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Today I will be completing an in-depth analysis on Digital Turbine, Inc. Within I will spend some time breaking down the main tailwinds the company aims to benefit from, discuss the company’s place in the Android Ecosystem and go over the nature and significance of their partnerships with OEMs, Carrier Providers and Advertisers. In addition, I will break down the company’s technology, as well as how they make money from it and delve into some recent financials and KPIs in order to get a better sense of how the company is performing. The format of this research, as always, can be seen outlined below. Feel free to skip ahead to the sections you will find most useful:
4.0 How Digital Turbine makes $$$
5.0 Financial Analysis
6.0 Key Performance Metrics
8.0 Positive Developments
Disclaimer: The information and research contained herein is all my own opinion and should not be used as a substitute for proper due diligence. Please consult your financial advisor and evaluate your financial circumstances before making any investment.
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With all of that out of the way, let’s get started.
Digital Turbine Inc., of which I will refer to as Digital Turbine for the remainder of this report, provides various media and mobile communication products and solutions to entities ranging from Mobile Telecommunication Operators and Advertisers to Mobile Operators and Publishers. The company’s media software services, which encompass both on-device and in-app media solutions, allow for the previously outlined entities to both manage and monetize devices both on initial boot-up and across their entire lifespan. In addition, Digital Turbine provides programmatic advertising and targeted media delivery services that branch off of the capabilities and functionality of their technology.
With this brief description of what the company does in mind, let’s delve into the main opportunities they aim to both address and benefit from.
Digital Turbine’s technology operates on, primarily, devices running the Android operating system. Although the West may scoff off this OS, primarily due to the stark contrast between blue and green text message bubbles, there is no denying its domination of OS market share when viewed through an international lens. As of Q3’21, Android Devices accounted for approximately 70%+ of total global mobile device market share, as outlined below:
When this phenomenon is viewed alongside the fact that there are over 6.37 Billion smartphone users today, representing approximately 81% of the world’s population, there is no doubt that Digital Turbine’s Android OS focus captures the majority of the mobile-device market opportunity .
With the scale of Android-targeting in mind, we can now try to better understand the behaviour trends associated with mobile phone use in general. In Amusing Ourselves to Death, a book written in 1985 by Neil Postman, the author delves deeply into how the rise of the most popular media, the television, has, and is likely to continue to affect levels of public communication, and the wellbeing of society in general. Brushing the implications of this message aside, there is no doubt that the rise of the television fundamentally altered the behaviour, habits and wellbeing of our species. This still rings true to this day, however, the rise of the internet and the simultaneous expansion of the prevalence of cell phones has shifted the power away from the television towards mobile devices. This assertion is corroborated when looking at the average screen time attributable to each type of device in the US, clearly showing mobile devices starting to reign supreme from 2019 onwards:
Three further behaviour-related observations can be made. The first is the distribution of screen-time. Shockingly, it is estimated that on average, one picks up their phone around 58 times per day, with the average screentime per pick-up skewing predominantly towards short, two minute sessions as outlined below:
The pandemic also exacerbated mobile phone use, with youth users showing significantly higher screentimes since the breakout of covid in comparison to time periods prior, a phenomenon that has no doubt transcended to older generations as well:
With our world showing a notable propensity for shifting towards the virtual, screen times are likely to remain high, if not increase in the years to come. Lastly, the real estate of a mobile device, so to speak, is precious. As of November 2021 it was estimated that there over 2.56 million different applications situated on the Google Play Store . Despite that fact, the average person has only 40 total apps installed on their phone, with 89% of total screentime being directed at only 18 of those apps . With all of these factors in mind, one can draw the following conclusions. First, mobile devices are now the most important device in one’s lives as gauged by screen time. Second, the behaviour of mobile-device usage favors short visits, indicating that one is more so looking for something interesting on their device to happen rather than having an intended use-case conceived beforehand. Third, the pandemic has increased the magnitude of screen-time in youth demographics, a phenomenon that is observable in older groups and one that is likely not going anywhere anytime soon. Fourth, the screen space of a phone is valuable, with users showing preference to a select few apps when using their phones. This is where the realm of mobile advertising comes in, the evident staple to how Digital Turbine operates their business. Being that users are glued to their devices, so to speak, the amount of advertising dollars that has been directed to this realm has been astonishing. More specifically, Global Advertising Spend is anticipated to achieve a 12% CAGR between the 2021-2025 forecast period, with almost $540B in Total Spend anticipated to occur in 2025.
