AppLovin Corporation (APP) has been one of the most electrifying stocks this year, captivating investors with its exceptional growth story. AppLovin drew the spotlight thanks to its artificial intelligence (AI)-powered innovations. Leveraging its innovative platform, the company has become a go-to for businesses aiming to monetize mobile games, pushing its stock to all-time highs this year.
In fact, November proved to be a blockbuster month for the company, fueled by a blowout financial report that sparked excitement on Wall Street and garnered a wave of bullish endorsements for APP stock. While gaming remains AppLovin’s bread and butter, the company’s successful expansion into e-commerce advertising is opening exciting new doors and further lifting investors' confidence in the company’s ability to diversify and dominate beyond gaming.
However, despite its monstrous YTD performance and undeniable progress, AppLovin hit an unexpected roadblock earlier this month. On Dec. 9, APP shares crashed over 14% after the company failed to secure a spot in the broader S&P 500 Index ($SPX), a move that many investors had been eagerly anticipating. Commanding a market cap that far exceeds the $18 billion market cap criteria and consistent GAAP profitability over the past four quarters, AppLovin checked all the boxes for inclusion, fueling high hopes across the market.
For a stock that had been climbing so rapidly, the disappointment was certainly palpable. Yet, despite this sudden setback, it’s hard to ignore AppLovin’s strong fundamentals. So, could this dip present a golden opportunity for investors to buy into a growth story that’s far from over? Let’s take a closer look to find out.
About AppLovin Stock
California-based AppLovin Corporation (APP) empowers video game companies with cutting-edge software solutions for advertising, analytics, and app management. Its standout tools, like AppDiscovery, MAX, and Adjust, supercharge ad performance, while platforms such as Wurl and SparkLabs broaden reach across mobile and connected TV. With a diverse portfolio that includes ad visibility, app management, and free-to-play mobile games, AppLovin serves a wide range of clients, cementing its position as a leader in digital innovation.
Valued at a market cap of around $113.4 billion, shares of this app monetization giant hit a 52-week peak of $417.64 on Dec. 6 amid rising speculation around its potential entry to the SPX.
Although the stock has dipped by 25% since then, it has still delivered a jaw-dropping 663.7% return over the past year. This explosive growth far outstrips the broader SPX’s 24.6% annual return, making AppLovin a true market standout.
AppLovin’s stunning growth story certainly comes with a hefty price tag. Trading at a lofty 64.77 times forward earnings and 24.69 times sales, the stock is priced well above median tech sector valuations - a clear reflection of the immense investor enthusiasm driving its growth.
AppLovin Takes Off After Q3 Earnings
Following a remarkable Q3 earnings report released on Nov. 6, which crushed Wall Street’s projections on both the top and bottom lines, shares of AppLovin soared a whopping 46.3% in the next trading session alone. The company posted revenue of $1.2 billion, marking an impressive 39% year-over-year growth and surpassing estimates by about 6%. Management attributed much of its impressive growth during the quarter to its AI-driven advertising engine, AXON, which has been a game changer since the release of its enhanced 2.0 version last year.
The success of AXON has significantly fueled the company's performance, with software platform revenue soaring a stunning 66% year over year to $835 million. Even more remarkable were its earnings, which jumped to $1.25 per share, reflecting a jaw-dropping 316.7% annual improvement and beating Wall Street's expectations by a solid 31.6% margin.
In a strategic move that reflects its strong financial outlook, AppLovin repurchased and retired 5.0 million shares of its Class A common stock during the third quarter at a cost of $437 million. The company’s board of directors approved an additional $2 billion for share repurchases, bringing the total remaining authorization to a robust $2.3 billion. This commitment to shareholder value is set to be funded by the company’s solid free cash flow, highlighting AppLovin’s determination to reward investors while continuing to invest in its growth trajectory.
Additionally, AppLovin's upbeat guidance for Q4 of fiscal 2024 sent investors’ enthusiasm into overdrive. Management forecast revenue to range between $1.24 billion and $1.26 billion for the current quarter, with adjusted EBITDA ranging from $740 million to $760 million. This outlook, which exceeds Wall Street’s estimates, added fuel to the stock’s fire.
Over the longer term, analysts tracking AppLovin Corporation project the company’s bottom line to rise a staggering 314.3% year over year to $4.06 per share in fiscal 2024 and climb another 45.1% to $5.89 per share in fiscal 2025.
What Do Analysts Expect for AppLovin Corporation Stock?
With AppLovin shares taking a hit amid its continued omission from the SPX, Loop Capital sees this dip as an ideal buying opportunity for investors. Analysts Rob Sanderson and Timothy Greaves are bullish on AppLovin’s future, predicting it will become one of the standout growth stocks in 2025. They view the current weakness as the perfect chance to buy during an upward cycle.
The analysts also noted that volatility is to be expected for a momentum stock like AppLovin, which has experienced a swift and significant revaluation. This pullback, they believe, is just part of the stock's growth trajectory.
As a result, Loop Capital reiterated a “Buy” rating and raised its price target on APP stock to $450 from $385, citing the company’s impressive performance. The firm highlights the remarkable 63% three-year annual compound growth rate in AppLovin’s core gaming business as a major reason for its bullish outlook.
But it’s not just gaming that’s fueling optimism. Loop Capital sees huge untapped potential in direct-to-consumer advertising, with expectations of rapid revenue growth in the coming years. The brokerage firm further added that AppLovin has been successfully onboarding brands that spend at least $10K per day on Meta (META), with the potential to match that level of spending on its own platform.
Analyst Sanderson explained, "If we haircut this to only $2M annually (vs. implied $3.7M at $10K per day), onboarding one customer per day would be over $700M of annual revenue. A more bullish scenario where the company onboards 5 customers per day with an average annual spend of $3M would drive $5.5B in annual revenue. Our revised forecast embeds $500M next year and $1.5B in 2026."
Furthermore, Loop Capital added that it’s likely only a matter of time before AppLovin earns a spot on the SPX, as its market cap already surpasses many companies currently listed on the index.
Overall, Wall Street remains optimistic about APP stock, which has a consensus rating of “Moderate Buy.” Of the 20 analysts offering recommendations, 15 advise a “Strong Buy,” four advocate a “Hold,” and only one analyst maintains a “Strong Sell.”
While APP has already soared beyond its average analyst price target of $305.29, the Street-high target of $480 indicates that the stock can still climb as much as 53.3% from current price levels.
