Why Did ironSource Shares Plunge More Than 17%?

Shares of Israel-based ironSource Ltd. (NYSE: IS) dropped 17.7% and marked a new all-year low of $2.40 on May 12, despite reporting better-than-expected first quarter results.

The stock price fell because the company lowered its full year fiscal 2022 revenue outlook and its second quarter guidance fell below Wall Street expectations.

ironSource is a leading business platform for the App Economy that provides a comprehensive set of software solutions to app developers to turn their apps into successful and scalable businesses. IS stock has lost over 67% year-to-date amid the broader market tech sell-off.

Q1 Results in Detail

ironSource reported Q1 adjusted earnings of $0.05 per share, 3 cents higher than analyst estimates of $0.03 per share and one cent better than the prior year’s number of $0.04 per share.

Similarly, revenue rose 58% year-over-year to $189.67 million and surpassed the analyst estimate of $183.71 million.

Moreover, the company recorded a dollar-based net expansion rate of 153%, against an average of 157% in the previous ten quarters.

Also, customers contributing more than $100,000 in revenue in the trailing 12 months grew 36% year-over-year to 397.

2022 Outlook

Based on the current business momentum, ironSource guided for second quarter revenue to be between $180 million and $185 million, while consensus is pegged much higher at $194.23 million.

However, the company lowered the revenue guidance for FY22 to fall between $750 million and $780 million from the previous outlook of $790 million to $820 million. Meanwhile, the consensus estimate is much higher at $810.88 million.

CEO Comments

Tomer Bar-Zeev, CEO and Co-Founder of IronSource, said, “Our strong execution reflects our scale, product innovation, and data advantage. No less important, our results highlight our deep knowledge of what is necessary to create a successful app business and to constantly meet developer needs, by opening new avenues for app marketing and growth, and helping apps anticipate and address new industry trends.”

Analysts’ Take

Responding to ironSource’s quarterly performance, William Blair analyst Dylan Becker maintained a Buy rating on the IS stock.

Becker is encouraged by the company’s proactive measure to lower the full-year guide despite any indication of business impact.

“We believe this is a prudent approach given the broader macroeconomic uncertainty, and one that will likely prove conservative over time given the continued elevated levels of engagement and emphasis on content discovery afforded by digital app platforms like ironSource that can help developers capitalize on the broader shift in ad budgets to more mobile and specialized formats,” the analyst noted.

Becker believes that IS trades at a discount to the blended peer group of adtech providers and Rule-of-60 software companies. However, the industry is poised for multiple tailwinds and advantages around contextual modeling, which will bode well for ironSource.  

Moreover, the analyst believes that IS will continue to outperform peers on both revenue and earnings before interest, tax, depreciation, and amortization (EBITDA) fronts due to its advantageous position in the industry.

The other analysts on the Street have allotted nine unanimous Buys to the IS stock, resulting in a Strong Buy consensus rating. The average ironSource price target of $9.22 implies a whopping 253.3% upside potential to current levels.

Conclusion

Although the IS stock is trading near its yearly lows, Wall Street’s optimism about ironSource’s future growth potential foretells that the company is solidly poised for exponential growth. Therefore, suggesting a good entry point to gain access to a growing adtech company.  

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