What happened

After a stellar October, shares of advertising technology company Digital Turbine (APPS -2.25%) stalled out Wednesday morning, falling 14% through 10:30 a.m. EDT, even though the company soundly beat expectations with the quarterly report it delivered Tuesday evening.

Heading into its fiscal 2022 second-quarter report, analysts had forecast that the company would book $306.5 million in sales and earn a pro forma profit of $0.39 per share. In fact, Digital Turbine booked sales of $310.2 million and earned $0.44 per share for the period, which ended Sept. 30.  

Red down arrow on a black backdrop of tickertape prices

Image source: Getty Images.

So what

CEO Bill Stone pronounced himself "pleased that we delivered record financial results in the second quarter" and said he sees "a dramatically expanded market opportunity set in future quarters and years."

Which is not to say that Digital Turbine's growth hasn't already been pretty dramatic. Sales in fiscal Q2 were up 338% over year-ago levels, helped by the addition of revenue streams from AdColony Holdings and Fyber, which it acquired on April 29 and May 25, respectively. Pro forma profits growth was better than expected. However, when calculated according to generally accepted accounting principles (GAAP), Digital Turbine swung from a breakeven result a year ago to a $0.06 per share loss this time around.

Free cash flow is a perhaps-more-reliable gauge of how this company is performing. On that metric, it grew its cash production 44% year over year to $30.7 million for the quarter.

Now what

Looking ahead, Digital Turbine guided investors to expect another earnings beat in fiscal Q3, forecasting sales between $350 million and $355 million (the consensus forecast among analysts is only for $341 million or so), and pro forma profits between $0.41 and $0.44 per share (Wall Street is thinking the result will land at $0.43 per share ).  

Unfortunately for Digital Turbine, investors don't seem inclined to reward the company for either the promise of an earnings beat in fiscal Q3 or for the actual beat delivered in fiscal Q2. Perhaps if management had given some more solid promises of GAAP profits, or free cash flow guidance for its upcoming third quarter, things would have worked out better for Digital Turbine shares Wednesday morning.