93% GROWTH

It had a run of 765%, taking the stock from $4 to $34.5 in *LESS THAN 6 MONTHS*

Mobile usage is BOOMING and this company is MONETISING THIS

Can this stock keep it up and deliver on its market cap south of$ 2.9B?

What is NEXT?

Continued

Digital Turbine $APPS is a tech company from Austin, TX that started in 2011 and has around 210 employees

Over 40 mobile operators (e.g. Verizon, T-mobile, AT&T) and OEMs (Original Equipment Manufacturers such as Samsung, Xiaomi, HTC) use their services

$APPS describes itself as “simplifying content discovery by delivering it directly to the device”

From a very high level it may at first seem confusing what this company offers

In very simple terms $APPS has built a software that mobile phone manufacturers (Samsung and the likes) and mobile operators can integrate to the devices they sell

This software then acts as an “app-installation / recommendation-engine” directly on the smartphone

How does that generate sales?

DYNAMIC INSTALLS $APPS makes money by licensing this software to OEMs and mobile phone operators (accounting for 86% of sales in 2019)

$APPS licenses its software to OEMs and operators

ENGAGEMENT OPPORTUNITIES 14% of its sales are derived from SingleTap Installs, Smart Folders, Notification, Media Hub

$APPS gets paid by app makers to promote their app directly on the users’ smartphone

DYNAMIC INSTALLS This starts once the new user unpacks its new phone (Out of the Box Experience - OOBE)

The users sets up its account and then get directed to a “Let’s set up you apps” page where the OEM or operator can propose apps to the user

This enables the user to directly and seamlessly install the apps it is interested in on its phone

A win-win for the OEM or operator as they can charge the companies whom they are promoting their apps for

Also, at the time of the set up, some apps get automatically pre-installed (based on user profile and demographics)

This enables to OEM or operator to install apps that its user might want

These pre-installed apps are sponsored by the app maker (Facebook, Uber, Twitter, Pandora, Starbucks, Target…) and the money goes into the OEM or operator’s pocket

DYNAMIC INSTALLS account for 86% of $APPS sales $APPS has now added products to generate sales during the LIFE / USAGE of the device

ENGAGEMENT OPPORTUNITIES such as SingleTap Installs, Smart Folders, Notification, Media Hub

ENGAGEMENT OPPORTUNITIES are paid for by app makers and promoted by $APPS through the software it installed on smartphones

The money paid by app makers goes into $APPS’ pocket

SingleTap Installs works as a small ad that is placed in the middle of a browser This ad promotes the download of a apps

When the users clicks on the ad it DIRECTLY downloads the app No need to jump over the an app store

According to $APPS, this increases conversion rates up to 10 times and it is already available on over 270m devices

Next to SingleTap Installs, $APPS also offers

Notifications, Media Hub and Smart Folder

Through its Notifications, Media Hub and Smart Folder products, $APPS proposes the download of additional apps to the users

Users can place their gaming apps into a “Games Folder” $APPS then proposes matching games to the user in instant download

Third parties can send notifications to the users on special occasions (promotions, important events….) enabling these to instant download the app

Now what This company is all about installing apps on smartphones How is that market evolving on a global level ?

$APPS caters to Android devices as they can add their own builds on top of the OS

$AAPL isn’t really permissive to that extent and plans to make the life of advertisers even harder on its platform

First things first, let’s look at the ANDROID / iOS share of devices

In the U.S. around 53% of smartphones are running iOS and 47% Android

In the E.U. around 26% of smartphones are running iOS and 73% Android

In Asia around 17% of smartphones are running iOS and 83% Android

In LATAM around 11% of smartphones are running iOS and 89% Android

In Africa around 11% of smartphones are running iOS and 87% Android

These market shares have been STABLE over the last year

$APPS sales are BOOMING in its most important geographies

U.S. and Canada sales reached $ 38m up 79% YoY

EU and Africa sales reached $ 15m up 118% YoY

Asia sales reached $ 5.2m up 173% YoY

LATAM sales reached $0.2m - Flat

These are great numbers But what is the smartphone and apps market telling us?

Smartphone sales are plateauing at around 1.5B units sold a year

Users kept their smartphone on average 20 to 24 months in 2014 but this number has risen to 33 months in 2019

Sales of smartphone hardware are stagnating what about smartphone usage?

55% of internet consumption is now done through a mobile device Up from 27% in 2016

Consumers spent 3 hours and 40 minutes a day on mobile devices in 2019 - up 35% since 2017

Spend across all app stores on games in set to reach $ 100B in 2020

Mobile ad spend is set to reach $ 240B in 2020 - up 26M from 2019

App downloads reached 204B in 2019 - up 45% from 2016

It should be clear now, consumers are not buying as many smartphones

But smartphone usage, app downloads and mobile ad spent are BOOMING

$APPS still has a large runaway for growth It’s software is currently installed on only 13% of Android devices

With its ENGAGEMENT OPPORTUNITIES $APPS is playing right into the increased smartphone usage and monetising this

Here are some key figures

It has delivered over 3.9B app pre-loads since launch

Their Application Media software was installed on 43m devices during Q1 ’20 for a total of 450m devices to date

Growth is fuelled by news deals with Samsung (13 out 43m new devices), LG, Xiaomi and major telcos

How does that translate in sales?

YoY growth has reached 93% (historical avg. at +35%) with revenues of $59m (vs $39m in prev. Q)

Gross margin of 44% (lower than most #SaaS stocks such as $AYX $FSLY)

Op margin 18% with an EBT of $10.32m (better than most #SaaS Stocks)

What about their balance sheet?

Company has $65m current assets (27% of that is cash) vs $ 79 m in current liabilities

Out $191m in assets, $ 69m are made of goodwill and $ 43m of intangible assets (representing “developed technology” and “customer relationships”)

Net debt stand at ($ 0.7m) and the company is CF positive at around $ 6m

Looking forward The Good Side

Huge runaway for international expansion Most non-iPhone users are outside the US and revenue base outside US is still SMALL

Telcos and OEMs need these additional revenue streams $APPS is the only company that can offer this service on a global scale and in a robust manner

Expanding its revenue streams over the smartphone market $APPS has hinted entering the TV market where OEM would load the software directly into their products

Apps are not going away anytime soon and ASO (App Store Optimisation) becoming the new SEO Even better than ASO, just have your app pre-installed or recommended!

Here are the risks one should not forget

In the same spirit as $AAPL, $GOOG starts restricting the access to its software

OEM and operators start building up this software on their own and negotiate terms with sponsors on their own

$DDOG is on our watchlist To Be Reviewed SOON

Please note that this is not a recommendation to buy - You are responsible for conducting your own research

Here is a review for $APPS - would love to hear your take on the matter

@kghufran
@MorettiPd
@eshrum40
@takorinn371

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Disclaimer - This is not investment advice in any form and investors are responsible for conducting their own research before investing.

Sources

✑ Investor presentation

✑ Company website

✑ IMF

✑ StatCounter

✑ KoreaTimes

✑ AppAnnie

✑ eMarketer

✑ MindSea