosted my confidence in $APPS
High revenue per employee
In their Q1 2020 call (last August) they said that they achieved $1 million revenue per employee. To me this is an incredible achievement in operational leverage. My other investments fall in the 300K ($DDOG) to 500K ($CRWD) range.
High employee satisfaction
They grant stock options to all employees regardless of title
On Glassdoor: 4.5 stars with 98% CEP approval
If you read into their reviews you can see a lot of them mentioned COVID response
They won a local award in Austin, TX if that means anything https://ir.digitalturbine.com/press-releases/detail/598/digi…
The Mobile Posse acquisition may be the best acquisition I have personally seen. They paid $70M in cash with no share dilution and basically get all of it back through new revenue in less than a year. And the content media business in itself is growing > 70% YoY organically. Acquisitions tend to destroy shareholder value so I am often doubtful. They have started a new credit line up to $200M with BoA in the last Q and I’m curious to see if they saw another opportunity.
Where could growth come from?
Their two main growth drivers are SingleTap and Content Media.
SingleTap - I’ll quote the call
Not including our social media integration with our large carrier partner, a few quarters ago we talked about SingleTap being on a seven-figure run rate. Last quarter we talked about it being on a seven-figure quarterly business for us. And today, I’m happy to say it’s now a seven-figure monthly business. The growth is becoming more material and we expect SingleTap to be a growth driver for the business in 2021 and beyond.
And what we’re seeing right now is the ability through leveraging our demand side platform to be able to go out and arbitrage in the marketplace. And what I mean by that is we’re aware of devices that have SingleTap capability. The rest of the market is not.
This is essentially a bidding ad exchange for app advertisers and not a one-time revenue like their previous App Install model.
Before acquisition, Mobile Posse’s customer is pretty much only T-mobile. Content Media has a large cross-selling opportunity to their current telecom and manufacturing partners that the CEO has expressed in the calls.
Aren’t they bloatware?
I understand where this argument comes from and I respect that. Personally, it doesn’t bother me. I see advertisement companies as the same: GOOG, FB, TTD, MGNI, APPS, to me they are all the same in the “selling your attention” business.
The CEO mentioned 5 apps customers, TikTok, Uber, Pinterest, McDonalds, Candy Crush mentioned in the Q3 call - I have 4 of them installed myself and use them regularly. I forgot which call was that the CEO basically said that they “don’t install junk.”
I don’t see telecom or phone manufacturers starting their own team is a risk per the revenue sharing argument.
The biggest risk comes from Google: if Google decided to remove all third party advertising on Android as what they are doing to Chrome third party cookies, then $APPS will lose a big chunk of revenue. If it happens then there’s really not much reason to not sell out.
I also agree that this isn’t as innovative as most SaaS companies discussed on the board. It will not warrant a 50X sales multiple like CRWD.
Thanks for the discussion.