4. Digital Turbine, Inc. (NASDAQ:APPS)
Number of Hedge Fund Holders: 27
Digital Turbine, Inc. (NASDAQ:APPS) is a Texas-based company that operates a mobile growth platform for advertisers, publishers, and device original equipment manufacturers (OEMs). The company operates through three segments – On Device Media, In App Media AdColony, and In App Media Fyber. Digital Turbine, Inc. (NASDAQ:APPS) is one of the best advertising names to monitor.
On October 5, Digital Turbine, Inc. (NASDAQ:APPS) announced a strategic investment in Aptoide, one of the biggest independent Android app stores, with more than 250 million users. This investment will promote improved app discovery experiences for Digital Turbine, Inc. (NASDAQ:APPS)’s OEM Partners globally.
Roth Capital analyst Darren Aftahi on October 31 maintained a Buy rating on Digital Turbine, Inc. (NASDAQ:APPS) but lowered the firm’s price target on the shares to $20 from $32, citing headwinds that could limit visibility and broader multiple compression. However, the analyst believes that Digital Turbine, Inc. (NASDAQ:APPS)’s free cash flow yield is “very enticing.”
According to Insider Monkey’s Q2 data, 27 hedge funds were long Digital Turbine, Inc. (NASDAQ:APPS), compared to 32 funds in the last quarter. Scott Stewart Miller’s Greenhaven Road Investment Management is the largest position holder in the company, with 1.40 million shares worth $24.5 million.
Here is what Greenhaven Road Capital has to say about Digital Turbine, Inc. (NASDAQ:APPS) in its Q1 2022 investor letter:
“Digital Turbine (NASDAQ:APPS) – Digital Turbine has effectively zero exposure to oil or Ukraine, is well equipped to deal with inflation as all of its inputs and outputs are digital, and should have zero issues with rising rates. Shares got hammered with the decline in “growth stocks” as well as a concern that Google would change its policies on Android device IDs that are used for advertising targeting and attribution (a change that wasn’t put in place but was discussed in a blog post). Given that Digital Turbine has software on devices and is not reliant on the Android device IDs for attribution, it is more likely they would be a beneficiary of this change than a victim. Add in the fact that the European Union is progressing towards a Digital Markets Act that would compel Apple to allow for competing app stores, the regulatory landscape is favorable to Digital Turbine. The decline is exceedingly frustrating.
Our investment in Digital Turbine is predicated on three beliefs. The first is that companies will continue to want direct relationships with their customers via apps. The second is that companies will go to where the eyeballs are, which means mobile phones for the foreseeable future. The third belief is that Digital Turbine can carve out a durable and profitable niche between end users and app developers/carriers/handset manufacturers. All of these beliefs remain in place; nothing has changed. Digital Turbine’s software is installed on over 1.5 billion devices and growing, and they work with more carriers and companies every quarter.
In terms of valuation, management has guided to tripling revenues and 10Xing profits over the next three to five years. Yes, that is a long time and a lot can go wrong, but we are not paying for that level of upside. If you take the last quarter’s run rate earnings, adjusting for one-time expenses related to acquisitions and the amortization of intangibles, you get an adjusted net income of approximately 43 cents per share or $1.72 per share annualized. This is for a core legacy business that grew 43% with large wins for the MobilePosse business and a SingleTap business with a bright future. Unlike many high growth companies, Digital Turbine is profitable while growing and has a PEG ratio below 1.”
