On Monday, BofA Securities made a significant adjustment to its valuation of AppLovin Corp (NASDAQ: NASDAQ:APP), raising the price target to $210 from the previous $120 while retaining a Buy rating on the stock. The adjustment reflects a reassessment of the company's growth prospects following the second quarter 2023 introduction of its artificial intelligence engine, Axon 2.0.
The firm's analyst believes that Axon 2.0 has sparked a transformation in AppLovin's growth and profitability that has not been fully appreciated by the market or other analysts. This underrecognition has led BofA Securities to reclassify AppLovin as a growth stock. The firm has increased its valuation to 18 times enterprise value (EV) on the calendar year 2026 (CY26) earnings before interest, taxes, depreciation, and amortization (EBITDA) from 14 times CY25 EBITDA.
In addition to the revaluation, BofA Securities has also increased its estimates for the company's software topline growth for calendar years 2025 and 2026 by 600 basis points and 300 basis points, respectively. This revision is based on growing confidence in AppLovin's core business, particularly in mobile game advertisements. The firm's model for the Software Segment EBITDA now extends through calendar year 2028, with a compound annual growth rate (CAGR) of 30%.
The analyst highlighted that few stocks demonstrate approximately 90% incremental EBITDA margins, which justifies a significant change in valuation. Even with the raised target, BofA Securities' valuation of AppLovin remains conservative compared to the valuations of AppLovin's marketing technology peers such as The Trade Desk (NASDAQ:TTD), HubSpot (NYSE:HUBS), and Snap Inc . (NYSE:SNAP), which trade at 38 times, 37 times, and 18 times EBITDA, respectively. Notably, AppLovin's profitability surpasses that of these companies.
BofA Securities' forecasts for AppLovin stand well above the consensus, and the firm claims to have the highest estimates on the street by a considerable margin. The analyst's outlook suggests a robust future for AppLovin, underpinned by solid fundamentals and a strong position within its industry.
In other recent news, AppLovin Corp has seen a series of adjustments by financial analysts. Goldman Sachs downgraded AppLovin stock to neutral, setting a new price target of $147.00, following an upward revision of the company's Q3 revenue projections for 2024.
Meanwhile, HSBC maintained a Buy rating for AppLovin, raising the stock target to $154.40, due to the company's growth momentum in the software platform sector and its expansion into online retail advertising. Macquarie also maintained its Outperform rating, increasing its price target to $150, recognizing 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. On the other hand, UBS upgraded AppLovin's stock from Neutral to Buy, setting a new price target of $145, based on the company's improved visibility into medium-term revenue growth. BTIG maintained a Buy rating, raising its price target to $150, reflecting a positive view of the company's competitive position and future growth potential.
Despite these positive assessments, 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 and future prospects align closely with BofA Securities' bullish outlook. According to InvestingPro data, the company's revenue growth remains strong, with a 37.31% increase over the last twelve months as of Q2 2024. This growth is complemented by an impressive EBITDA growth of 121.63% over the same period, supporting the analyst's view on the company's expanding profitability.
InvestingPro Tips highlight that AppLovin's net income is expected to grow this year, and analysts anticipate sales growth in the current year. These projections reinforce BofA Securities' increased estimates for the company's software topline growth. Additionally, the tip indicating that AppLovin operates with a moderate level of debt suggests financial stability, which could contribute to the sustained growth trajectory outlined in the analyst's report.
It's worth noting that AppLovin's stock has shown a strong return over the last year, with a price total return of 286.43% as of the latest data. This performance, coupled with the fact that the stock is trading near its 52-week high, aligns with the market's growing recognition of AppLovin's potential, as suggested by BofA Securities.
Investors seeking a more comprehensive analysis can access 21 additional InvestingPro Tips for AppLovin, providing a deeper understanding of the company's financial health and market position.
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