Although this opportunity is evidently large, it is worth differentiating the funds directed at the behemoths of mobile advertising, Google and Facebook. Out of the approximately $240B in mobile ad spend in 2020, $190B was directed at Google and Facebook, leaving a $50B opportunity for Digital Turbine to capitalize upon, a respectable figure for a company with an approximate $6B market capitalization:
Lastly, it is worth pondering the impact of the shift towards advertising transparency that Apple has embarked upon, an occurrence that is likely to be a positive tailwind for Digital Turbine. Starting with iOS 14.5, iPhone changed the way adtech companies can access iPhone device identifiers, now allowing end-users to opt into whether or not they would like to share their data for ad targeting, a phenomenon that diminishes the effectiveness of advertising campaigns (lower ad targeting accuracy and relevance) due to a lack of prevalent first-party data. Sparing the monotonous details, advertising on Android has picked up steam since, evidently aided by the fact that Google has not changed their ad-targeting/data gathering practices. This assertion is corroborated when looking at a Signal survey performed in between February and June of this year, following the same timeline of tabooed iOS version release, which showcases Android ad spend as a % of total mobile ad spend of the surveyed parties gaining noticeable traction:
Although the overall decrease in iOS ad spend relative to Android ad spend may not be as dramatic as the above, the amount of people that have opted into app-tracking by geographic region paints a clear picture:
Simply put, ads on iOS won’t be as effective as Android counterparts due to the fact that the majority of end-users don’t want to share their data. With all of these aforementioned occurrences in mind, it is clear that Digital Turbine is primed to capitalize on Android’s mobile dominance, increased mobile screen times and mobile advertising behaviour that evidently favours Android.
Now that we have a better understanding of the opportunities Digital Turbine aims to capitalize on, let’s delve deeper into their technology and associated product offerings.
If one were to compare the Digital Turbine’s most recent 10-K with their recent 10-Qs they would notice the fact that the company has made significant alterations to their Revenue Recognition, an occurrence that was spurred by their acquisitions of AdColony and Fyber. As such, I will be breaking down the company’s tech in a manner that aligns with these newly defined Revenue Segments. Digital Turbine’s business can be split into three main components, as seen outlined below:
On Device Media
This technology segment, of which encompasses Digital Turbine’s legacy operations before their acquisitions of AdColony and Fyber, can be split into three distinct components: Application Media, SingleTap and Content Media, as corroborated by Bill Stone in the company’s most recent earnings call .
Before delving into the various products contained therein, we must first understand the relationship between Digital Turbine and OEMs/Carriers. As per the company’s 10-K, Digital Turbine has partnerships with both Carriers and OEMs, ranging from entities such as Verizon and AT&T, to T-Mobile, as examples. These agreements essentially allow for the company to install their Ignite Platform on associated devices, allowing the various aspects of a device’s life to be monetized.
Software available on the first boot-up of the device includes Setup Wizard, Dynamic Installs, Notifications and Games Folder. Starting off with Setup Wizard, this software leverages the fact that Ignite is installed on the root of the Android device, which in essence will allow app developers to showcase their app(s) to end-users before the user opens the Google Play Store or views the first ad on their device. Put simply, the Setup Wizard showcases a list of curated applications that can be downloaded on device setup, if agreed upon by the user, as described below:
Moving over to Dynamic Installs, within the device setup process an advanced user profiling of sorts occurs, where one’s age, gender location and device model are gathered. This information is then used to select a relevant set of applications, all of which are “pre-loaded” onto the device without disrupting the setup process. In essence, developers and companies can leverage this functionality to ensure their applications are present on relevant users’ devices before they even start using them.
Once the user’s device has been setup, Digital Turbine technology is still able to monetize the device’s real estate. More specifically, advertisers can leverage Notifications to increase their campaign success, prompting users to either open an existing app or install a new one. Nielsen estimates that these push notifications have an average interaction rate of approximately 80%, thus representing a highly effective opportunity for engagement for customers that utilize this functionality.
Lastly, mobile game developers can advertise their apps within a smart folder that automatically organizes users’ games. If desired, users can then download a game that catches their interest.
