Digital Turbine's Q4 Earnings: Shaky Business Model or Temporary Setback?

  • Digital Turbine, Inc APPS stock is trading lower Thursday after reporting a mixed fourth-quarter result.
  • The company reported a revenue decline of 24% year-on-year to $140.1, beating the consensus of $138.7 million.
  • Adjusted EPS of $0.14 missed the consensus of $0.18.
  • Oppenheimer analyst Timothy Horan reiterated a Perform rating on the stock.
  • The analyst expected Digital Turbine to trade down after 4Q23 revenue was 1% below muted expectations, down 23.9% Y/Y. At the same time, gross margin surprisingly fell 530bps Y/Y due to "macro" and "change in strategic demand contract from app publisher." 
  • The company spoke optimistically about "stabilization and renewed confidence among advertisers...and significant progress with respect to several...key growth drivers." 
  • Still, the talk was inconsistent with lackluster 1Q24 guidance, which fell short of consensus by 4% on revenue and 26% on EBITDA. 
  • Horan cut FY24E revenue by 6% and EBITDA by 15%. The business model is still a work in process, with low visibility.
  • Relative to competitors Meta Platforms, Inc METAApplovin Corp APPThe Trade Desk, Inc TTDUnity Software Inc U APPS is lagging due to its disproportionate exposure to slower handset upgrades and adoption of Single Tap. Long term, APPS has a differentiated platform, on-device, positively levered to TikTok and Temu.
  • APPS only guides for the next quarter but possibly introduced risk to investor expectations for the fiscal as it qualitatively spoke about macro improvement in the second half. 
  • The analyst believes a major handset upgrade cycle could be postponed for another year.
  • Roth MKM analyst Darren Aftahi downgrades Digital Turbine from Buy to Neutral and lowers the price target from $15 to $10.
  • Craig-Hallum analyst Anthony Stoss maintains Digital Turbine with a Buy and lowers the price target from $25 to $20.
  • B of A Securities analyst Omar Dessouky maintains Digital Turbine with a Buy and lowers the price target from $16 to $13.
  • Price Action: APPS shares traded lower by 42.3% at $8.32 on the last check Thursday.
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