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AppLovin Corporation APP has witnessed its stock fall 22% over the past three months, slightly worse than the industry’s overall 18% decline. Notably, competitors in the in-game mobile advertising space have also struggled. Alphabet Inc. GOOGL shares have dropped 18%, while Meta Platforms META has seen a 19% decrease during the same period.
Encouragingly, APP has rebounded 8% in the last month, hinting at a possible recovery. Given that industry giants like Alphabet and Meta Platforms are navigating similar headwinds, APP’s performance appears consistent with sector trends.
Image Source: Zacks Investment Research
This analysis will explore whether APP’s current valuation, like Alphabet and Meta Platforms, presents an attractive opportunity for investors.
APP’s Strategic Shift Toward a High-Margin Business Model
AppLovin is actively transforming into a pure-play advertising platform, sharpening its focus on high-growth, high-margin segments. A major milestone in this transition was the $900 million sale of its gaming unit to Tripledot Studios. This divestiture allows APP to concentrate on its ad technology, a move that aligns with its vision of serving the global digital advertising market, which includes over 10 million businesses. To capitalize on this vast market, the company is investing in automation, developing advanced tools to enhance customer efficiency and maximize ad performance.
Strong Financial Performance Underscores Growth Potential
AppLovin’s latest earnings report reinforces its strong financial health and growth trajectory. The company continues to benefit from its AXON 2.0 technology and strategic expansion within the gaming and in-app advertising sectors. In the fourth quarter of 2024, revenues surged 44% year over year and 14% sequentially, reflecting strong market demand. Adjusted EBITDA jumped 78% year over year and 17.5% sequentially, showcasing improved operational efficiency. Net income skyrocketed 248% from the prior year and 38% sequentially, demonstrating APP’s ability to translate revenue growth into significant profitability.
For the full year 2024, revenues climbed 43% year over year, while adjusted EBITDA surged 81%, underscoring AppLovin’s ability to seize market opportunities while maintaining efficiency. Looking ahead, management has guided for $1.4 billion in the first quarter of 2025 sales, slightly above the Zacks Consensus Estimate of $1.37 billion. Historically, AppLovin has consistently beaten earnings expectations, increasing the likelihood of another outperformance.
Analysts Project APP’s Robust Earnings Expansion
Analysts are forecasting strong earnings growth. The Zacks Consensus Estimate for first-quarter 2025 earnings is $1.45 per share, representing an impressive 116.4% increase from the prior-year quarter. Moreover, earnings for the full years 2025 and 2026 are expected to grow by 47.5% and 38.5%, respectively, compared to the previous years. These projections suggest that despite the recent stock weakness, APP’s long-term earnings outlook remains very promising.