Digital Turbine gets rating drop from Roth Capital

Roth Capital Markets analyst Darren Aftahi has turned the page on US tech stock Digital Turbine (Digital Turbine Stock Quote, Charts, News, Analysts, Financials NASDAQ:APPS), as growth concerns and profit erosion have become significant. In a Thursday company note, Aftahi moved his rating on APPS from “Buy” to “Neutral,” saying the company’s latest quarterly results were mixed.

Austin, Texas-headquartered Digital Turbine, which has an end-to-end platform for mobile consumer awareness, acquisition and monetization, announced its fiscal 2023 fourth quarter results on Thursday for the period ended March 31, 2023. The company posted a 24 per cent year-over-year decline in revenue to $140.1 million and adjusted EBITDA of $23.1 million compared to $50.4 million a year earlier. (All figures in US dollars.)

Management said macroeconomic headwinds impacting the digital advertising sector continue to be a factor, although they said there is starting to be some stabilization on that front. For the upcoming Q1 fiscal 2024, guidance was for revenue of $140-$145 million and adjusted EBITDA of $23-$25 million.

“We have made significant progress with respect to several of our key growth initiatives at Digital Turbine. We believe that we have the innovative new solutions, such as the DT Hub and SingleTap, for which there is growing demand in the marketplace, and that we are uniquely positioned to deliver these value-added solutions for our partners and advertisers on a large and global scale,” said CEO Bill Stone in a press release.

Aftahi called the Q4 results mixed, with a slight beat on revenue ($140.1 million compared to Roth’s forecast at $139.3 million) and a miss on EBITDA ($23.1 million compared to Roth at $27.4 million). The analyst noted that non-GAAP gross margins fell about 1,000 basis points faster than revenue, which limited free cash flow generation, historically a stalwart of the APPS story, according to the analyst.

“With device sales under pressure, the loss of high-margin revenue with resellers, and AGP mix declines, our concerns are raised as to when APPS can return to growth with incremental margin flow through. As such, we are downgrading the shares to Neutral with a revised $10 price target,” Aftahi said.

Digital Turbine’s share price fell sharply in trading on Thursday. At press time, Aftahi’s $10 target represented a projected one-year return of negative 31 per cent. For the full fiscal 2024, Aftahi has forecasted $609.1 million in revenue and $128.2 million in EBITDA.