This technology offering, in my eyes, is Digital Turbine’s recognition of the “Three Click Rule”. This term, of which was coined by the late and great Steve Jobs, essentially represented a design heuristic of sorts, by where Apple engineers had to ensure the music app was always three clicks away when the iPod was first conceived.
This framework isn’t restricted to the Apple’s processes, having been used by Airbnb founders when they were designing the company’s payment system and being everpresent within the world of web development. In essence, this rule is a recognition of friction, and the headwind-like properties that this phenomenon possesses. Applied to a Digital Turbine-specific scenario, advertisers spend substantial amounts of time and capital in order to get an end-user to see their application advertisement and potentially install it as a result. With traditional processes, tapping on an ad often leads to a multi-stage installation process, by where the user is redirected to a web page, then to the google play store etc., with ads and distractions often making their way in between these steps along the way. With each attention-grab there is a higher likelihood that the user just drops off and abandons their efforts. SingleTap fixes just that, instantly installing the app on the user’s phone as soon as they click on the associated ad. When combined with the synergies of Appreciate, a company acquired in early 2021 and now existing under the Digital Turbine banner, this technology is quite exciting. Appreciate is essentially a mobile app marketing platform, one that runs over 60B auctions a day and offers full control over the programmatic advertising ecosystem. Appreciate offers services and strategies tailor-made to the associated application and business model being advertised in order to exert greater control over the user acquisition, re-engagement, branding components of programmatic marketing, while also offering creative wizard tools that allow for multiple variations of ads to be created without time-intensive design team efforts. When combined with the friction-reducing impacts on advertisements that SingleTap results in, there is no wonder these two pieces of tech have been driving Digital Turbine business success, but more on that later.
This component of Digital Turbine’s business is directly reliant on the functionality tied to Mobile Posse, a company that was acquired in March of 2020. This acquisition added three unique capabilities to Digital Turbine’s technological functionality, the ability to operate within and monetize the Home Screen, Discover Bar and Web Portal of associated Android Devices. Starting off with Home Screen, Mobile Posse’s technology allows for monetization to occur within the first app that is often encountered when using one’s Android Phone, often denoted as NewsHub or something similar depending on the device. Within this application Mobile Posse’s technology allows for relevant advertisements to be displayed to users, with an example outlined below:
This functionality can also be combined with Smart Unlock, which essentially preloads and instantly opens a similar page to the one outlined above as soon as the device is opened. Another avenue of device monetization is through the Discover Bar, which presents different engagement opportunities to users through a toolbar that is present in the notification panel of the device. As an example, if I were to click on the wellness section of the Discover Bar, I would be redirected to a curated page that contains wellness-related content/advertisements, as outlined below:
Lastly, Digital Turbine is able to add curated stories, advertisements and content to the first page seen when one opens a new browser tab on their phone, as outlined below:
In-App Media (Ad-Colony)
Ad-Colony, acquired by Digital Turbine in February of 2021 for a total consideration of approximately $400M, can be most easily described as a company that provides mobile advertising solutions for iOS and Android devices. Although an entire deep-dive could be centered around this acquisition, it is best that we take a general overview approach to discussing Ad-Colony. The company’s specialities, and their associated value-add to Digital Turbine, are tied to their industry relationships as well as their technical capabilities in the video advertising space. Starting off with the former, Ad-Colony has relationships with companies ranging from Electronic Arts and Nintendo, to Amazon and Walmart, all of which, by association, will be able to spur Digital Turbine top-line growth as a result of their desire to advertise to end-users in a truly unique manner. Moving on to the former, Ad-Colony targets three core verticals with their technology: 1) Developers that monetize, 2) User acquisition and 3) Brand Advertisers. Through a focus on in-app video advertising (the company doesn’t target mobile web applications or social media), of which predominantly occurs within mobile gaming apps, the company utilizes their Instant-Play and Aurora technology to address said verticals. Instant-Play is Ad-Colony’s proprietary technology that allows for the load time associated with HD Video playback to be essentially eliminated, creating a seamless and responsive video advertisement viewing experience for the end-user.
