Mobile apps have become a massive business opportunity. There are nearly 900,000 app publishers worldwide, with more than 41,000 in the United States. Some of the biggest names include Roblox, Oppana Games, Innersloth, and Play365. However, many app publishers are small companies with just a few developers on staff.
Of the 2.75 million apps on the market, over 174,000 were created by US companies. Aside from frequently downloaded tools like CashApp, ZOOM, Google Pay, and Messenger, thousands of small games also rake in big bucks for their designers.
Of course, that income isn’t a sure thing. App publishers have to persuade mobile users to download and buy their apps to make money. That’s a challenge when there are so many options to choose from.
The founders of ironSource realized that many mobile app developers were going unnoticed in app stores. They came up with a solution, and along the way, a multi-billion dollar company was born. Does that make ironSource stock a buy?
#3 U.S. Gaming Publisher
Nearly everyone has a great app idea; those are easy to come by. The hard part is building the software, acquiring users, and monetizing the app to make all that work worthwhile. That’s where ironSource comes in. While developers create the product, ironSource turns that product into a viable, scalable business.
After a series of funding rounds, ironSource had the capital to design and acquire critical technology. Now, anyone who builds a game can use ironSource’s comprehensive suite of tools and resources (collectively known as Sonic) to engage prospective users through various channels. They can also leverage monetization features and analyze key performance indicators (KPIs) to increase the odds of success in a crowded marketplace.
When users choose ironSource, they gain the advantages of ironSource’s partnerships. For example, ironSource has a unique relationship with major telecom operators and original equipment manufacturers (OEMs) like Samsung and Orange. These partnerships allow app developers enhanced access to their target market through on-device distribution capabilities of a product known as Aura.
In addition to providing support for clients who develop apps, ironSource publishes games apps of its own. Thus far, ironSource games have been wildly successful. Of the 35 games published in 2021, 25 ranked in the top ten for most downloaded. These games were downloaded an astonishing 1.7 billion times. That makes ironSource number three among US gaming publishers.
How Does ironSource Make Money?
The beauty of ironSource’s revenue model is that it doesn’t rely on a single revenue stream.
First, the Sonic platform generates revenue in several ways. A pay-for-performance plan creates income for ironSource as clients see their user base grow through Sonic tools and resources.
In addition, ironSource sells advertising for client apps, and it retains a portion of the revenue generated by those ads. It also has a usage-based fee system that generates revenue for ironSource through cross-promotion, in-app bidding, and creative management.
Second, ironSource generates revenue from Aura by collecting a percentage of the amount clients earn when users take advantage of on-device app and service recommendations.
Third, as ironSource publishes its own gaming apps, it can monetize them using the same best practices offered to ironSource clients.
There is an interesting dynamic to ironSource’s revenue. Because it is highly dependent on the success of its clients’ apps, the company is motivated to create and supply clients with the best possible resources to ensure those businesses grow. That means ironSource has reason to invest in long-term relationships, so it places a premium on product development, customer retention, relationship expansion, and best-in-class service.
ironSource: SPAC > Public Company
Throughout its 12-year history, ironSource has gone through several strategic changes that positioned it as an industry leader. The five founders who launched ironSource the company in 2010 continue to manage the company to this day.
Its strength and success in the adtech space caught the attention of special purpose acquisition company (SPAC) Thoma Bravo Advantage. The two completed a merger in June 2021, and ironSource began trading on the New York Stock Exchange.
When trading began, ironSource was valued at $11.1 billion. As of March, its market cap is down to $4.76 billion. That has investors curious. Will ironSource stock recover? And more importantly, is ironSource stock a buy?
ironSource Quarterly Results Shine Bright
Fourth-quarter 2021 financial results were reported on February 16, 2022, and share prices immediately started trending down. In the month since, ironSource stock lost approximately 28 percent of its value. That’s somewhat surprising, given the positive nature of the results. These are the highlights:
- Total fourth-quarter revenues came in at $158 million, which represents year-over-year growth of 46 percent
- 88 percent of revenue came from the Sonic product line
- 12 percent of revenue came from the Aura product line
- Fourth-quarter gross margin totaled 84.46 percent, which represents a year-over-year increase of 0.56 percent
- Total fiscal 2021 revenues came in at $553 million, which represents year-over-year growth of 67 percent
- At the close of the fiscal year, ironSource had $728 million in cash and cash equivalents with no debt
- Adjusted fiscal 2021 EBITDA was $194 million, which is an increase of 87 percent over 2020’s $104 million
Overall, ironSource exceeded the previous guidance, and both the quarter and year-end results were stronger than expected. More importantly, unlike most emerging tech organizations, ironSource has been profitable since shortly after its launch, and it continues to be profitable today.
