AppLovin Soars 126.3% YTD: A Must-Buy for Growth Investors?
AppLovin Corporation (APP) has experienced a remarkable surge in its stock price, gaining 126.3% year to date. This impressive performance significantly outpaces the 21.3% rally of the industry it belongs to and the 18.1% growth of the Zacks S&P 500 composite. Even when compared to competitors in the in-game mobile advertising space, AppLovin’s performance shines brighter, with Alphabet Inc. surging 18.6% and Meta Platforms gaining 49.2% over the same period.
Key Takeaways:
- AppLovin’s stock price has skyrocketed 126.3% year to date, outperforming both its industry and the broader market.
- AppLovin’s recent success is fueled by its innovative AXON 2.0 technology, expansion of gaming studios, and new initiatives for market growth.
- The company has delivered robust financial results, with a 76% year-over-year revenue increase and a 41% year-over-year rise in adjusted EBITDA.
- Despite some potential risks, AppLovin remains well-positioned for continued growth thanks to its strong foundation and strategic efforts.
- AppLovin’s attractive valuation, coupled with analysts’ confidence in its future prospects, makes it a compelling investment opportunity.
A Deeper Dive into AppLovin’s Performance:
AXON 2.0 and Strategic Expansion Drive Growth
AppLovin’s recent success can be attributed to its innovative AXON 2.0 technology, which has revolutionized in-game advertising. This technology, combined with the company’s expansion into new gaming studios and its commitment to driving market expansion, has translated into impressive financial results. In 2023, AppLovin reported a 76% year-over-year revenue increase and a 41% year-over-year rise in adjusted EBITDA, with an 800-basis point expansion in the adjusted EBITDA margin. The company’s strong performance continued into the second quarter of 2024, with revenues increasing 44% year-over-year and net income surging 286%.
A Balanced Perspective: Potential Risks and Promising Growth Prospects
While AppLovin is on a strong trajectory, there are some potential risks to consider. The in-game advertising segment could experience slowed growth, and the impact of AppLovin’s non-gaming ventures remains uncertain. However, these risks are outweighed by the company’s impressive technological advancements and strategic expansion efforts, which position AppLovin for continued growth in the long term.
Analysts’ Confidence and a Compelling Valuation
Analysts share this optimism, as evidenced by the rising estimates for AppLovin’s future earnings. The Zacks Consensus Estimate for 2024 earnings is pegged at $3.48, reflecting a 255.1% growth from the year-ago level. Earnings in 2025 are expected to increase by 20.2% from the prior-year actuals. Sales are forecasted to grow by 35.1% and 11.1% year over year, respectively, in fiscal 2024 and 2025. Furthermore, over the past 30 days, six estimates for 2024 moved north versus no southward revisions, while six estimates for 2025 also moved north with no downward revisions. This unwavering confidence suggests a strong belief in AppLovin’s ability to deliver sustained financial improvements.
Despite its impressive rally, AppLovin’s stock remains relatively inexpensive, hinting at potential for further appreciation. On a price/earnings basis, APP shares currently trade at 22.9X forward earnings, significantly below the industry’s average of 35.29X. Using the trailing 12-month EV-to-EBITDA metric, APP is currently trading at 12.54X, close to the industry’s 11.86X. These valuations suggest that AppLovin is still undervalued compared to its peers and offers a compelling entry point for investors seeking long-term growth.
Conclusion: A Must-Buy for Growth-Oriented Investors
Based on AppLovin’s strong financial performance, promising growth prospects, and relatively low valuation, it presents a compelling buying opportunity. The recent correction in its stock price 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), further reinforcing its investment potential.
