Introducing Digital Turbine

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I wanted to share some research on a company I am looking into.

Digital Turbine: #apps

What do they do?

Digital Turbine’s On-Device Media Platform makes it easy for people to discover new apps and content, for operators and OEMs to boost their revenue and for advertisers to reach users at scale.

ie they sell app placements to the likes of Amazon and pre-install them on new phones. As well as allowing direct ads to appear on mobile phones through the space that OEM’s (original equipment manufacturers) own on mobiles, like tool bar discovery and home screens.

Key notes

Earnings released last week: Fiscal first quarter revenue was $59.0 million, representing 93% growth when compared to the fiscal first quarter of 2020.

Non-GAAP adjusted EBITDA for the fiscal first quarter was $14.1 million, representing growth of 235% as compared to Non-GAAP adjusted EBITDA of $4.2 million in the fiscal first quarter of 2020

The Company’s Application Media software is now installed on over 400 million devices worldwide.

It’s guiding to fiscal Q2 revenues of $59M-$61M (above consensus for $51.2M); EBITDA of $11M-$12M; and EPS of $0.11-$0.12

Margins, revenue and EBITDA all have broken out

CEO, Bill Stone, super experienced industry head.

Recently acquired Mobile Posse, that boosts its recurring revenues by delivering content to OEMs. (Currently 30% of total revenue)

CEO quote from Q1 earnings call:

““Our fiscal first quarter was a breakout quarter for Digital Turbine”, said Bill Stone, CEO. “Positive momentum trends throughout the business drove better-than-expected results and have the Company well-positioned for continued strong performance going forward. Advertisers are actively allocating spend toward platforms that offer directly measurable results, and our business is a clear beneficiary of this trend, particularly given the higher conversion rates generated by our platform as businesses and consumers everywhere are increasingly engaging with applications and mobile content as part of their daily routines.” “

I think the tailwinds of this business will continue, 5g roll out, android phone sales proving robust, only 15% penetration globally and advertisers increasingly demanding measurable results, which Digital Turbines platform clearly delivers.

I feel it has similarities to TTD in the early days. The share price has broken out but still only a 2b market cap…

I would welcome any thoughts and analysis from the great thinkers on this board.

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Careful. Small market cap, history of fraud: https://www.sec.gov/litigation/admin/2019/34-84998.pdf

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Great catch but I would not call that a history of fraud. I haven’t dug deeper but it sounds like they didn’t implement robust financial controls (for an amazingly long period of time). A serious deficiency, but I would not call it fraud. The fine was 100k.

A red flag that I think should be fully evaluated, however.

Rob

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Many would define this as spyware.

This article lays out the pros and cons well.
https://www.gurufocus.com/news/944821/pass-on-digital-turbin…

Having worked in digital media and apps for years I can tell you for sure this is not TTD. The scale of their system has may limits.

  1. The tech only works on Android. Not iPhone. That’s all most need to know.
  2. 90% of revenue is preinstalled apps on a new phone. This means they can only promote apps. They can’t work with a broad range of advertisers.
  3. Their partners that provide inventory are mobile operators. There aren’t a lot of them. They lose one and the business is toast.

I don’t however think it’s a scam. It appears legit and has no debt which is good. But who knows.

The bottom line, this is a high-risk opportunity with limited upside. Why bother?

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I’ve seen this company as a top 5 holding in the recent Greenhaven Road Capital Q2 letter, and I’m sure they’ve covered it in at least one previous letter. Here’s their Q2:

https://static1.squarespace.com/static/5498841ce4b0311b8ddc0…

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> Earnings released last week: Fiscal first quarter revenue was $59.0 million, representing 93% growth when compared to the fiscal first quarter of 2020.

> It’s guiding to fiscal Q2 revenues of $59M-$61M (above consensus for $51.2M) - Jeremy Hill

I extracted these two key notes to emphasize the expectation of flat quarter to quarter sales. Of course, there is likely a degree of sandbagging here.

Jeremy, do you know if this flat quarter to quarter guidance is typical for them? Yeah, that’s a really obscure question…

Rob
Rule Breaker / Supernova Starshot Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.

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Rob I’ll have a dig on their previous earnings.

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I’m really interested in this thread - APPS is a 4 bagger for me since 5/1/20. It is now the 11th largest holding in my portfolio. I’m hanging in there for now! I really appreciate all your information on this and other holdings!
Richard

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Hi Rob

I’ve had a good dig comparing their business outlook vs delivered earnings and yes, they very much do sandbag and outperform, so it would be fair to assume we going to see more than the $59m Q2 forecast.

I’ve had more of a look on Digital Turbine and my conviction is now higher so I’ve taken a 5% position.

JH

Long ZM, CRWD, SE, DDOG, FSLY, NET, LVGO, TTD, SQ, APPS

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This company only has Gross Margins of 45%. Here is what they had to say on the conference call.

Lee Krowl

Got it. And then my second question is around gross margin. It seems like 43% is where kind of a normalized target is when you exclude the one-time dynamics of Q1. Is that the right way to think about gross margin going forward? Or are there any inputs that could perhaps drive higher as we go into the second half of the calendar year?

Barrett Garrison
Yeah, I think that’s in the right range, Lee. I think low 40s as we talked before, and as I’ve tried to emphasize, those can move up and down depending on different product growth and different partner expansion. But that’s the right range.

With Gross Margins of 45% don’t you think there are better companies to put your money into?

Andy

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Possibly but the growth in revenue is pretty impressive.

Out of interest, would you mind sharing your current holding? Always keen to see high gross margin stocks!

Thanks