What You Need to Know
Digital Turbine (NASDAQ:APPS) is a platform that facilitates app installations onto mobile devices, improving user experience by preloading apps and offering solutions for ad monetization and global distribution.
Once the golden child of the market, Digital Turbine took a nosedive, but I am not convinced that staying bearish is the way to go. I’m not placing my eggs in the bullish basket either.
In August, I voiced skepticism and advised against involvement in this mobile advertising platform. But the seemingly hopeless prospects of Digital Turbine have me rethinking my stance.
While the stock isn’t exactly a steal, I’ve learned that excessive bearishness can already be factored into a stock’s price.
To put it simply, I’m taking a neutral stance on this stock.
Review of Past Predictions
Previously, I had warned against Digital Turbine, highlighting its dwindling revenue growth rates and the potential limitations imposed by its balance sheet on future operations and growth initiatives.
Since my article titled, Prudent Move Would be to Sell the Stock, here’s how Digital Turbine fared:
My skepticism of considering a stock undervalued simply because it’s in a slump has waned. I am now hesitant to maintain my bearish outlook on this stock.
Digital Turbine’s Short-Term Potential
Digital Turbine focuses on mobile app delivery, enhancing the app discovery and installation process on smartphones. The company is resilient in driving sequential revenue growth in its on-device business, exceeding $99 million.
The company’s revenue per device has seen substantial growth over the last five years, now standing at over $6 per device. The CEO emphasized the importance of ongoing investments, such as new technology platforms and ad tech capabilities, indicating their potential to fuel future growth and revenue.
Digital Turbine’s expansion into global markets through partnerships and its diverse revenue streams is setting the stage for a potential turnaround.
Looking at the Future Growth
With improving comparables on the horizon, Digital Turbine is gearing up for potential growth. The shift in revenue growth rates will help the company project a positive narrative of a business turnaround, signaling a brighter future.
If Digital Turbine can demonstrate even modest topline growth in fiscal 2025, it could reverse the perception of its prospects.
APPS Stock Valuation – Weighing the Options
Digital Turbine’s cash flows for the first 6 months of its fiscal year were $29 million. Under optimistic projections, its cash flows could reach $80 million in fiscal 2024.
If we assume a 25% yearly growth in cash flows in fiscal 2025, this would position Digital Turbine at around 6x next year’s free cash flow. However, I prefer AppLovin (APP) with its stronger fundamentals, even at a slightly higher free cash flow valuation.
In my assessment of Digital Turbine’s potential, I’m drawn to its 6x forward free cash flow valuation. While the upcoming fiscal year could mark a turning point, I remain uncertain about its appeal compared to competitors like AppLovin.
In conclusion, I’m adopting a neutral stance on this stock.