AppLovin (APP 8.15%) continues to be one of many hottest shares round, with its shares surging following its fourth-quarter earnings report. The inventory is up greater than 900% over the previous yr, as of this writing.
AppLovin’s most important enterprise is an adtech platform that cellular app builders use to draw customers and higher monetize their apps. It additionally owns a legacy portfolio of its personal apps. The corporate has seen explosive development because the launch of its Axon 2 AI-based promoting expertise answer within the second quarter of 2023.
Let’s take a more in-depth have a look at this top-performing synthetic intelligence (AI) inventory’s most up-to-date outcomes, and see whether or not it is too late to purchase the inventory.
Income continues to soar
Axon 2 continues to drive AppLovin’s development, with promoting (beforehand referred to as software program platform) phase income surging 73% to $999.5 million. Its Apps portfolio income, in the meantime, fell 1% to $373.3 million. Total income jumped 44% to $1.37 billion, surpassing the $1.26 billion consensus as compiled by LSEG.
The corporate continues to see strong gross margin enchancment, with it rising to 76.7% from 71.3% a yr in the past. AppLovin was in a position to scale back its gross sales and advertising and marketing spend by 4%. That is serving to profitability metrics develop even sooner than income.
Earnings per share (EPS) soared from $0.49 a yr in the past to $1.73, crushing the $1.24 consensus. Adjusted earnings earlier than curiosity, taxes, depreciation, and amortization (EBITDA), in the meantime, surged 78% to $848 million. Promoting adjusted EBITDA skyrocketed 85% to $777 million, whereas its apps enterprise grew adjusted EBITDA by 27% to $71.3 million as the corporate continues to deal with the associated fee facet of this enterprise.
AppLovin generated $701 million in working money movement and $695 million in free money movement. It ended the yr with $2.8 billion in web debt.
Trying forward, AppLovin forecast first-quarter income to be between $1.355 billion to $1.385 billion, representing development of between 28% and 31%. It guided for Q1 adjusted EBITDA to vary between $855 million and $885 million, up from $549 million a yr in the past.
In the meantime, the corporate introduced that it’ll promote its App enterprise for complete concerns of round $900 million, together with $500 million in money. The deal is predicted to shut in Q2. The transaction will enable the corporate to be a pure-play adtech firm.
One of many firm’s huge focuses for 2025 might be growth of self-service capabilities for advertisers. This can enable it to drive income development with out having to rent extra staff.
AppLovin mentioned it has seen early success within the e-commerce vertical, and never solely with direct-to-consumer manufacturers. Nonetheless, whereas the corporate is assured that e-commerce might be a fabric contributor in 2025, it’s uncertain of the precise timing. AppLovin additionally famous that it’s not trying to compete for a similar advert {dollars} as conventional social media corporations, however to as an alternative broaden the class.
Picture supply: Getty Pictures.
Is it too late to purchase the inventory?
I’ve written optimistic articles about AppLovin since final April, when the inventory was buying and selling within the low to mid $70s. At the moment, the inventory solely had a ahead price-to-earnings (P/E) of about 17 instances 2024 analyst estimates.
Right this moment, with the inventory buying and selling round $500 as of this writing, its valuation has — surprisingly — not elevated lots. Right this moment, the inventory trades at a ahead P/E of over 65 instances 2025 analyst estimates calling for EPS of $7.65.
APP PE Ratio (Ahead) knowledge by YCharts.
If the corporate can efficiently transfer past the gaming vertical, I believe the inventory ought to proceed to have strong upside. It has talked about long-term income development of between 20% to 30% simply from the gaming vertical, stemming from each business development and enhancements in its algorithm. If e-commerce and different verticals can gas much more income development, then the inventory’s valuation would not look too frothy. The transfer to self-service ought to assist enhance income development as nicely.
In the meantime, I like that it’s promoting its app portfolio, which is able to solely shine an excellent better highlight on its adtech enterprise. That may assist the corporate scale back its debt and present stronger total income development.
That mentioned, after the large positive aspects, I believe buyers ought to on the very least take some partial earnings within the inventory. The inventory has been on an awesome run, however it’s now not the high-growth cut price it was up to now. As such, I might not chase the inventory right here.
