What happened

Shares of Digital Turbine (APPS -3.86%) jumped 25.1% in November, according to data provided by S&P Global Market Intelligence. The stock was actually up even more than this on a single day in November, following the release of its latest quarterly financial results. It seems the company met low expectations with impressive results that drove the stock's performance.

So what

Let's use commentary from Craig-Hallum analyst Anthony Stoss to frame this conversation. Digital Turbine released financial results for the second quarter of its fiscal 2023 on Nov. 9. And following this report, Stoss gave Digital Turbine stock a price target of $30 per share, citing the company's strengthening profit margins in a weakening macro-economic environment, according to The Fly.

Regarding the weakening macro-economic environment, Digital Turbine is undoubtedly feeling it. Q2 revenue of $175 million was down 7% from the same quarter last year. And for the third quarter, management is guiding for $190 million in revenue at best, which would also be down year over year.

Digital Turbine is in the advertising technology space. And advertisers are spending less because of inflation and the possibility of a recession. Therefore, the company's revenue is trending downward. However, many believed its profit margin would also suffer, which is partly why the stock was down 76% year to date going into November.

That hasn't been the case. In Q2, Digital Turbine's profits improved in several key metrics. Like many adtech players, the company adjusts for traffic acquisition costs, which means many numbers aren't according to generally accepted accounting principles (GAAP). But non-GAAP gross margin jumped from 48% last year to 52% now. 

Moreover, for those who still prefer GAAP metrics, Digital Turbine earned $11.7 in net income during Q2, up from a loss of $5.9 million in the same quarter last year. This validates what Stoss and other investors realized during November: Digital Turbine looks well positioned to endure the current slowdown in advertising because it's profitable.

Now what

Digital Turbine's market capitalization is just $1.5 billion. However, this small-cap stock strengthened some impressive partnerships with major players like Verizon Communications and Alphabet's Google during Q2. And management says it expects to finalize two other important partnerships during the third quarter.

On the partnership front, Digital Turbine looks like it's on solid ground. The company's software comes preloaded on mobile devices around the world. And in Q2, it was added to 75 million devices. Therefore, this part of the business also remains resilient.

Given its strengths and expanding margins, Digital Turbine may be a stock to buy, especially considering it's trading at only two times sales. The price is certainly reasonable. And the company is positioned for greater growth once advertising spending starts to recover.