Greenhaven Road Capital, an investment management firm, published its first-quarter 2022 investor letter – a copy of which can be downloaded here. The Fund returned approximately -26.5% net in the first quarter. Individual returns will vary by class and date of investment. Against a backdrop of rising rates, investors continued to shun “growth” companies during the first quarter. Try to spend some time taking a look at the fund’s top 5 holdings to be informed about their best picks for 2022.
In its Q1 2022 investor letter, Greenhaven Road Capital mentioned Digital Turbine, Inc. (NASDAQ:APPS) and explained its insights for the company. Founded in 1998, Digital Turbine, Inc. (NASDAQ:APPS) is an Austin, Texas-based software company with a $3.2 billion market capitalization. Digital Turbine, Inc. (NASDAQ:APPS) delivered a -44.24% return since the beginning of the year, while its 12-month returns are down by -54.74%. The stock closed at $34.01 per share on April 25, 2022.
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 ration below 1.”
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Our calculations show that Digital Turbine, Inc. (NASDAQ:APPS) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Digital Turbine, Inc. (NASDAQ:APPS) was in 31 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 19 funds in the previous quarter. Digital Turbine, Inc. (NASDAQ:APPS) delivered a -14.07% return in the past 3 months.
In March 2022, we also shared another hedge fund’s views on Digital Turbine, Inc. (NASDAQ:APPS) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.
Disclosure: None. This article is originally published at Insider Monkey.
