What happened
Shares of digital advertising company Digital Turbine (APPS -3.86%) skyrocketed on Thursday after the company reported financial results for the second quarter of its fiscal 2023 that were better than expected. To be clear, its stock was up sharply in pre-market activity. Then the market jumped today and gave it extra rocket fuel. As of 11:45 a.m. ET, Digital Turbine stock was up a whopping 61%.
So what
In Q2, the company's revenue fell 7% year over year to $175 million, and management is guiding for an even larger 12% to 17% year-over-year drop in revenue next quarter. That hardly sounds like financial results that merit a 61% jump in a single day. But there's more to the story than this.
The reality is there's been a softening in the digital ad space. However, Digital Turbine is enjoying unprecedented adoption. The company works with apps to get them seen, downloaded, and monetized. And its software comes preinstalled on mobile devices.
In Q2, Digital Turbine's software was added to 75 million new devices. All of this growth came from international markets where ad rates are lower. But importantly, the company renewed its deal with Verizon, its partnership with Alphabet's Google deepened as the company will now sell the licensing of Digital Turbine's SingleTap product, and Digital Turbine believes it will land two more "high-profile partners" in the coming quarter. All of these moves bode well for the company's stability and future monetization opportunities.
Moreover, investors are celebrating today because -- while revenue is down -- Digital Turbine's profits are up. In Q2, the company's gross margin was at a record-high 52% and its net income of $11.7 million almost doubled from last year. It's a trend management expects to continue next quarter as well.
Now what
For some more perspective to today's gains for Digital Turbine, consider that even after today's 60% gain, the stock now trades where it traded about six weeks ago. During this time, the company didn't report news that would account for this massive six-week drop. Rather, market sentiment had soured on small ad-tech players like Digital Turbine.
Therefore, today's jump for Digital Turbine stock isn't just a showing of appreciation for better-than-expected financial results. It's also a reversal of a recent downtrend that wasn't based on business fundamentals. This context is helpful in managing expectations going forward.
