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IronSource's Pullback Presents Potential Value Opportunity

The software company powers the app economy 

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May 25, 2022
  • IronSource is an Israel-based company that helps apps monetize their users. 
  • The company achieved 58% year-over-year revenue growth in the first quarter.
  • Seth Klarman was buying shares in the first quarter at an average price of $6 per share. The stock price is down substantially from this level. 
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IronSource Ltd. (

IS, Financial) is a software company that helps mobile app creators monetize their applications. In other words, it powers the “app economy.”

Seth Klarman (Trades, Portfolio) was buying shares in the first quarter at an average price of $6 per share. The stock price is down by over 54% since then, while revenue has been growing rapidly with a 58% increase year over year. Thus, the recent share price decline could be an opportunity. Let’s dive into the business model, financials and valuation to find out more.


Business model

IronSource is a software company that specializes in enabling the app economy. According to Statista, total app market revenue is projected to reach $437 billion in 2022 and expand at a 6.5% compound annual growth rate to over half a trillion dollars by 2026. Thus, IronSource is in a prime position to ride this growing trend. The company helps mobile app creators turn their users into dollars and scale their business. In addition, the company works with telecom operators to create richer device experiences.

The company offers unique methods for brands to get their product in front of customers via video advertisements or even interactive mini games. This is a real game changer for both advertisers and brands, as the most popular advertising platforms, Alphabet's (

GOOG, Financial) Google and Meta's (FB, Financial) Facebook, are very competitive, resulting in the cost per click getting higher. To solve this problem, many brands and media agencies are taking an omnichannel approach by running ads on alternative platforms such as mobile games.

For example, snacking giant Frito-Lay, which is part of PepsiCo (

PEP, Financial), had the goal of boosting perception and product affinity compared with other snack brands during the busy holiday season. Thus with IronSource and the Tapjoy product, they introduced interactive mini games at the end screen of popular games.

As of the first quarter, IronSource introduced Luna Search Ads, which enable app marketers to better create, manage and optimize campaigns on Apple Search Ads. The company also introduced a marketability testing tool for mobile gaming apps, which allows games to assess product market fit very early on by evaluating whether or not it can be scalably marketed.

Growing financials

IronSource produced $190 million in revenue for the first quarter of 2022, which was up a meteoric 58% year over year. Around 97% of this revenue was driven by customers with a greater than $100,000 spend and the company has 397 of these clients as of the end of the three months ended March 31. The focus on large customers means the company only has to win a few advertising campaigns in order to grow revenue very fast.


As of the first quarter, the company produced $59 million in adjusted Ebitda, which increased 49% year over year. As a software company, IronSource operates with a super high gross margin of 83% and an operating margin of 14%.


IronSource has a net revenue retention rate of 153%, which means customers are staying with the product and spending more. The company has a strong balance sheet with $788 million in cash and virtually no debt.

In terms of valuation, the enterprise value-Ebitda multiple has compressed substantially and now equals 21. This is much cheaper than the enterprise value-Ebitda ratio of 100 seen in mid-2021. This decline seems to have been driven by inflation as the company is a true growth stock. The price-earnings ratio has also declined to 46, but it is still not cheap compared to the average Nasdaq earnings multiple of 15.


Final thoughts

IronSource is a tremendous company that is poised to benefit from the growth of the app economy. The company’s offering appears to be enticing to brands and as the net revenue retention rate is so high (153%), it seems its product is providing a return on investment.

The share price has corrected down substantially as of the time of writing and is, therefore, cheap relative to its history. However, compared to the general market, this is not a value stock but a growth stock. Should inflation begin to subdue and interest rates start to decline, the stock could rebound.

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I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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