Based in Tel Aviv-Yafo, Israel, ironSource Ltd (IS) is a global software company that operates a business platform for the app economy. Through an SPAC merger with Thoma Bravo Advantage, the mobile adtech firm went public on June 29, 2021. A 181% dollar-based net expansion rate and double-digit revenue growth in its last reported quarter have helped IS’ stock gain 31.1% in price over the past month.

The company’s management expects its third-quarter revenue to range between $125 million – $130 million, representing 45% year-over-year growth at the midpoint. 

However, IS’  shares have retreated 4.9% in price over the past five days to close yesterday’s trading session at $11.95. And although its recent partnership with Vodafone and the launch of its new user growth tool should help it achieve strong topline growth, its premium valuation could add to investor concerns.

Click here to check out our Software Industry Report for 2021

Here’s what could influence IS’ performance in the near term:

Product Launch Could Boost User Growth and Value

This month, IS launched two new user growth tools that support app developers in the new iOS era: Universal SKAN Reporting (SKAdNetwork) and CV Manager (Conversion Value). The new toolkit can  enable developers to view and analyze  data and get insights on user acquisition. In addition, it should  help the company support developers in optimizing their monetization and user acquisition. Also, last month, IS launched Aura on Samsung’s devices in Italy for telecom operators and OEMs. This move should allow the company to increase user satisfaction and reduce churn. In addition, since ironSource Aura customizes the device experience, it would enable IS to offer more value to its customers.

Favorable Analyst Estimates

Analysts expect IS’ revenues to increase 32.2% year-over-year to $685.56 million in the fiscal period ending December 31, 2022. The company’s EPS is expected to rise 66.7% from the prior-year period to $0.1 in 2022.

Mixed Financials

IS’ revenue increased 83% year-over-year to $135.04 million in the second quarter, ended June 30, 2021. Its gross profit came in at $112.27 million, up 85.9% from its year-ago value. In addition, its income from operations expanded 16.8% year-over-year to $16.24 million over this period. But the company’s total operating expenses rose 106.6% year-over-year to $96.03 million. Also, IS’ net income totaled $10 million, representing a 56.9% decrease from the prior-year quarter. And  its net cash provided by operating activities declined 58.6% year-over-year to $12.29 million.

Its 83.2% trailing-12-month gross profit margin is 69.7% higher than the 49% industry average. In addition, IS’ net income and EBITDA margins of 15.3% and 20.4%, respectively, are 147% and 39% higher than the industry averages. However, its $100.11 million trailing-12-month cash from operations is 11.7% lower than the $113.37 million industry average. Premium Valuation

In terms of non-GAAP forward P/E, IS is currently trading at 100.49x, which is 308.9% higher than the 24.58x industry average. In addition, its 24.37 trailing-12-month  EV/Sales ratio  is 463.6% higher than the 4.32 industry average. Also, IS’ 146.43 forward EV/EBIT multiple  compares with the 19.70 industry average.

Furthermore, the stock’s 22.82x forward Price/Sales ratio  is 462.6% higher than the 4.06x industry average.

POWR Ratings Reflect Uncertainty

IS has an overall C rating, which translates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. IS has a C grade for Quality and Value. The stock’s mixed profitability and higher-than-industry valuation multiples are in sync with this grade.

Moreover, the company has a C Momentum grade, which is consistent with its mixed price performance.

In addition to the grades I’ve highlighted, one can check out additional IS ratings for Stability, Sentiment, and Growth here. IS is ranked #63 of 149 stocks in the D-rated Software – Application industry.

Click here to check out our Software Industry Report for 2021

Bottom Line

Surging user growth and expanded engagement in the app economy have boosted leading IS’ revenues. However, while its expanded partnerships with Samsung and Vodafone bode well for the stock, its stretched valuation and mixed financials have added uncertainties to its prospects. Therefore, we think investors should wait for IS’ financials to stabilize before investing in the stock.

How Does ironSource Ltd (IS) Stack Up Against its Peers?

While IS has an overall C rating, one might want to consider looking at its peers Commvault Systems, Inc. (CVLT), Open Text Corporation (OTEX), and American Software, Inc. (AMSWA), having overall ratings of A (Strong Buy).

IS shares fell $11.95 (-100.00%) in premarket trading Friday. Year-to-date, IS has gained 11.73%, versus a 19.06% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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