Moving on to Aurora, this technology leverages the aforementioned Instant-Play functionality alongside other features to create interactive video ad experiences. An example of an Aurora and Instant-Play powered advertisement made for a recent Transformers movie can be seen outlined below:
In-App Media (Fyber)
In May of 2021 Digital Turbine and Fyber closed a deal, where the company is now operating under Digital Turbine’s umbrella in exchange for a consideration of approximately $600M. Fyber, in essence, is a company that has partnered with more than 180 programmatic demand entities to reach more than 650M customers worldwide (at the time of the deal close). These relationships are the foundation for the company’s technology platform, of which specializes in mediation, bidding and analytics in order to offer app developers and advertisers an effective monetization solution for their app. Fyber offers three main solutions: FairBid, Marketplace and Offer Wall Edge. FairBid is the company’s mediation platform that gives one the ability to monetize through either a waterfall or unified auction and is designed in order to facilitate competition, thus driving up CPMs, as well as real-time bids which allow of the 180+ DSPs have a fair shot at winning an auction. This functionality results in bumps in revenue, average revenue attributable to active users and impressions, as exhibited by a sample case-study below:
Fyber Marketplace is, put simply, a programmatic marketplace that leverages partnerships with performance and brand DSPs in order to facilitate the fill and monetization requirements of publishers, supporting varieties of ad formats ranging from banner to full-screen ad units.
Lastly, Fyber operates Offer Wall Edge, an opt-in ad format particularly useful for mobile games. In essence, these ads allow for developers to monetize non-paying app users. Once a user opts in, they can choose from various offer types, and once the end-action is completed (i.e. app installation, gameplay time or a completed survey), Fyber then credits the user with the value of the offer’s reward.
In summary, when all of these business segments are viewed alongside one another, i.e. On-Device Media and In-App Media (Ad-Colony and Fyber), it is evident that Digital Turbine’s operations are moving in the direction of becoming a full-stack mobile advertising solution, one that benefits from the presence of many recurring revenue streams.
Now that we have a better understanding of what Digital Turbine does, let’s take a look at how exactly they make money from all of it.
4.0 How Digital Turbine makes $$$
As discussed earlier, Digital Turbine’s Technology, and thus its Revenue by association, can be split into three main components, On Device Media (both Application and Content Media), and In-App Media sources, Ad-Colony and Fyber, respectively. On Device media is directly reliant on the partnerships that exist between the OEMs/Carriers and Digital Turbine itself. More specifically, any Revenue that is earned from either facilitating the download of mobile apps through pre-loads, single-tap and notifications, or through advertisements that made visible to the end-user through the various aforementioned Content Media mediums, of which is charged on a Cost Per Thousand or Click Basis, for Programmatic Ads and Sponsored/Editorial Content, respectively, is distributed back to the partners depending on the terms of their associated contract/agreement. In-App media on the other hand relies on the Revenue generated by AdColony and Fyber. Starting with the former, AdColony has two main sources of Revenue, those from the performance side of their business, which represents the percentage of the ad spend they generate from in-app advertisements as well as those from the publishing side of the business, of which contain exchange and direct-sold campaign fees that are generated when AdColony allows programmatic ad demand access to its inventory . Fyber generates revenue from their advertising sources, i.e. programmatic revenue (video and display) as well as non-programatic revenue. The company primarily makes money by taking a small percentage of ad spend when an ad transaction occurs on the Fyber Marketplace, i.e. when they provide their services to mobile developers and digital publishers to monetize their content.
5.0 Financial Analysis
This section will focus on delving into the key components of Digital Turbine’s most recent Income Statement, Balance Sheet and Cash Flow Statement in order to get a better sense of how the company is performing under the hood so to speak.
Revenue for Digital Turbine’s most recent reporting period (Q2 FY’22) came in at approximately $310M for the quarter, representing a 338% increase on a YoY basis. The company’s Top Line growth over the last few quarters, evidently spurred by their commendable acquisition activity, can be seen outlined below:
Evidently aided by pandemic-induced tailwinds in the mobile marketing industry, Digital Turbine has really come into its own over the last 2 years, achieving a growth rate that is likely to maintain a its trajectory when taking into consideration all of the tailwinds in the space. Being that as it may, you may be wondering how much of the company’s Revenue is attributable to their recent acquisitions. The contributions have been significant, with approximately 59% and 53% of Q2 FY’22 and 1H FY’22 attributable to the combination of Ad-Colony and Fyber, respectively, as outlined below:
Digital Turbine also has commendable Geographic Revenue diversification with the diversification by region for Total Revenue, as well as for each of the aforementioned business segments, for Q2 FY’22, outlined below:
Cost of Revenue
Cost of Revenue, of which predominantly consist of licensing fees and revenue share agreements, came in at approximately $217M for Q2 FY’22, representing a 427% increase on a YoY basis.
