Up Nearly 1000%, Can AppLovin Keep Delivering for Investors?

Key Points

• AppLovin recently posted another quarter of earnings that blew the market away.
• Shares of the company are now up almost 1000% over the past 52 weeks.
• AppLovin has outlined several interesting ways it plans to keep winning in 2025 and beyond.

AppLovin NASDAQ: APP, one of the hottest stocks in the market in 2024, just had another fantastic quarter. In the two days following the stock's Feb. 12 earnings release, shares spiked 34%. As of the Feb. 14 close, the tech stock’s return over the past 52 weeks is nearly 1000%. So, what’s to make of this skyrocketing stock? Is there still significant room to run, or is its value maxing out? I’ll break down what’s allowed the stock to perform so well and give my outlook on this name.

AppLovin: Earnings Show This Ad-Tech Train Is Full Steam Ahead

In Q4 2024, AppLovin posted strong revenue growth of 44%. Its total sales came in just under $1.4 billion, around $110 million higher than Wall Street expected. The company’s diluted earnings per share (EPS) more than tripled and were way above expectations.

For AppLovin, it's particularly important to look at the firm’s advertising revenue. The company is selling off the rest of its business. Growth was extremely impressive at 73%, an acceleration from 66% growth in Q3 2024. The company’s margins continued to increase strongly. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin rose to 62%. This is an increase of 1,200 basis points from Q4 2023.

What Wall Street Is Saying: Price Targets Rise More Than Shares

The response from Wall Street analysts was highly positive. Six analysts tracked by MarketBeat raised their targets by an average of 41%. Overall, their targets average out to $558 per share. Compared to the company’s Feb. 14 closing price of $510, this implies over 9% upside in shares. That might not sound like much, but it is important to note that the average price target of these analysts only showed 5% upside prior to the earnings release. This demonstrates that if a firm can continue to impress, price targets can continue to rise.

What’s Next for AppLovin, and Is Its Success Poised to Continue?

With AppLovin now trading at a sky-high forward price-to-earnings (P/E) multiple of 64x, it is important to analyze what the future holds. Strong initiatives need to be implemented to support this high multiple and allow the stock price to continue rising.

AppLovin has traditionally explicitly worked in the mobile gaming ad-tech space. The company helps mobile game developers advertise their games in other mobile games. The goal is to get the players currently playing the game being advertised to download another game. This has done well for AppLovin, but it is a very small chunk of the overall advertising market. The company has now started placing e-commerce advertisements.

AppLovin reported that non-gaming advertisers had performed well and captured holiday spending ad dollars. It also said there was progress in non-direct-to-consumer advertising. The company’s management said, “Early pilots have shown positive outcomes for a range of advertisers, suggesting that any business in any vertical can harness the power of our platform." AppLovin’s expansion into new verticals presents a major opportunity with plenty of untapped potential. The company is “very confident” that e-commerce will significantly boost revenue in 2025, signaling expectations for strong progress this year.

Another smart move by the company is selling its game development business, which had slow growth and lower margins than its advertising segment. This sale allows the firm to focus on its core revenue driver and strengthen its expertise.

This is important as the firm must compete against AI advertising juggernauts like Meta Platforms NASDAQ: META.

Lastly, the firm is prioritizing growth without greatly increasing its headcount. In 2025, it wants to launch a self-service dashboard powered by AI to manage customer onboarding and customer service. This can not only allow the firm to grow faster by being able to onboard more clients, but it can also help increase margins. These initiatives can allow AppLovin to continue its success if executed properly.

Still, it is possible that AppLovin could face a massive drop in the stock price, like what happened to Trade Desk NASDAQ: TTD recently. The company’s fantastic performance means the bar keeps getting set higher. If it slips up one quarter as it looks to implement these big changes, the market may punish it severely. However, in my opinion, AppLovin is doing what it takes to allow the stock to perform strongly long-term.