Digital Turbine: Do Not Buy This Stock

seekingalpha04-11

Digital Turbine, Inc. works with mobile carriers and device manufacturers to pre-install apps on smartphones.However, Digital Turbine faces headwinds, including declining device volumes, particularly ...

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(NASDAQ:APPS) is a dead company walking. What does this mean? In simple terms, this means that investors should not invest their hard-earned capital into this stock. This is not a business that has hit a temporary headwind. Digital Turbine's aim of making it simpler for users to find and install the apps they want, while also helping developers get their apps noticed, has more likely than not been permanently impaired. Even though the stock may have the occasional pop from quarter to quarter, in the medium and long-term, this business is uninvestable. In time, investors will look back to Digital Turbine's $2.20 as a high price to aspire towards. Avoid this stock. Rapid Recall Back in December, I said:  [...] While I fully recognize the blemishes in its prospects, I don't believe it makes sense to remain bearish on this stock. Even though I don't find its stock cheap, I know from experience that when everyone gets too bearish on a stock, that insight has already been priced in.    Author's work on APPS In hindsight, my analysis was prescient. I knew that everyone was too bearish on the stock and therefore the stock was bound to re-rate higher in the short term. But that in the long term, Digital Turbine isn't worthy of investors capital. Digital Turbine's Near-Term Prospects Discussed Digital Turbine, Inc. helps mobile device users discover apps more easily. They work with mobile carriers and device manufacturers to pre-install apps on smartphones. Digital Turbine also provides a platform for app developers to promote their apps and reach a wider audience. Digital Turbine's focus on modernizing its technology stack aims to enhance its efficiency. By financing its initiatives to consolidate its exchange platforms and implementing new backend tools, Digital Turbine is laying the groundwork for a turnaround effort. These steps are hoped to yield long-term benefits by positioning the company once more as a successful alternative app distribution platform. However, Digital Turbine faces headwinds, too. These persistent headwinds in the form of declining device volumes, particularly in the U.S. market, pose a substantial challenge to its growth rates. Despite efforts to mitigate these challenges through partnerships and expanding into new markets like Korea, the uncertainty surrounding device demand in the U.S. remains a concern. Additionally, the ongoing integration of its technology platforms and organizational restructuring may lead to short-term disruptions and operational inefficiencies. Given this background, let's now delve into its financials. Revenue Growth Rates Fade Away APPS revenue growth rates The graphic above speaks for itself. This is not a business that has hit a temporary hiccup or slowdown it revenue. This is a tech business that is now headed towards stock history books. For a while, Digital Turbine had a better mousetrap. And was massively successful. For a while. But now looking ahead, I believe its task will be one of focusing and reshaping and stabilizing its operations, rather than finding another growth driver. Given its unappetizing growth rates, let's ponder over its valuation. APPS Stock Valuation -- 3x EBITDA, With A \"But\"... See if you see a pattern:  Q4 2023: $23 million Q1 2024: $27 million Q2 2024: $28 million Q3 2024: $25 million Q4 2024: $15 million (guidance).  Not only are Digital Turbine's EBITDA amounts not growing, but they actually are starting to compress. What's more, as a point of reference, this is not the sort of company that is highly conservative with its guidance. Case in point, for fiscal Q3 2024 Digital Turbine was previously guiding for $29 million at the midpoint. But when its results came out, its EBITDA turned out to be, in fact, $25 million. Consequently, when management guides for $15 million of adjusted EBITDA, I now believe this is as good as it is going to get. Furthermore, if we extrapolate this out to the next fiscal year, which started in April 2024, I believe the business will probably be on a path towards $70 million of adjusted EBITDA, as forward run-rate. This is down from the $95 million expected for fiscal 2024. Meaning that not only are its revenues moving in the wrong direction, but also, that all its efforts to cut out costs have been maximized. The Bottom Line In my analysis, it becomes evident that Digital Turbine, Inc.'s outlook is rather bleak. The company appears to be grappling with formidable challenges that have significantly hindered its ability to achieve its core objective of simplifying app discovery and aiding developers. Despite occasional short-term upticks, it appears that Digital Turbine is ultimately an unattractive investment proposition due to its dwindling revenue growth rates and shrinking EBITDA figures. Despite the company's efforts to modernize its technology stack and stabilize operations, it may struggle to reverse its downward trajectory.  Consequently, I would advise investors to exercise caution and refrain from investing in Digital Turbine's stock, as it may not yield a favorable return on investment in the medium to long term.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2426494384"}