On Monday, Goldman Sachs adjusted its stance on AppLovin Corp (NASDAQ:APP), shifting the rating from Buy to Neutral. Alongside this change, the firm set a new price target for the company's shares at $147.00.
The decision to downgrade the stock comes as Goldman Sachs revises its operating forecasts for AppLovin, particularly considering the company's performance across its two main operating segments. In anticipation of AppLovin's third-quarter earnings for 2024, the firm has updated its revenue projections upwards. This adjustment reflects the strength of AppLovin's current Software offerings, including the impact of AXON 2.0, and incorporates a multi-year compounded revenue growth analysis for emerging opportunities.
According to Goldman Sachs, AppLovin is on a positive track in the second half of 2024, aligning with the broadly stable and strong trends observed in the advertising industry. This positive trajectory is based on the firm's industry research and analysis.
Furthermore, the stability of AppLovin's Apps segment, which primarily includes gaming, has been noted. Goldman Sachs highlights that the company's strategy is focused on finding the right balance between growth and profitability within this segment. This strategic approach appears to be in line with industry stability, as indicated by the firm's research.
The new price target of $147.00 represents Goldman Sachs' valuation of AppLovin's stock based on the updated forecasts and industry outlook. This target is set against the backdrop of the company's forthcoming earnings report and the overall performance of its key business areas.
In other recent news, AppLovin Corp has been the center of several analyst upgrades and target price adjustments. HSBC has maintained its Buy rating and raised the stock target to $154.40, citing the company's growth momentum in the software platform sector and its successful expansion into online retail advertising. Macquarie also maintained its Outperform rating, with a price target increase to $150, emphasizing AppLovin's significant growth and higher margins.
Citi raised its price target for AppLovin to $155, maintaining a Buy rating, due to increased confidence in the company's potential for software revenue growth. UBS upgraded AppLovin's stock from Neutral to Buy, with a new price target of $145, recognizing the company's improved visibility into medium-term revenue growth. BTIG maintained a Buy rating and raised its price target to $150, reflecting the firm's constructive view of the company's competitive position and future growth potential.
However, Benchmark maintained a sell rating, raising its price target to $66, citing potential challenges. AppLovin's Q2 financial results showed strong performance, with a 44% increase in revenue to $1.08 billion. The company's future guidance predicts Q3 revenue between $1.115 billion and $1.135 billion, and adjusted EBITDA ranging from $630 million to $650 million.
InvestingPro Insights
AppLovin's recent performance aligns with Goldman Sachs' positive outlook. According to InvestingPro data, the company's revenue growth has been robust, with a 43.98% increase in the most recent quarter. This strong growth is complemented by a healthy gross profit margin of 71.8% over the last twelve months, indicating efficient operations.
InvestingPro Tips highlight that analysts anticipate sales growth in the current year, supporting Goldman Sachs' upward revision of revenue projections. Additionally, the company's net income is expected to grow this year, which could further bolster its financial position.
The stock's recent performance has been particularly noteworthy, with a 73.23% price return over the past three months and a staggering 281.62% return over the last year. This aligns with the InvestingPro Tip that AppLovin has shown a high return over the last year.
However, investors should note that the stock is trading near its 52-week high and at a high earnings multiple, with a P/E ratio of 60.07. This valuation suggests that much of the company's positive outlook may already be priced in, potentially explaining Goldman Sachs' shift to a Neutral rating.
For readers interested in a more comprehensive analysis, InvestingPro offers 21 additional tips for AppLovin, providing a deeper insight into the company's financial health and market position.
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