Types of Acquisitions

I have recently saw some comments that Digital Turbine (aka APPS) grows its revenue through acquisitions. In my opinion, this comment is a bit short sighted. 

In every acquisition, I believe, as investors, we must be able to find out what do the new company brings to the table. 

There are many reasons a company makes an acquisition. It could be for the technology capabilities, for the patents, for the know-how, for the talents, for the customers or entering into another industry. But eventually, it is the expectations that it will lead to a higher revenue in the future.

In my opinion, there are 2 basic type of acquisitions: 

(1) An acquisition that expands a company's TAM within the same market. 

This type of acquisition tends to expand the company's future revenue through the newly acquired customers within the same market. 

Note that the green portion is expected to be the future revenue.

(2) An acquisition that brings a new market to the company
This type of acquisition tends to expand the company's future revenue with a new revenue stream in a new market.

My Opinion:

I definitely preferred the 2nd type of acquisition because it brings a new TAM to the business - an additional revenue stream!

Nevertheless, with regards to Digital Turbine (APPS) acquisitions so far, Appreciate and Adcolony should be deem as Type 1 acquisitions.

As for Mobile Posses and Fyber, they are Type 2 acquisitions. 

Furthermore, if you have read my detail write up of Digital Turbine (APPS) on Medium - Part 1, Part 2 and Part 3 - you will have understood that I definitely believe their revenue growth is sustainable when there are numerous catalysts in 2022 and onwards.

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Stay tune for my next post!