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 12 months, as of this writing.
AppLovin’s essential 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 progress for the reason that launch of its Axon 2 AI-based promoting expertise resolution within the second quarter of 2023.
Let’s take a better 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 progress, with promoting (beforehand known as software program platform) section 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 12 months in the past. AppLovin was capable of scale back its gross sales and advertising and marketing spend by 4%. That is serving to profitability metrics develop even quicker than income.
Earnings per share (EPS) soared from $0.49 a 12 months 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 concentrate on the associated fee aspect of this enterprise.
AppLovin generated $701 million in working money circulation and $695 million in free money circulation. It ended the 12 months with $2.8 billion in internet debt.
Trying forward, AppLovin forecast first-quarter income to be between $1.355 billion to $1.385 billion, representing progress of between 28% and 31%. It guided for Q1 adjusted EBITDA to vary between $855 million and $885 million, up from $549 million a 12 months in the past.
In the meantime, the corporate introduced that it’s going to promote its App enterprise for whole issues of round $900 million, together with $500 million in money. The deal is predicted to shut in Q2. The transaction will permit the corporate to be a pure-play adtech firm.
One of many firm’s massive focuses for 2025 will likely be improvement of self-service capabilities for advertisers. This may permit it to drive income progress 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 will likely be a cloth 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 a substitute develop 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 occasions 2024 analyst estimates.
As we speak, with the inventory buying and selling round $500 as of this writing, its valuation has — surprisingly — not elevated so much. As we speak, the inventory trades at a ahead P/E of over 65 occasions 2025 analyst estimates calling for EPS of $7.65.
APP PE Ratio (Ahead) information by YCharts.
If the corporate can efficiently transfer past the gaming vertical, I feel the inventory ought to proceed to have strong upside. It has talked about long-term income progress of between 20% to 30% simply from the gaming vertical, stemming from each trade progress and enhancements in its algorithm. If e-commerce and different verticals can gas much more income progress, then the inventory’s valuation would not look too frothy. The transfer to self-service ought to assist increase income progress as nicely.
In the meantime, I like that it’s promoting its app portfolio, which can solely shine a good better highlight on its adtech enterprise. That may assist the corporate scale back its debt and present stronger total income progress.
That mentioned, after the massive features, I feel traders ought to on the very least take some partial income within the inventory. The inventory has been on an incredible run, however it’s now not the high-growth cut price it was up to now. As such, I’d not chase the inventory right here.
