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AppLovin (APP) Rises 93% YTD: What's Next for Investors?
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AppLovin Corporation (APP - Free Report) has seen its stock skyrocket 92.8% year to date. This impressive rise has significantly outpaced the 17.5% rally seen in the industry it belongs to and the 14.1% growth of the Zacks S&P 500 composite.
When compared with its competitors in the in-game mobile advertising space, APP’s performance is notably stronger. Alphabet Inc. (GOOGL - Free Report) has surged 24%, and Meta Platforms (META - Free Report) has gained 31% over the same period.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Given the continuous strength of APP shares, many investors may be tempted to buy the stock. However, the pertinent question remains: Is now the right time to invest in MARA? To answer this, it’s important to delve into the details and analyze the various factors at play.
APP Has Started Correcting
As of the last trading session, APP’s stock closed at $78.68, close to its 52-week high of $91.91. It has crossed its 50-day moving average downward on Jul 23. In contrast to a massive rally in the year-to-date period, APP is up 4% in the past three months and down 4.5% over the past month. These are indications that a correction phase has just begun.
APP Stock Trades Below 50-Day Average
Image Source: Zacks Investment Research
APP has introduced its cutting-edge AXON 2.0 technology, expanded its gaming studios, and embarked on new initiatives aimed at driving market expansion and long-term growth. These efforts have yielded impressive financial results, with a 76% year-over-year increase in revenues and a 41% year-over-year increase in adjusted EBITDA, accompanied by an 800-basis points expansion in the adjusted EBITDA margin in 2023. For the first quarter of 2024, APP reported a 48% year-over-year revenue increase, with a net income of $236 million, a stark contrast to the net loss of $4.5 million recorded in the same quarter of the previous year.
However, APP's current stance presents certain risks. The company's in-game advertising growth may experience a slowdown in percentage growth rates. It is unlikely that AppLovin will sustain the 91% growth in software revenue observed in the first quarter. The company has projected flat revenue growth for the third quarter, and the Zacks Consensus Estimate suggests a growth rate of 36%. The extent of AXON's growth potential remains uncertain, as it largely depends on the returns it generates for advertisers, which will continue to improve if AXON's algorithms are refined.
A second area of concern is the success of APP's initiatives outside the gaming sector. Given the nascent stage of these initiatives, predicting their revenue contribution with any accuracy is challenging. APP is focused on expanding its reach beyond the gaming vertical and has started forming partnerships with e-commerce platforms like Flip. The acquisition of Wurl, which offers performance marketing channels in the connected TV space, represents another strategic move. While much of Wurl's operations lie outside the gaming sector, it is still in its early stages of development.
The third risk factor for APP relates to changing privacy policies that could impact the data flows essential for the functioning of the company's AI-driven solutions. This is not a short-term concern but rather a risk worth noting and monitoring over the long term.
Estimates Moving South
One estimate for 2024 moved south over the past 60 days versus no northward revisions. For 2025 as well, one estimate moved south over the past 60 days versus no northward revisions. This indicates a lack of confidence among analysts in the company's ability to improve its financial performance soon.
Image Source: Zacks Investment Research
Time to Book Profits
AppLovin has demonstrated remarkable growth and resilience in the in-game mobile advertising space, significantly outperforming industry benchmarks and key competitors. The company's impressive technological advancements, such as AXON 2.0, and strategic expansions have translated into substantial financial gains, marking it as a strong contender in the market.
However, investors must approach with caution due to potential risks, including the possibility of slowed growth in in-game advertising and the uncertain impact of APP's non-gaming initiatives. Analysts have shown some skepticism about APP's near-term financial performance, as reflected in the downward revisions of estimates for 2024 and 2025. This lack of confidence suggests that while APP has strong potential, there are hurdles that the company may have to navigate to sustain its growth trajectory.
The recently started correction phase offers a strategic exit point for investors who have gained substantial profits from the stock.
