Digital Turbine Stock: Apple's IDFA Changes Had Little Impact - Buy On Weakness

Digital Turbine Stock: Apple’s IDFA Changes Had Little Impact – Buy On Weakness


Digital Turbine reported a robust set of top-line and bottom-line beats recently. Despite that, the stock was battered along with its ad tech peers.

The company also issued solid FQ3 guidance. In contrast, some of its peers pulled their guidance or reduced their outlook for the next quarter.

We discuss why we think investors should take the opportunity to add APPS stock on weakness now.

This idea was discussed in more depth with members of my private investing community, Ultimate Growth Investing. Learn More »

anyaberkut/iStock via Getty Images Investment Thesis

Many ad tech companies have been battered recently as they digested the impact of Apple’s (NASDAQ: AAPL ) IDFA changes in their recent earnings. Snap Inc. ( SNAP ) and Meta Platforms, Inc. ( FB ) have also highlighted the impact on ad measurement and attribution.

Digital Turbine ( APPS ) was one of the exceptions among these ad tech companies. It reminded investors that while it also felt the impact, it represented only 1% of their consolidated revenue for FQ2’22. In addition, Digital Turbine’s well-diversified business had insulated the company from Apple’s privacy changes.

Moreover, the company also reported a solid quarter as the traction from their recent acquisitions continues to improve.

Notwithstanding, APPS stock was also battered post-FQ2 earnings. It was affected by the broad selldown of other ad-tech stocks that also affected Roku ( ROKU ), Trade Desk ( TTD ), Magnite ( MGNI ), and PubMatic ( PUBM ).

Given the noise surrounding these ad-tech players, we discuss whether APPS stock is still a buy after its robust FQ2’22 report card. APPS Stock YTD Performance

APPS stock YTD performance (as of 5 November 21).

APPS stock has had a highly volatile year. We would like to remind investors that Digital Turbine is a highly volatile stock. Therefore, they should be prepared to ride out its short-term volatility and have a multi-year investment horizon if they invest in it. Nevertheless, it started the year robustly as it raced to a YTD lead of 50% by February. In addition, it also survived the growth-to-value rotation early in the year. However, those momentum spikes finally took a toll, as the stock quickly lost its bullish momentum. Subsequently, it then lost almost all its gains by May and even slipped into the red in August.

Nevertheless, the stock’s momentum recovered remarkably in August, as it raced back to its 50% YTD gain. However, its recent recovery lost momentum after its FQ2 report card as the ad-tech selldown also battered it. Despite that, it’s still up 20.4% YTD. Notably, it’s still underperforming the market but is ahead of TTD stock and Roku stock. Both ad tech leaders are still deeply mired in losses for the year so far. How APPS Insulated Itself Against Apple’s IDFA Changes

Digital Turbine had a fantastic quarter. It’s another round of comfortable beats for the company on both revenue and adjusted EPS. The company reported FQ2 revenue of $310.2M, up 63% YoY on a pro-forma basis. The company also posted an adjusted EBITDA of $47.9M as it continues to improve its operating leverage. However, its gross margin was on the lighter side at 30%, down from FQ1’s 33.7%. The company mentioned that the integration with its new acquisitions continues to weigh on its gross margin in the near term. However, Digital Turbine believes that it will continue to gain leverage and also improve its operational efficiencies as it scales.

Moreover, the company also issued solid FQ3 guidance despite supply chain headwinds on its advertising partners. Digital Turbine guided for $350M to $355M in revenue, above consensus of $340.7M. Adjusted EPS guidance is also in line at between $0.41 and $0.44. Hence, we are delighted with the resilience of its business model in navigating the short-term disruptions. In addition, APPS remarkably guided above consensus in a quarter when many of its peers either pulled guidance or tempered their outlook.

Notably, one of the highlights was Digital Turbine’s ability to insulate itself against Apple’s IDFA changes. The company emphasized that the impact from Apple’s IDFA changes amounted to only 1% of its consolidated top-line. CEO Bill Stone emphasized (edited for brevity): For us, on our performance business, on AdColony, we saw some sequential down activity as a result of IDFA. But for us, it’s roughly 1% of our consolidated revenue. So it wasn’t material because we’re just not relying upon things that are dependent upon IDFAs like other players. ( from APPS FQ2’22 earnings call ) Digital Turbine accentuated that its […]

source Digital Turbine Stock: Apple’s IDFA Changes Had Little Impact – Buy On Weakness

Leave a Reply