Gaming and mobile app advertising company AppLovin (NASDAQ:APP) is ripping out of the gate this morning, jumping 32% higher at the open after beating Wall Street’s fourth-quarter earnings estimates Wednesday and raising guidance for the year.

AppLovin reported revenue of $1.37 billion, up 44% over the $953 million it recorded last year as advertising revenue soared 73% to $999.4 million. Net income more than tripled year-over-year to $599.2 million, or $1.73 per share, compared to $171.5 million, or $0.49 per share.

Analysts had been looking for earnings of $1.25 per share on sales of $1.26 billion. AppLovin forecasts advertising will finally cross over the $1 billion threshold it just missed this time out.

Monetizing the gaming experience

AppLovin has embraced artificial intelligence, beginning a number of years ago when it began buying gaming companies to train its machine learning models. That helped shape its AI-powered AXON ad search engine today, though it admits it is still in the early stages of technology.

AXON helps target advertising on gaming apps AppLovin owns. Gaming studios, though, can also license the technology for their own games.

AppLovin said it expects to see even more traction as it improves its AI advertising models and introduces more personalization to the advertising experience. It notes that in terms of advertising platforms, there’s Meta Platforms’ (NASDAQ:META) Facebook and Alphabet‘s (NASDAQ:GOOG)(NASDAQ:GOOGL) Google, and “we’re now the next really big platform out there.”

A realignment is coming

APP stock has been on a meteoric run higher, rising over 400% in just the last six months, with shares 720% higher over the past year.

Wall Street has increasingly been trying to dial back expectations. Last month, for example, a Bank of America analyst citing SensorTower data that used in-app purchase tracking data, suggested app revenue would fall 4% sequentially, but it actually rose 2.8% quarter-to-quarter. So, although revenue was down slightly from last year, it shows it is improving. 

It also indicates that game developers and advertisers are finding value in AppLovin’s service. They can reach, monetize, and grow their global audiences and do so cost-effectively. It is why many analysts still rate the stock a buy even as they tried to prepare for a miss this quarter.

They may need to update their models, though, because where the consensus one-year stock price of $366 was less than 4% below where APP stock closed yesterday, after it began ripping higher this morning it now implies 30% downside to the stock. 

Yet with the strength AppLovin’s business is showing, it seems to warrant the premium the market is assigning it. Which is why Wall Street may adjust their price targets high soon.

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