We recently compiled a list of the 10 Best Technology Penny Stocks to Invest in Now. In this article, we are going to take a look at where Digital Turbine, Inc. (NASDAQ:APPS) stands against the other technology penny stocks.
According to the U.S. Securities and Exchange Commission (SEC), a penny stock trades for less than $5 per share. Penny stocks are often associated with growing companies with smaller market caps, limited cash flow, and restricted resources. However, it allows the investors to reap benefits from the long-term growth of the company, though these stocks are cheap to invest in they carry a greater risk of loss to the investors.
A higher level of volatility and lower liquidity sets them apart from regular stocks. In other words, higher volatility suggests that investors should expect a drastic change in prices in a given period, resulting in a potential gain or loss. Penny stocks may confuse an investor due to speculations and an inherent uncertainty in gauging its price fluctuation and therefore, these securities are suitable for investors that have a high tolerance for risk.
In addition, a low level of liquidity indicates that these stocks are difficult to sell because there may not be enough potential buyers available. However, not all penny stocks are the same, a diligent investor needs to find stocks that may be undervalued by the market but have the upside potential of growth in the future.
Similarly, there are plenty of good quality penny stocks in the technology sector that are suitable picks for investors looking to invest for long-term growth returns. Before discussing the list, let’s first explore the growth of the technology industry over the past years:
The year 2021 was a memorable one for the tech industry as COVID-19 accelerated digital transformation across enterprises and the demand for remote-work-related hardware and software increased considerably. Moreover, the shortage of semiconductors made headlines as chip manufacturers could not keep up with the surge in demand. The global IT spending grew nearly 10% compared to the previous year.
The technology sector faced challenges in the past two years due to high interest rates, elevated inflation, and considerable macroeconomic and global uncertainties like supply-chain disruptions amid Russia’s invasion of Ukraine. These events contributed to softening of the consumer spending, lowering demand, and reduction in the workforce in 2022. The headwinds continued in 2023 with the downsizing of the labor force and a slight weakening of consumer spending.
Looking forward, economists have assessed a lower risk of recession and tech analysts are optimistic that the tech industry can make a comeback with modest growths in 2024.
Role of Gen-AI in the uplift of the Technology Industry:
Generative AI is a form of machine learning that uses patterns in training data to generate new text, video, images, code, or music that can potentially be indistinguishable from what humans can create. Improvement in transformer-based neural networks in language models has enabled an AI boom in the industry, one such example is Chatgpt.
Companies are integrating AI into their day-to-day operations, and executives across the globe are recognizing the importance of AI in organizing data. According to a forecast by Bloomberg Intelligence, the generative AI market is projected to grow at a CAGR of 42% by 2032 and reach a market size of $1.3 trillion in 2032 from $40 billion in 2022.
Historically, the demand for semiconductors has been largely driven by mobile computing and its use for manufacturing processor chips. However, at present, we witness a novel source in the form of Gen-AI that is accelerating the demand for semiconductors. According to research, the demand for powerful semiconductors could boost the sales of the semiconductor chip industry to $1 trillion by 2030 from $500 billion today.
In addition, the software development service industry is a formidable market with high growth potential for small companies. According to a report by Cognitive Market Research, the global software development service market size was $409.2 billion in 2022 and is projected to grow at a compound annual growth rate of 10.5% from year 2024 to 2031.
Our Methodology:
To compile this list of the 10 best technology penny stocks to invest in, we analyzed Insider Monkey’s database of hedge fund sentiment of 920 elite hedge funds and their holdings tracked at the end of the first quarter of 2024. To draft this list we filtered tech stocks trading under $5 with a price-target upside of over 30%, and 50 – 70% of shares owned by institutions. We ranked those stocks based on the number of hedge fund holders and then arranged the list based on the ascending order of hedge fund sentiment towards each stock.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A row of mobile phones, highlighting the company’s mobile growth platform.
