Digital Turbine Inc. (NASDAQ:APPS) operates a mobile ad and app discovery platform that’s installed on smartphones by manufacturers and wireless carriers. It’s become a lucrative business, and APPS stock has reflected that.
After recovering from the 2020 market crash, APPS shares exploded for a run that lasted until early March. In that time, it gained more than 2,500%. However, this year has been turbulent and shares are down 11% year-to-date (YTD).
The latest slide began two weeks ago. Is it time to walk away from this former high-flying stock, or is there a case to be made for buying some shares?
APPS stock currently earns a “B” rating in Portfolio Grader. A company in this line of business has some inherent risks, such as unpredictable demand for smartphones and potential for delayed rollout by carriers and OEM partners. Additionally, Digital Turbine carries significant long term debt.
However, it’s hard to argue with the kind of performance that Digital Turbine had been delivering. Until it started its stumble, APPS was as poster child for growth stocks.
Digital Turbine’s First-Quarter Earnings
On Aug. 9, Digital Turbine reported its first quarter earnings for the company’s fiscal 2022. Earnings of $212.6 million were a huge improvement over the previous year’s $59 million. The company saw earnings per share (EPS) of 34 cents. Again, this was a far better showing than a year ago, when EPS was 13 cents.
Those numbers topped analyst estimates for both earnings and revenue. You’d think that would be good news for APPS stock, but that wasn’t the case. Instead, shares fell.
Given the performance that Digital Turbine delivered in its first-quarter earnings, why did the market react so negatively? The company delivered a solid earnings and revenue beat.
In fact, it’s beat earnings estimates for four straight quarters and topped revenue estimates in three of the last four quarters. However, the market reacted by sending APPS stock down nearly 7% the next day. In the week since those Q1 earnings, shares have dropped in value by almost 22%.
Clearly, there is something else going on here.
Why Is APPS Stock Down?
The culprit appears to be Alphabet’s (NASDAQ:GOOGL, NASDAQ: GOOG) Google.
At the end of June, Google announced that all new Android apps in the Google Play Store must be published with the Android App Bundle starting in August.
The initial news helped to kick off a big APPS stock decline in the first week of July. Now that August is here and the new process is in place, the Google edict appears to be making the market nervous again.
Google’s change means customized app installs are based on the device instead of a one-size-fits-all approach. That has the potential to impact companies in the mobile advertising business. However, Digital Turbine had been preparing for this for several years.
The company has stated the change will have no impact on its business. In fact, it presented the Android App Bundle as a positive move, not a problem, in a post on its blog:
“A welcome change for both developers and Digital Turbine, reducing administration and support of an increasing set of device types and classifications.”
The Bottom Line on APPS Stock
Digital Turbine is clearly not worried about Google’s move. Neither are most investment analysts. Those polled by CNN Business not only rate APPS as a consensus “buy,” but they also have a median $105 price target. That’s roughly 108% upside.
In other words, for anyone who thinks that Digital Turbine’s business model is solid — and the company’s latest earnings certainly seem to indicate that it is — APPS stock’s slide in value is nothing to worry about. If anything, it offers the opportunity to snap up more shares on the cheap.
On the date of publication, Louis Navellier had a long position in APPS and GOOG. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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