IronSource went public through a reverse merger with Thoma Bravo Advantage (TBA). The stock has been trading sideways since the merger, and is now close to its SPAC IPO price of $10—21 percent below its pre-merger high. Will IronSource (IS) stock go back up, and should you buy it now?
IronSource, an Israel-based advertising technology company, was founded in 2010. The company operates in the app economy and helps app developers monetize their apps, grow their user base, and display ads. The app economy is growing quickly, as is IronSource’s revenue. The company expects its core addressable market to grow to $41 billion by 2025.
IS stock trades near $10
IronSource isn't the only post-merger SPAC trading near $10. Some have even fallen below that price—Lightning eMotors stock is almost 25 percent below its SPAC IPO price.
IronSource was planning for an IPO
According to IronSource CEO Tomer Bar-Zeev, the company was in the advanced stages of the IPO process before the merger opportunity with TBA came along. He called TBA sponsor Orlando Bravo “probably the best software investor out there.” As part of the merger, IronSource received $2.3 billion in proceeds, which it intends to use to grow its business and acquire other companies.
In 2020, IronSource posted adjusted EBITDA of $104 million on revenue of $332 million. Of its customers, 94 percent each contribute over $100,000 in annual revenue, which is a healthy metric. The company focuses on the fast-growing game development market.
IronSource estimates that there were 2.6 million online gamers in 2020. The company’s platform is popular among game developers, and 90 percent of the most downloaded games in Dec. 2020 used its platform.
IS stock's growth outlook looks strong
Several tech companies' growth has slowed since 2020. IronSource reported revenue growth of 83 percent in 2020 and expects that to fall to 47 percent in 2021. However, IronSource said that guidance is conservative. “We want to be prudent and cautious and conservative in the way we give guidance. And hopefully, we'll be able to do much better,” said Bar-Zeev.
In 2021, it expects an adjusted EBITDA margin of 31.4 percent and absolute EBITDA of $152.5 million. Over the long term, it foresees its EBITDA margins exceeding 40 percent.
IronSource had a pro forma EV (enterprise value) of $10.3 billion and an equity value of $11.1 billion in the merger. Based on its 2020 revenue and EBITDA forecast, its 2022 EV (enterprise value)-to-sales multiple is 16.5x, and its 2022 EV-to-EBITDA multiple is around 55x. The multiples don’t seem high considering the company's strong growth outlook and wide margins.
Will IronSource stock go back up?
IronSource stock looks like a good play on the growing app economy. The stock has fallen along with other growth stocks but should recover once sentiment improves.