Digital Turbine, Inc. (NASDAQ:APPS)
Number of Hedge Fund Holders: 20
Digital Turbine, Inc. (NASDAQ:APPS) is a fast-growing small-cap company that developed an independent mobile growth platform software that provides services to advertisers, carriers, publishers, and OEMs. On Device Solutions and Application Growth Platform are the two core operating segments of the firm.
Fourth quarter 2024 earnings reported revenue of $112.2 million and fiscal year 2024 total revenue of $544.5 million was down 18.24% year-over-year. However, the company reported a Non-GAAP EPS of $0.12 beating the expected EPS by $0.04.
There was a 9.8% YoY decline in On-Device Solutions revenue due to the reduction in mobile device sales and the loss of T-Mobile, a major business partner.
Moreover, the App-Growth platform revenue also reduced by 30% YoY due to weaker demand, a loss of low-margin customers, and the integration of legacy platforms.
Over the past years, the company’s revenue has declined and the share price has dropped over 78% in a year. The stakeholders have struggled over the years as the company has gone from a growth stock to a value stock selling at a discount in a decade. One might think what went wrong? There are two main causes responsible for this downfall, one is the loss of T-Mobile, an impactful customer of the company’s product delivering content on phones other than apps. Secondly, the problem with the Single-Tap technology’s adoption by the major players in the market.
Single-tap technology is a user-friendly solution to install apps on the phone with a single tap bypassing the troubles of the app store environment, the technology could help decrease the cost per app by dramatically increasing the conversions.
Digital Turbine, Inc. (NASDAQ:APPS) started monetizing the Single-tap technology on its networks, keeping in view the growth potential. It was a low-margin business but generated revenue quickly and got rewarded in the market. In 2021, the company announced at its Investor Day, that they were very close to having major partners integrate Single-tap into their platforms. The firm believed that integration and licensing of the technology with the likes of Twitter, SNAP, and Facebook could open new growth possibilities in the future. However, unfortunately, none of the major digital players adopted the technology and the subsequent scaling back of the hyped Single-tap platform led to the revenue and share price decline in the coming years.
Although Digital Turbine, Inc. (NASDAQ:APPS) struggled with generating revenues, the company is gradually recovering amid the macroeconomic challenges. The management has recently secured additional global device supply and introduced innovative complementary features to the devices that will act as a catalyst to derive growth and will help offset recent headwinds.
The newly re-engineered ad-tech platform has gained momentum with wins in the media and advertisers side and is all set to gain a substantial share in the market. For, instance GroupM, the leading global media-buying agency has included Digital Turbine, Inc. (NASDAQ:APPS) as the only global preferred partner for mobile.
In the recent earnings call of Q4 2024, the management announced a collaboration with Motorola extending its benefits to both existing and future Motorola devices and enhancing the mobile experience globally by using Adaptive Solutions and innovative SingleTap technology.
Motorolla has grown significantly and over the past three years has shipped between 40 to 50 million devices which is close to all the post-paid mobile devices shipped by other U.S. operators. Motorolla is among the few OEMs showing positive growth which is a promising opportunity for Digital Turbine, Inc. (NASDAQ:APPS) to expand its products globally.
In addition, Digital Turbine, Inc. (NASDAQ:APPS) invested $10 million into ONE- Store, a Korean alternative app store providing mobile content like games, multimedia, etc. This investment will bring the SingleTap technology to over 40 million ONE-Store users across South Korea.
On-device sales business is a valuable enterprise as OEMs are always keen to monetize their hardware and advertisers are always looking for more efficient solutions to reach maximum users.
According to Insider Monkey’s database, 20 hedge funds held stakes in the Digital Turbine, Inc. (NASDAQ:APPS). D E Shaw had the largest stake with shares valued at $10.6 million.
Overall APPS ranks 6th on our list of the best technology penny stocks to buy. While we acknowledge the potential of APPS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than APPS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.