On Tuesday, JPMorgan updated its outlook on AppLovin Corp (NASDAQ:APP), significantly increasing the company's price target to $160 from the previous $57, while maintaining a Neutral stance on the stock. The firm has reconstructed its model for AppLovin after assuming coverage recently, setting a December 2025 price target that markedly surpasses the prior December 2024 target.
AppLovin has distinguished itself as a dominant force in user acquisition and in-app monetization for mobile gaming companies. The management of AppLovin is also in the initial phase of branching out into new markets, such as e-commerce and connected TV. Conversations with various game studios and industry contacts reveal that AppLovin accounts for a substantial portion of user acquisition spending, ranging from approximately 40% to 60%.
Despite some studios reporting enhancements in Facebook (NASDAQ:META)'s performance and Unity's continued underperformance, there has not been a significant uptick in e-commerce ads as per the game studios. However, the limited feedback is not necessarily indicative of broader trends due to the smaller sample size. Notably, one industry contact highlighted better outcomes after the iOS billing change to probabilistic installs that took place in early August.
JPMorgan anticipates robust third-quarter results for AppLovin, supported by steady growth in the mobile gaming sector. The firm's third-quarter revenue estimate stands at $1,135 million, a 31% year-over-year increase, and adjusted EBITDA at $649 million, up 55% year-over-year, both figures being at the upper end of the company's guidance. For the fourth quarter, JPMorgan's projections are also above consensus, with expected revenue of $1,212 million, driven by 9% sequential software growth, and adjusted EBITDA of $706 million, thanks to an incremental software margin of 85%.
Despite the impressive 136% surge in AppLovin's shares since the second-quarter earnings report, which outpaces the S&P 500's 13% gain in the same period, JPMorgan remains cautious. The firm is looking for more concrete signs of AppLovin's capacity to expand significantly beyond gaming before fully endorsing the stock, which is currently trading at around 20 times its estimated 2025 adjusted EBITDA.
In other recent news, AppLovin Corp has been the center of attention due to its strong financial performance and optimistic analyst outlooks. The company's Q2 results revealed a 44% increase in revenue, reaching $1.08 billion. For Q3, the company projects revenue between $1.115 billion and $1.135 billion, and adjusted EBITDA ranging from $630 million to $650 million.
Loop Capital initiated coverage on AppLovin with a Buy rating and a price target of $181.00, highlighting the company's significant growth opportunity within the mobile gaming sector. BofA Securities nearly doubled AppLovin's stock price target to $210, retaining a Buy rating, due to the company's growth prospects following the introduction of its artificial intelligence engine, Axon 2.0.
However, Goldman Sachs downgraded AppLovin stock to neutral, setting a new price target of $147, despite an upward revision of the company's Q3 revenue projections for 2024. HSBC maintained a Buy rating for AppLovin, raising the stock target to $154.40, citing the company's growth momentum in the software platform sector and its expansion into online retail advertising.
Macquarie also maintained an Outperform rating, increasing its price target to $150, acknowledging 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, setting a new price target of $145, based on the company's improved visibility into medium-term revenue growth.
InvestingPro Insights
AppLovin's recent performance aligns with several key metrics and insights from InvestingPro. The company's revenue growth of 37.31% over the last twelve months as of Q2 2024 supports JPMorgan's optimistic revenue projections. Additionally, the EBITDA growth of 121.63% during the same period underscores the company's strong financial performance, which is consistent with JPMorgan's expectations for robust third-quarter results.
InvestingPro Tips highlight that AppLovin's net income is expected to grow this year, and analysts anticipate sales growth in the current year. These tips align with JPMorgan's positive outlook on the company's revenue and EBITDA projections. However, it's worth noting that the stock is trading at a high earnings multiple, with a P/E ratio of 65.3, which may explain JPMorgan's cautious stance despite the impressive share price performance.
The stock's recent performance is reflected in InvestingPro data, showing a 322.7% price total return over the past year and trading at 99.4% of its 52-week high. This aligns with JPMorgan's observation of the stock's 136% surge since the second-quarter earnings report.
For investors seeking a more comprehensive analysis, InvestingPro offers 21 additional tips for AppLovin, providing a deeper understanding of the company's financial health and market position.
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