AppLovin (NASDAQ:APP) is a unique company to look at, with a focus on providing “a software-based platform for advertisers to enhance the marketing and monetization of their content in the United States and internationally.” Essentially, what this means is that AppLovin is an adtech firm focused on leveraging its AI engine to assist publishers in improving their user acquisition and monetization metrics. For those in the digital advertising world, this means that as companies using the AppLovin platform do better, this company does better.
Most investors and internet users know that online advertising is the way of the future. The company’s tools for in-app advertising and CTV advertising have paved the way for additional possibilities with the company’s AI tools to provide increased value to its end customers and create additional value for shareholders. That’s been a recipe for success, and it’s why APP stock is up a whopping 745% on a year-to-date basis, as of the end of November.
With such an incredible rise in a short amount of time, investors have reason to question whether this rally can continue. Undoubtedly, AppLovin has some incredible momentum behind it. Let’s dive into whether the party can continue from here.
Key Points About This Article:
- AppLovin’s incredible year-to-date surge in 2024 is one that has many bulls considering whether now is the time to take some profit off the table.
- Here are a few factors investors may want to consider when thinking about whether this stock is still a buy at current levels.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Big Moves Driven By Big Catalysts
AppLovin’s recent rally should be put into context. This isn’t a stock that’s moved in a rather steady trajectory higher over the long-term. Rather, the company’s stock price has seen incredible volatility, with APP stock plunging in 2022 as the company saw its revenue growth stall and losses build due to a range of factors. The company blamed this poor performance on inflation, rising rates, and digital ad market headwinds, and investors saw fit to sell this stock in earnest. All told, AppLovin’s stock price cratered from a high of around $120 per share in 2021 to sub-$10 per share in 2022.
That should make the company’s incredible surge to more than $330 per share today even more impressive, and it is. This is the turnaround story of all turnaround stories, in my books, at least over the past five years.
This volatility has been driven by a number of factors, not the least of which has been improving sentiment for the e-commerce and online advertising markets. Challenges such as lacking first-party data and competition from Apple have been handled well, with the company navigating tracking changes with poise, positioning AppLovin as a top adtech play in an increasingly competitive environment.
Piper Sandler’s James Callahan recently initiated coverage with a $400 target, suggesting around 25% upside from its current share price, and I think this sort of endorsement says a lot about where APP stock could be headed from here.
Strong Growth Leads to Fundamental Bull Case
AppLovin’s incredible share price appreciation has been driven by a mix of hype and fundamental improvement. On the fundamentals front, the company has done an excellent job of re-accelerating its revenue growth, with Q3 revenue increasing 39% on a year-over-year basis to $1.2 billion, with a 72% EBITDA growth rate reported as well. Perhaps more importantly, free cash flow soared 182% to $545 million, indicating this company is prioritizing cash flow over revenue growth, a strategy rooted in early funding challenges.
So long as the company can continue to see improved margins and strong growth in a post-pandemic world, this is a stock that investors are clearly betting can seen continued upside from here. With GAAP net income quadrupling to $1.25 per share, and rapid growth seen in the company’s nascent web advertising product targeting mobile app, there’s plenty of confidence this growth can continue into 2025.
Finally, the last key fundamental driver I think is important to point out is the company’s launch of its Axon 2.0 product in Q2 2023. This launch is aimed at enhancing targeting and driving strong growth, with the company reaffirming expectations of 20%-30% annual growth in large part to the contributions expected from this launch. If the company can meet Wall Street projections of 60% earnings growth over the next year and 45% annual growth through 2026, this is a stock that could be fairly valued at current levels (which is incredible to consider, given its recent rise).
Growth Investors May Want to Give This Stock a Look
AppLovin is certainly an investment that’s not for the faint of heart. Indeed, any holding that can drop more than 90% peak to trough and rebound for massive gains from previous highs has a chart that looks more like a cryptocurrency than a traditional equity investment. Some may argue that the type of investor holding both securities may be one and the same, and maybe there’s some truth to that. But I also think that there are reasons for the large swings in valuation in this particular case, and at least for now, there’s something fundamental backing this rise.
This reality, in which we’re seeing analysts issue buy ratings on AppLovin with relative frequency, further adds legitimacy to this rise. I’m not sure this is a stock I’d want to jump into right now at these levels, but I can certainly understand the bull case here. I think this is a stock that certainly favors bold investors, and may continue to be. If there’s another significant dip in this name, I think AppLovin could be a stock worth considering.
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