Deep In the Heart of Texas: Digital Turbine (APPS)
Fundasy subscribers know the Picky Picker loves writing about small caps. It’s usually because anyone can write about Apple’s moat, Amazon’s growth potential as a platform, or the fact Jordan is obviously far superior to Lebron.
Fundasy likes to post about the unusual and mostly overlooked opportunities! So with that intro, here is a small cap, profitable, tech company out of the weird town of Austin, Texas: Digital Turbine (APPS).
What is Digital Turbine?
Firstly, they preemptively install applications (apps) on Android devices through their Ignite software. By looking at phone users data, Digital Turbine pairs apps with consumers to maximize ROI of the advertisers. Currently, Digital Turbine is working with around 70% of the top 100 apps on the Google App Store.
Secondly, their Ignite software can dynamically give advertising notifications to phone users. This is another stream of advertising revenue that doesn’t have to deal with the one time selling of a phone to a consumer. Those preemptive installs only work for each device once. This dynamic notification system provides reoccurring revenue.
Thirdly, Digital Turbine bought Mobile Posse, a media content business that provides sports, news, and regular media content. This will allow the Digital Turbine platform to differentiate their product offerings and increase their percent of reoccurring revenue.
The Method to the Madness
Digital Turbine partners with OEMs (Original Equipment Manufacturers) and Operators (Cell Phone Carriers) to install their software. They’ve partnered with some big names…Verizon, AT&T, Cricket, T-Mobile, Samsung, Xiaomi (India), and America Movil (Latin America).
A significant number of these partnerships are in their infancy phases: Samsung, T-Mobile, Xiaomi, and America Movil. Meaning they will start with a smaller amount of devices then grow as they see results. This is the same method that was used with Verizon and AT&T. Now, Digital Turbine’s software is installed on approximately 60% of Android devices sold in the US and 15% internationally, around 400 million smartphones. With these new partnerships, you will definitely see those numbers grow though.
The risk is with this model is that any of these operators can drop the company or attempt to create their own platform to replicate the success. This in my mind is the biggest risk. I think if Digital Turbine can quickly roll out and diversify their products offerings though, like the Mobile Posse, they can quickly become a difficult to replace incumbent.
It takes a PhD to stomach that thesis…so please, join me on the next page and let me instead show you the money @JerryMaguire.