Following AppLovin Corp’s (NASDAQ: APP) stellar Q3 2024 results, the company has experienced a sharp 46.85% surge in its stock price, closing yesterday with one of the year’s most significant single-day gains.
The earnings report, published before the markets closed on November 6, revealed a strong performance driven by AppLovin’s AI-powered ad tech platform, AXON, and a solid rise in software platform revenue.
This impressive outcome led Daiwa Securities to upgrade the stock to “Outperform” from “Neutral,” while raising its price target from $80 to a substantial $280, on November 8.
Applovin Q3 2024 earnings exceed expectations
AppLovin’s third-quarter results for 2024 showcased an impressive 39% year-over-year increase in revenue, reaching $1.2 billion, significantly outpacing the estimated $1.13 billion.
The company’s adjusted EPS also surpassed expectations at $1.25, higher than the anticipated $1.23.
The earnings beat has been attributed to the growth of AppLovin’s Software Platform segment, which saw a substantial 66% increase in revenue compared to the same quarter last year.
CEO Adam Foroughi attributed this to continuous enhancements to the AXON platform, which have helped advertisers achieve notable returns on their ad spend, boosting confidence in further scaling this AI-driven platform.
Applovin stock: divergent opinions and price targets
The positive earnings report has led several prominent investment firms to revise their outlook on AppLovin.
JP Morgan, for instance, raised its price target from $160 to $200, although it maintained a “Neutral” rating, signaling concerns over whether AppLovin can sustain its momentum given the competitive nature of the mobile gaming sector.
Similarly, Morgan Stanley increased its target to $200 but echoed similar sentiments, indicating a “challenging” path forward for AppLovin’s long-term growth in the $100 billion global mobile gaming market.
On the other hand, Needham analyst Bernie McTernan was more optimistic, noting the potential for significant growth in e-commerce from 2025, aligning with Daiwa’s positive forecast for the company’s newer business segments.
Applovin’s growth in mobile gaming
A critical factor behind AppLovin’s rapid revenue growth is its dominant position in mobile gaming and advertising, which some analysts have likened to Google’s presence in programmatic advertising.
AppLovin’s Software Platform not only captures a significant market share in mobile games but is now expanding into new verticals like e-commerce.
Foroughi shared that an e-commerce pilot program has shown promising early returns, with advertisers experiencing almost 100% incrementality, signaling a strong growth driver beyond 2024.
This diversification could serve as a buffer against the volatility of the mobile gaming market, where AppLovin currently faces intense competition from major tech players.
Applovin stock valuation
Currently trading at a 22.5x EBITDA multiple, AppLovin holds a premium valuation in the ad tech sector, surpassing many of its peers.
Although the company has shown solid performance in free cash flow generation and operational efficiency, this premium raises questions.
For instance, while AppLovin’s free cash flow yield stands at around 3%, its high valuation has led some analysts to express caution.
Goldman Sachs downgraded the stock to “Neutral,” citing a balanced risk-reward ratio and hinting that AppLovin may have to execute near-perfectly to justify its current market price.
Despite this, the company’s high-margin software segment and controlled expenses have continued to bolster investor sentiment.
Looking ahead,the company’s sustained investment in AI and emerging markets offers substantial long-term potential, though its premium valuation limits the margin of safety for new investors.
Now, let’s dive into the technical aspects to explore where the stock might be headed based on recent price action and chart patterns.
APPstock: wait for a retracement
Applovin has turned out to be one of the best-performing SaaS stocks this year boasting over fivefold returns so far.
The stock is seeing extreme bullish momentum across timeframes right now.
Source: TradingView
While there is no denying that this extreme momentum can cause the stock to appreciate significantly from here, investors bullish on the stock must remain cautious and refrain from initiating a long position now when it has already seen an almost 50% increase in a matter of days.
A long position must only be considered if the stock retraces at least 23.6% from its recent swing low and recent swing high, which currently lies near the $208 level.
Traders who are thinking of taking advantage of minor retracements in the stock by shorting it must also avoid doing so as there are far higher chances that any minor retracement currently would be bought into by the bulls.
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