20 Catalysts On Digital Turbine's Future Growth
I don’t know why Digital Turbine (APPS) has been on the downtrend since their latest financial announcement. There could be 101 reasons that the company has been trending downwards.
One of the most “believable” reason I heard is that the privacy issue is still up in the air in US, especially with Apple already launching iOS 14. Investors always do not like uncertainty and how this “privacy” affect the AdTech industry is still uncertain.
But I like it and I have been buying on the dip. I have mentioned about APPS significantly on this blog already. Thus, I will just put some pointers about APPS (that I never mention before), the latest transcript, on Fyber and Adcolony.
So here it goes…
1. Gross Margin – One of the main misunderstanding of APPS is its low Gross Margin (as compared to other AdTech firms). The reason is because for every $3 APPS earn, $1 goes to OEM, $1 goes to Operator, $1 goes to APPS.
2. Business Model & Competition – Due to this, investors may fault APPS business model – stating that APPS business requires “other businesses” assistance. However, this business model suit and works well for APPS because it reduces “competition”. If there is no revenue for the OEM or operator, APPS may not be able to get access to the users and the OEM or Operator can also come up with their own version of “Dynamic Installs”. However, since these revenue from APPS to the OEM or Operators goes directly into their bottom line – without any excess capex or cost – I am sure OEM or Operators will not want to jeopardize this channel of revenue and create extra cost to their business.
3. Operator Challenge – AT&T has also sold away their media business, and I believe this will be the trend moving forward. For telco operators, the future of 5G is going to create A WHOLE LOT OF CAPEX. They will want to concentrate on their core business. Thus, I believe all kind of media business within the Telco Operators will be outsourced or sold into the future. Furthermore, I doubt with the capex required, Operators will want to jeopardized this extra revenue that comes without much effort.
4. Google – Investors might ask if Google will eventually become a competitor*. As mentioned before, this is highly unlikely since the antitrust issue might get bigger if Google tries to get involve in this as well. Google cannot be seen as the bad guy, so APPS is the bad guy. Furthermore, with APPS being part of Google ecosystem, this actually makes Google ecosystem more vibrant – with those companies that want their apps to be able to be discovered or used more easily by users, they will need to pay more. This is like similar to Adwords in Google Search, if you want to appear in the 1st page of the search, pay more.
*APPS ignite system solely works on Android only.
5. Fyber and Adcolony – I read some of the write up and watch interviews. So, I do believe I have some understanding of how these 2 businesses works**. Fyber works as an exchange and is an adtech SSP. Adcolony is a DSP where they create brand videos and place these videos in the apps. The scenario goes like this – imagine you are playing a mobile game called ABC, in order to go into the next stage, you need to pay $5 or watch an advertising video made by Adcolony for 20 sec – What will you do? Most of us will just watch the brand video made by Adcolony! As for Fyber, the developer of ABC probably linked the game as a platform on Fyber exchange in order to monetised their games.
**The write up of the 2 businesses and the technicality of how these platforms work might not be absolutely correct. But this is just my basic understanding.
6. 5G and Smartphone Market – As spoken previously, 5G will be a catalyst in the future for the number of devices installed with APPS system. This is because as 5G becomes mainstream, everyone will need to change their phones to one with 5G. Furthermore, 2 of APPS partners – Samsung and Xiaomi – have the 1st and 2nd position in the smartphone market. Apple is in the 3rd position.
Q1 2022 Transcript:
7. “…On-Device Media set all time revenue records in the June quarter and generated over $120 million in revenue, which is 93% organic growth year-over-year…”
8. “…hyper-growth of nearly 600% year-over-year with our SingleTap business. SingleTap was almost 20% of our total On-Device Media revenues in the June quarter, compared to 4% a year ago…”
9. “…Samsung has decided to begin launching SingleTap across their global footprint which historically has been approximately 250 million devices per year…Samsung now wants to expand to other geographies and we've already started the process of expanding into Europe…”
10. “…expanding our TikTok relationship. TikTok has been a strategic partner for us in Latin America and we are now expanding that to North America, which will drive short-term growth for us…”
11. “…continue to be on track to launch additional Content Media products on AT&T and Verizon later this fiscal year, which we expect to be a future catalyst for growth… think about the opportunity, today we have just north of around 10 million daily active users primarily on T-Mobile today…that 10 million users generating, let's call it roughly a $100 million of revenue, that seems like an opportunity set, given that they've got one-third of the market, Verizon has one-third, AT&T has one-third in rough terms, that seems like the market opportunity that we should be thinking about…”
12. “…AdColony has an impressive 46% year-over-year growth comparing this June quarter to last June quarter…impact of Apple's IDFA changes late in the June quarter, as AdColony’s less strategic performance business, which is less than 20% of total revenues declined year-on-year…”
13. “…Fyber’s full quarterly results were impressive, showcasing nearly 200% year-over-year growth…”
14. “…no single customer or partner that is more than 10% of our pro forma…”
15. “…past over 700 million devices that our software has been installed…”
16. “…On the product front, our revenues from Dynamic Installs grew by almost 50% yearover-year in the June quarter, but now represent less than 30% of our total pro forma revenues compared to over 60% last year…”
17. “…repositioned to monetizing over the life of the device versus just monetizing at first activation. Our revenues that occur over the life of the device now represent over 70% of our total revenues compared to just 38% last year…”
18. “…expect revenue for Q2 to grow to between 300 million and 360 million…”
19. “…TV market space… already have some results, in terms of some revenue from one of our carrier partners that has paid us for some licensing on televisions…”
20. “…given that $300 billion plus mobile media market, we're less than 1% of that…”
I personally believe this dip after such good results is ridiculous. In addition to the positive above, I foresee APPS will be able to have more partners and will gain more through cross-selling as well.
However, APPS is my largest position – Adding will may it even larger. I will probably try to ensure it falls within 20% of my US portfolio. Currently it is around 15%.
I will also sell call and put options to further reduce my average price for APPS, and use it as another way to reduce my position.
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