Image: Bigstock
AppLovin (APP) Rises 93% YTD: What's Next for Investors?
AppLovin Corporation (APP - Free Report) has seen its stock skyrocket 92.8% year to date. This impressive rise has significantly outpaced the 17.5% rally seen in the industry it belongs to and the 14.1% growth of the Zacks S&P 500 composite.
When compared with its competitors in the in-game mobile advertising space, APP’s performance is notably stronger. Alphabet Inc. (GOOGL - Free Report) has surged 24%, and Meta Platforms (META - Free Report) has gained 31% over the same period.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Given the continuous strength of APP shares, many investors may be tempted to buy the stock. However, the pertinent question remains: Is now the right time to invest in MARA? To answer this, it’s important to delve into the details and analyze the various factors at play.
APP Has Started Correcting
As of the last trading session, APP’s stock closed at $78.68, close to its 52-week high of $91.91. It has crossed its 50-day moving average downward on Jul 23. In contrast to a massive rally in the year-to-date period, APP is up 4% in the past three months and down 4.5% over the past month. These are indications that a correction phase has just begun.
APP Stock Trades Below 50-Day Average
Image Source: Zacks Investment Research
APP has introduced its cutting-edge AXON 2.0 technology, expanded its gaming studios, and embarked on new initiatives aimed at driving market expansion and long-term growth. These efforts have yielded impressive financial results, with a 76% year-over-year increase in revenues and a 41% year-over-year increase in adjusted EBITDA, accompanied by an 800-basis points expansion in the adjusted EBITDA margin in 2023. For the first quarter of 2024, APP reported a 48% year-over-year revenue increase, with a net income of $236 million, a stark contrast to the net loss of $4.5 million recorded in the same quarter of the previous year.
However, APP's current stance presents certain risks. The company's in-game advertising growth may experience a slowdown in percentage growth rates. It is unlikely that AppLovin will sustain the 91% growth in software revenue observed in the first quarter. The company has projected flat revenue growth for the third quarter, and the Zacks Consensus Estimate suggests a growth rate of 36%. The extent of AXON's growth potential remains uncertain, as it largely depends on the returns it generates for advertisers, which will continue to improve if AXON's algorithms are refined.
A second area of concern is the success of APP's initiatives outside the gaming sector. Given the nascent stage of these initiatives, predicting their revenue contribution with any accuracy is challenging. APP is focused on expanding its reach beyond the gaming vertical and has started forming partnerships with e-commerce platforms like Flip. The acquisition of Wurl, which offers performance marketing channels in the connected TV space, represents another strategic move. While much of Wurl's operations lie outside the gaming sector, it is still in its early stages of development.
The third risk factor for APP relates to changing privacy policies that could impact the data flows essential for the functioning of the company's AI-driven solutions. This is not a short-term concern but rather a risk worth noting and monitoring over the long term.
Estimates Moving South
One estimate for 2024 moved south over the past 60 days versus no northward revisions. For 2025 as well, one estimate moved south over the past 60 days versus no northward revisions. This indicates a lack of confidence among analysts in the company's ability to improve its financial performance soon.
Image Source: Zacks Investment Research
Time to Book Profits
AppLovin has demonstrated remarkable growth and resilience in the in-game mobile advertising space, significantly outperforming industry benchmarks and key competitors. The company's impressive technological advancements, such as AXON 2.0, and strategic expansions have translated into substantial financial gains, marking it as a strong contender in the market.
However, investors must approach with caution due to potential risks, including the possibility of slowed growth in in-game advertising and the uncertain impact of APP's non-gaming initiatives. Analysts have shown some skepticism about APP's near-term financial performance, as reflected in the downward revisions of estimates for 2024 and 2025. This lack of confidence suggests that while APP has strong potential, there are hurdles that the company may have to navigate to sustain its growth trajectory.
The recently started correction phase offers a strategic exit point for investors who have gained substantial profits from the stock.
APP currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.