What happened
Shares of Digital Turbine (APPS 4.84%) crashed as much as 44% this week, according to data from S&P Global Market Intelligence. The mobile application and digital advertising company posted revenue declines for its most recent quarter, which caused investors to get bearish on the stock. As of 1:30 p.m. on Friday, shares of Digital Turbine are down 34.8% this week and 64% over the last 12 months.
So what
Earlier this week, Digital Turbine updated investors on its financial results for the first three months of 2023. Revenue totaled $140 million in the period, a 24% decline year over year. A big slowdown in advertising spend across its platforms has hurt its earnings power, with the company flipping from a positive net income of $20.1 million last year to a net loss of $13.9 million this year. Even though investors were expecting poor results in the quarter, this report was likely much worse than they feared, which is why the stock collapsed this week.
It should also be noted that Digital Turbine is a small-cap company, with a market cap of just over $1 billion before these stock losses, and is not as heavily traded as a larger, well-known company like Apple. Generally, this will make the stock much more volatile compared to a blue chip name, as only a small change in investor sentiment can drive the price way down. If you own shares of Digital Turbine, you should expect heavy volatility (both up and down) to continue in the future, no matter how well the business is doing.
Looking further out, Digital Turbine management said in its press release that it saw stabilized advertising trends in recent months and that the company signed multiple strategic partnerships in March. This could help the company reverse its revenue declines and start growing again. When the turnaround comes -- if it ever arrives -- is the big question any investor needs to ask about the business right now.
Now what
After this stock collapse, Digital Turbine now trades at one of its cheapest price-to-earnings (P/E) ratios in recent years, at 18.5. And this is also at a time when its earnings are depressed due to revenue declines and a weak digital advertising market.
APPS PE Ratio data by YCharts
If you like the Digital Turbine business and think it will benefit once the advertising recovery gets underway, now could be a good time to buy some shares as the stock looks cheap.
