Up Over 900% in the Last Year, Investors Continue to Love AppLovin’s Strong Growth. Is It Too Late to Buy the Stock?

AppLovin (NASDAQ: APP) continues to be one of many hottest shares round, with its shares surging following its fourth-quarter earnings report. The inventory is up greater than 900% over the previous yr, as of this writing.

AppLovin’s most important enterprise is an adtech platform that cell app builders use to draw customers and higher monetize their apps. It additionally owns a legacy portfolio of its personal apps. The corporate has seen explosive development because the launch of its Axon 2 AI-based promoting know-how resolution within the second quarter of 2023.

Let’s take a better have a look at this top-performing artificial intelligence (AI) inventory’s most up-to-date outcomes, and see whether or not it is too late to purchase the inventory.

Axon 2 continues to drive AppLovin’s development, with promoting (beforehand known as software program platform) section income surging 73% to $999.5 million. Its Apps portfolio income, in the meantime, fell 1% to $373.3 million. General income jumped 44% to $1.37 billion, surpassing the $1.26 billion consensus as compiled by LSEG.

The corporate continues to see strong gross margin enchancment, with it rising to 76.7% from 71.3% a yr in the past. AppLovin was capable of scale back its gross sales and advertising spend by 4%. That is serving to profitability metrics develop even quicker than income.

Earnings per share (EPS) soared from $0.49 a yr in the past to $1.73, crushing the $1.24 consensus. Adjusted earnings earlier than curiosity, taxes, depreciation, and amortization (EBITDA), in the meantime, surged 78% to $848 million. Promoting adjusted EBITDA skyrocketed 85% to $777 million, whereas its apps enterprise grew adjusted EBITDA by 27% to $71.3 million as the corporate continues to deal with the fee aspect of this enterprise.

AppLovin generated $701 million in working money circulate and $695 million in free money circulate. It ended the yr with $2.8 billion in web debt.

Trying forward, AppLovin forecast first-quarter income to be between $1.355 billion to $1.385 billion, representing development of between 28% and 31%. It guided for Q1 adjusted EBITDA to vary between $855 million and $885 million, up from $549 million a yr in the past.

In the meantime, the corporate introduced that it’s going to promote its App enterprise for whole issues of round $900 million, together with $500 million in money. The deal is predicted to shut in Q2. The transaction will permit the corporate to be a pure-play adtech firm.

One of many firm’s massive focuses for 2025 might be growth of self-service capabilities for advertisers. It will permit it to drive income development with out having to rent extra staff.

AppLovin stated it has seen early success within the e-commerce vertical, and never solely with direct-to-consumer manufacturers. Nevertheless, whereas the corporate is assured that e-commerce might be a fabric contributor in 2025, it’s uncertain of the precise timing. AppLovin additionally famous that it’s not seeking to compete for a similar advert {dollars} as conventional social media corporations, however to as a substitute develop the class.

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I’ve written optimistic articles about AppLovin since last April, when the inventory was buying and selling within the low to mid $70s. At the moment, the inventory solely had a ahead price-to-earnings (P/E) of about 17 occasions 2024 analyst estimates.

At the moment, with the inventory buying and selling round $500 as of this writing, its valuation has — surprisingly — not elevated loads. At the moment, the inventory trades at a ahead P/E of over 65 occasions 2025 analyst estimates calling for EPS of $7.65.

If the corporate can efficiently transfer past the gaming vertical, I feel the inventory ought to proceed to have strong upside. It has talked about long-term income development of between 20% to 30% simply from the gaming vertical, stemming from each business development and enhancements in its algorithm. If e-commerce and different verticals can gas much more income development, then the inventory’s valuation would not look too frothy. The transfer to self-service ought to assist increase income development as effectively.

In the meantime, I like that it’s promoting its app portfolio, which is able to solely shine a fair higher highlight on its adtech enterprise. That may assist the corporate scale back its debt and present stronger general income development.

That stated, after the large positive factors, I feel buyers ought to on the very least take some partial income within the inventory. The inventory has been on a terrific run, however it’s now not the high-growth discount it was up to now. As such, I might not chase the inventory right here.

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Geoffrey Seiler has no place in any of the shares talked about. The Motley Idiot has positions in and recommends AppLovin. The Motley Idiot has a disclosure policy.

Up Over 900% in the Last Year, Investors Continue to Love AppLovin’s Strong Growth. Is It Too Late to Buy the Stock? was initially printed by The Motley Idiot