Increasing at a slightly faster tape to its Revenue counterpart, this is regardless still predominantly attributable to organic increases that come with scale. However, the impact of acquisitions must also be taken into consideration, being that these businesses, i.e. Ad-Colony and Fyber have a more lackluster margin profile (more on that later) in comparison to Digital Turbine’s legacy operations. Despite increased cost efficiencies displayed FY’20, COR as a % of Total Revenue has increased slightly since then as a result of said acquisitions.
Digital Turbine’s Operating Expenses came in at approximately $77M, representing a 336% increase on a YoY basis, increasing at a slightly lower rate than its Revenue counterparts. The change in Total OPEX over the last few quarters can be seen outlined below:
On a YoY basis, Total OPEX as a proportion of Revenue remained stagnant, coming in at approximately 25% as outlined below:
The company has evidently implemented diligent expense controls while also scaling their operations significantly via acquisitions. Also of importance is the distribution of Total OPEX to its various constituents, i.e. to the costs associated with maintaining the company’s product suite (function of personnel) through product development, its marketing efforts via sales and marketing and the necessary expenses needed to operate the business in general and administrative expenses. The distribution over the last few quarters can be seen outlined below:
These expenses are relatively fixed, however one can notice the slight increase in the proportion of OPEX attributable to G&A, a phenomenon that has occurred as a result of the recognition of Fyber and Ad-Colony acquisition costs.
Margins and Profitability
In order to gauge the company’s profitability we can gauge how Digital Turbine’s Gross Profit, Operating and Net Income and EBITDA metrics have changed over the last few quarters, of which can be seen outlined below:
Gross Profit has grown organically relative to the company’s Top-Line, coming in at approximately $93.2M for the quarter. The company achieved slight profitability on an Operating and EBITDA basis, with these metrics totalling $16.53M and $41M for Q2 FY’22 respectively. Net Income came in negative for the quarter at approximately $(6)M as a result of contingent consideration alterations that had to be made due to Fyber likely hitting its earn-out revenue target struck in the acquisition deal. The change in the company’s margins can be seen outlined below:
As you may have guessed, the impact of the acquisitions and the costs that came with it have resulted in a slight deterioration in Digital Turbine’s margins, both on a Top-Line and Bottom-Line basis. As an example, we can take a look at Gross Margins which were historically in the high 30 to low 40 percent range and notice that they have made their way down into the low 30s over the last two quarters. This starts to make more sense when we look at the Gross Margins (Segment Profit Margin) of Digital Turbine’s legacy business operations (On Device Media) and compare them with the operations of Ad-Colony and Fyber, which are evidently lower, as outlined below:
A similar phenomenon can be observed with the company’s bottom-line margins. Investors should continue to monitor these metric to ensure that further margin deterioration doesn’t occur in the coming quarters.
The structure of the company’s assets as of Q2 FY’22 can be seen outlined below:
The company’s assets are predominantly illiquid, with Current Assets comprised mainly of Accounts Receivable and Cash whereas Long Term Assets are composed mainly of Goodwill and Intangible Assets. The structure of Digital Turbine’s liabilities can be seen outlined below:
Liabilities are mainly liquid with Current Liabilities consisting mainly of Acquisition Purchase Price Liabilities, Accounts Payable and Accrued License Fees, Long Term Liabilities on the other hand are composed mainly of Long Term debt. Delving deeper, one should be wary of the balance-sheet related activity that is likely to occur over the next few months in order to appease Digital Turbine’s remaining obligations tied to Fyber and Ad-Colony acquisitions. The company’s Acquisition Purchase Price Liabilities, split into their three main components can be seen outlined below:
Skipping all non-important nuances, the company will likely have to direct funds from capital financing or through the according feature of their credit facility in order to meet these obligations. With approximately $96M in cash and $228M in Accounts receivable, the company’s liquid assets would not be sufficient to pay what is owed, therefore investors should not be surprised if the aforementioned activity occurs over the course of the next few months.
