AppLovin Corporation (APP) has been on a remarkable journey, with its stock price skyrocketing 126.3% year-to-date. This impressive surge far outpaces the 21.3% rally of its industry and the 18.1% growth of the Zacks S&P 500 composite. In the competitive in-game mobile advertising space, APP’s performance stands out, surpassing its rivals like Alphabet Inc. (up 18.6%) and Meta Platforms (up 49.2%) over the same period.
While APP’s stock price closed at $90.2 in the last trading session, nearing its 52-week high of $92.5, it’s worth noting that it’s trading above its 50-day moving average, indicating a potential bearish sentiment among investors. However, this trend reflects a temporary correction after a strong initial rally.
AppLovin’s recent success can be attributed to its groundbreaking AXON 2.0 technology, which has fueled its expansion into new gaming studios and initiatives aimed at driving market growth. These strategic efforts have translated into robust financial performance, with revenue increasing 76% year-over-year and adjusted EBITDA rising 41% year-over-year, resulting in an 800-basis point expansion in the adjusted EBITDA margin in 2023. The company’s second-quarter 2024 results further highlighted this positive trajectory, reporting a 44% year-over-year increase in revenues and a staggering 286% surge in net income.
Although potential risks exist, such as the possibility of slowed growth in the in-game advertising segment and uncertainties surrounding non-gaming ventures, AppLovin remains well-positioned for continued growth. Its technological advancements and strategic expansion efforts have created a solid foundation for future success.
Analysts are optimistic about AppLovin’s future. The Zacks Consensus Estimate for APP’s 2024 earnings is pegged at $3.48, representing a remarkable 255.1% growth from the previous year. Looking ahead, earnings in 2025 are projected to increase by 20.2% from the prior year’s actuals. Furthermore, the company’s sales are expected to surge by 35.1% and 11.1% year-over-year in fiscal 2024 and 2025, respectively.
Analysts’ confidence is evident in the recent trend of upward revisions to estimates. Over the past 30 days, six estimates for 2024 have been raised, with no downward revisions. Similarly, for 2025, six estimates have been revised upwards, indicating strong belief in the company’s ability to enhance its financial performance in the near future.
Despite the impressive rally, AppLovin’s stock remains undervalued, suggesting potential for further appreciation. Currently, APP shares trade at 22.9X forward earnings, significantly below the industry’s 35.29X. Based on trailing 12-month EV-to-EBITDA, APP is trading at 12.54X, close to the industry’s 11.86X.
AppLovin’s impressive financial performance, promising growth prospects, and relatively low valuation make it a compelling investment opportunity. The recent correction provides a favorable entry point for investors seeking to capitalize on its future growth potential. With its innovative technology and strategic initiatives, AppLovin is well-positioned to continue its upward trajectory, making it a must-buy for growth-oriented investors. APP currently sports a Zacks Rank #1 (Strong Buy).