Management expressed optimism for the company’s near-term revenue and profitability when giving first-quarter and full-year 2022 guidance. For the first quarter, ironSource expects total revenue to range between $180 million to $185 million. At the midpoint, achieving those revenue goals would mark year-over-year growth of 52 percent. Leadership predicted EBITDA to total between $56 million and $58 million, representing a growth of 44 percent year-over-year.
Full-year 2022 guidance was similarly positive, with projected revenues between $790 million and $820 million. Adjusted EBITDA is expected to be between $255 million to $265 million, representing a year-over-year increase of 34 percent. At the midpoint, achieving this goal would mean growth of 45 percent year-over-year.
Sustainable Competitive Advantage?
The exceptionally high growth rate in the app market has not gone unnoticed by established tech companies, startups, and entrepreneurs. Many competitors want to pull market share away from ironSource with alternative marketing and monetizing digital content options. Some of the leading and most prominent tech companies globally are already invested in mobile monetization. Examples include Facebook (Meta), Google (Alphabet), AppLovin, and Unity Software.
Meanwhile, new companies are cropping up every month to provide superior monetization services that can compete with ironSource in one or more of its markets. The fact is that launching a startup in the adtech space is relatively easy, making it challenging to track potential competition with any accuracy.
Fortunately, tracking entrepreneurs and startups isn’t a priority for ironSource, because it has developed a wide moat on multiple fronts over the past 12 years. The biggest competitive advantage ironSource has is the comprehensive nature of its tools and resources. While other companies may offer a handful of products for app monetization, ironSource clients enjoy a wraparound solution that can be easily scaled.
More importantly, ironSource’s relationships with telecom operators and OEMs are unique. There is no other platform capable of both in-app and on-device distribution. That attracts clients and retains them more than any additional competitive advantage.
In addition to its superior product lineup, ironSource offers better technology. That’s made possible by its ability to capture and analyze client data through advanced machine learning. While some of the larger companies have this capability, they aren’t using it in this manner, and the startups have neither the ability nor the client data to compete in a meaningful way.
Finally, as it stands, clients cannot use multiple platforms for monetization of apps, and telecom operators cannot integrate multiple device experience management solutions within their systems. That means switching is costly and disruptive, which significantly improves retention.
Will ironSource Stock Recover?
Israel-based ironSource hit the ground running, with shares selling for roughly $10.50 after the first day of trading. In mid-November 2021, ironSource stock peaked at $13.14 per share. There have been a series of new lows since then. Will ironSource stock go back up?
The market for mobile apps appears to have no ceiling. There are already around 15 billion mobile devices in use worldwide, and more are being added daily as mobile infrastructure expands to reach even the most remote corners of the globe.
Adults with access to mobile technology spend an average of approximately 4.25 hours using their devices every day. More than 80 percent of that time is spent in apps, much more than the time spent talking. Mobile users downloaded 144.2 billion apps in 2021 alone, and that figure is growing exponentially.
Two out of every five downloads is a gaming app, which makes sense considering the number of mobile gamers has exceeded 2.6 billion worldwide. The mobile gaming market was valued at $80 billion in 2021, and analysts expect to see a compounding annual growth rate (CAGR) of 20 percent or more for the next three years and perhaps longer.
All of that bodes well for ironSource, as the company excels at marketing gaming apps. In 2020, ironSource enlisted an outside consulting firm to estimate its addressable market, and the figure came in at $17 billion with a CAGR of 19 percent. If accurate, ironSource can look forward to a total addressable market of $41 billion by 2025.
What this suggests for the company’s future is virtually unlimited growth opportunities. Assuming the right strategic plan and careful execution, ironSource stock is likely to recover and then go on to reach new highs.
Is ironSource Stock A Buy?
ironSource stock has indeed gone down since it launched in June 2021, but when all of the facts are considered, ironSource stock is a buy. In addition to its large addressable market and competitive advantages, not to mention the quality of its brand, ironSource is solid in nearly all of the fundamentals.
The balance sheet meets all basic expectations, and ironSource ended its fiscal year with net cash of $782 million. That’s a crucial win because it positions ironSource to invest in research and development, allowing the company to make acquisitions as necessary to expand and enhance the current product lineup.
Not only is ironSource stock likely to recover, but it is also likely to achieve significant growth both in the mid-term and the long-term. Investors who buy ironSource stock now can enjoy a relative discount, increasing total returns as ironSource stock price goes up.