The change in Digital Turbine’s Cash from Operations, Investing and Financing over the course of the last few quarters can be seen outlined below:
Cash from Operations came in at approximately $37M for Q2 FY’22, attributable primarily to the company’s Net Loss, offset predominantly by Depreciation/Amortization and Contingent Consideration Adjustments. Cash from Investing came in at approximately $(28)M, attributable primarily to Cash directed at acquisitions. Cash from Financing came in at approximately $5M, attributable Debt Issuance, offset by Debt Repayments. The change in the company’s FCF and associated FCF margin over the course of the last few quarters can be seen outlined below:
FCF for the quarter came in at approximately $31M for the quarter, reflective of a slight increase in CAPEX relative to previous reporting periods. FCF margin came in at approximately 10% for Q2 FY’22. The company’s various Cash Flows, when viewed in conjunction with their balance sheet, are reflective of the operating activities of a fast-paced business that is in the midst of finalizing the absorption of two large acquisitions. Once these deals and their associated repayments are finalized, these metrics are likely to regain a more stable behaviour heading forwards.
6.0 Key Performance Indicators
The first metric that investors should continually monitor each time Digital Turbine releases a 10-K is their Revenue concentration, i.e. the amount of Revenue attributable to their most prominent OEM/Mobile Carrier partners. The change in this value over the last few fiscal years can be seen outlined below:
Of evident note is the fact that the company has been reducing their Revenue concentration, with the amount of revenue attributable to AT&T and Verizon showing significant improvements, as examples. With the impact of acquisitions, this value is likely to continue to improve as the company continues to both diversify and move towards recurring revenue sources. Of additional importance are the amount of Ignite-Installed Devices, which give a sense of how well Digital Turbine’s On-Device Media Business Segment is performing. At approximately 600M device installs with still less than 20% Android market penetration, this value may continue to improve heading into the next few quarters:
Interrelated are the amount of Smartphone Sales that occur on a Global basis. When looking at Q3’21 numbers in comparison to Q3’20, as outlined below, there is a slight decrease in Total Units Sold (in Thousands) on a YoY basis.
It remains to be seen if this behaviour will also be exhibited in Q4, which is normally a seasonally strong time for smartphone sales. If this is the case, by association, the rate of increase in Ignite Installed devices may be affected as a result. This phenomenon is one of the main reasons why the company achieving meaningful sources of Recurring Revenue is so important. The company’s advertising opportunities across the entire lifespan of a device represent a much bigger opportunity and thus are more exciting for the long term trajectory of the company. Delving into the specifics, and initially spurred by the acquisition of Mobile Posse, Digital Turbine has been working on decreasing the amount of Revenue attributable to Dynamic Installs (i.e. one-off Revenue) and increasing Lifetime Revenues (Recurring Revenue). They have made substantial and commendable progress as outlined below:
With Lifetime Revenues being Revenue that is Recurring in nature, the company has evidently clipped the tail risk associated with selling ignite-installed devices. Lastly, it will be important to track the amount of 5G compatible devices that will be rolling out over the next few years, seeing as the company will benefit in the video-advertising realm as a result of heightened network capabilities (think Ad-Colony and Fyber responding to increased demand). In total it is estimated, per CCS projections, that over 560M 5G compatible phones will sell this year. In addition, in the most recent Digital Turbine conference call it was disclosed that of the total amount of devices sold by the company’s largest US carrier partner, approximately 40% of them were 5G compatible. In short, the activity in this sector is likely to spur incremental increases in phone purchases if one wants to upgrade to heightened functionality as well as likely increases in ad-spend that will come with it.
Getting down to the nitty gritty, Digital Turbine has experienced relatively significant multiple compression at a similar pace to its other Tech-Company counterparts over the course of the last few months.
