On Tuesday, UBS made a notable change in its outlook on AppLovin Corp (NASDAQ: NASDAQ:APP), upgrading the mobile technology company's stock from Neutral to Buy. The firm also increased the price target to $145.00, up from the previous $100.00. The upgrade comes as a response to AppLovin's improved visibility into medium-term revenue growth and a valuation that UBS finds supportive, with the company trading at 13.7 times its forecasted FY25 adjusted EBITDA.
UBS highlighted AppLovin's exceptional relative return on ad spend (ROAS) compared to other digital advertising channels, which is a rarity in the space. This efficiency is expected to contribute to a 20-30% growth in software revenue from gaming alone. Looking ahead, AppLovin is poised to delve into additional growth by targeting the $140 billion e-commerce advertising Total Addressable Market (TAM). In the longer term, there is potential for the company to license its Axon 2.0 technology to smaller advertising platforms.
According to UBS, investors do not require a revenue growth of over 25% for AppLovin's shares to be considered a good investment, as the firm estimates a 20% two-year revenue compound annual growth rate (CAGR). The firm anticipates that more evidence of AppLovin's success in e-commerce could start to emerge in FY25. This could lead to an increase in the company's above-standard estimates and potentially raise the stock's multiple, considering the substantial size of the e-commerce advertising market.
UBS has been monitoring AppLovin's progress in capitalizing on gaming opportunities and now believes that the e-commerce advertising market could provide significant upside to their forecasts. The company's strategic moves in this area could attract a larger pool of advertising dollars, which may further enhance its financial outlook.
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