Looking at EV/Revenue metrics may get the salivary glands of value-oriented investors going, however, one should take into consideration the how the company’s recent acquisitions have taken their GPs from the high 30%-low 40% range towards the low 30% range, thus using GP and EBITDA valuation metrics paint a more accurate picture of the company’s valuation. In addition, looking at where Digital Turbine is valued relative to other ad-oriented tech companies may shed some additional light on the subject, as outlined below:
Valued relative to their forward top-line, Digital Turbine is evidently best in-class, however MGNI and PUBM are valued more reasonable on a GP and EBITDA basis as a result of their differing margin profiles, whereas TTD is evidently in a class of its own. I don’t think Digital Turbine is unreasonably valued here, especially considering the fact that they have a unique on-device-bootup value proposition that can be directed at OEM/Mobile Carrier alike as well as some extremely respectable advertising capabilities and associated partnerships that can be applied across the lifetime of device ownership. When looking at the fact that the company is expected to have 8X’d Revenues from FY 2021A to FY 2024E, representing a 90% CAGR as outlined below, I would argue that these multiples are warranted:
8.0 Positive Developments
The first happening that I believe is of note is Digital Turbine’s expansion of their partnership with TikTok, a relationship that was originally targeting the Latin America region but has now been manipulated in order to target North America as well. This relationship evidently benefits both parties. For TikTok, since Digital Turbine has selected them as the video platform of choice, so to speak, they will evidently be able to leverage the company’s partnerships and pre-load capabilities to maintain a high degree of effective app distribution. For Digital Turbine, the company can yet again showcase the power of their platform and the fact that their technology’s capabilities will be very difficult to replicate. Tik Tok just surpassed Google as the most popular website in the world, further cementing the fact that this relationship is a feat in itself.
The most important development, arguably, is the mitigation of the Google risk. To give a little bit of background to those that may not be familiar with the situation, over the last few years Digital Turbine has been essentially operating at the mercy of Google. Being that the company has complete control over the Android ecosystem, they can, in essence, essentially stop a developer from working with or advertising on said operating system. To many investors, this was a huge risk and for good reason. If Digital Turbine fell out of grace with this behemoth then their ability to both generate Revenue on initial setup and across the lifespan of an end-users time with an android device would have been all but destroyed. On December 28th of 2021 this all changed for the better, with Digital Turbine announcing that they will partner with Google to drive its product and growth strategy for the Android Ecosystem forwards. Delving into the specifics, Digital Turbine will work with Google Cloud partner SADA to leverage a series of enterprise and cloud solutions in order to deliver both growth and monetization solutions for partners. When looking at what Rob Enslin, President of Google Cloud and Bill Stone, CEO of Digital Turbine had to say about the partnership, it is evident that this is both a tremendous growth opportunity and a risk that has been dealt with for the considerable future:
"We are excited to partner with Digital Turbine to support the expansion and scale of its products and services globally," said Rob Enslin, President of Google Cloud. "Digital Turbine has been a longtime supporter of the Android ecosystem, and with this new partnership, it will utilize our advanced cloud and enterprise infrastructure to expand support of its value-added mobile experiences to end users around the globe."
"For the past 10 years Digital Turbine has helped expand the Android ecosystem with our intelligent app discovery, growth and monetization products supporting many of the leading Android app developers in the market today," said Bill Stone, CEO of Digital Turbine. "We are thrilled to further deepen and expand our partnership with Google. By partnering with Google we are efficiently powering app discovery for nearly a billion Android devices globally while simultaneously expanding our footprint across the Android ecosystem including mobile, TV and connected devices."
We have spent considerable time within this deep-dive talking about the opportunity on Android mobile phones, but as Bill alluded to within the above statement, there is also an opportunity within other android-connected devices. As an example, AndroidOS has commendable presence within the SmartTV industry at almost 5% of total market share. This may not seem like a lot but when looking at the fact that there were over 665M different households with a SmartTV at the end of 2020, as well as the fact that this penetration is projected to continue at a rapid rate until 2026, this opportunity is not negligible.
In summary, there is a real opportunity to be a company that is interacting with such a large magnitude with the biggest OS in the world, a phenomenon I believe is likely to spur consistent growth in Digital Turbine going forwards.
In summary, I believe Digital Turbine is a reasonably-valued pure play on advertising the entire Android Ecosystem. With commendable legacy operations now strengthened with multiple top-notch acquisitions, the company has built a moat that will be far fetched to encounter any meaningful competition. With all of this information in mind, I will end the deep-dive here. Hopefully this research provided you with a starting point to evaluate Digital Turbine. Thank you for reading.
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