AppLovin Stock Rises 800% in a Year: Buy, Hold or Sell?

AppLovin Corporation APP has been one of the standout performers in 2024, with its stock price surging by a monstrous 713%. AppLovin's innovative AI-driven advertising solutions attracted significant market attention, contributing to its impressive stock performance. The company's expansion into e-commerce opened a substantial revenue opportunity, further boosting investor confidence.

As of this writing, the company’s shares have skyrocketed by an impressive 803% year over year, outpacing the industry’s 64% growth. APP's performance is notably stronger than those of its competitors in the in-game mobile advertising space. Alphabet Inc. GOOGL has surged 42%, and Meta Platforms META has gained 77% over the same period.

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Now, the key question for investors is whether the stock’s growth trajectory justifies a “buy” at its current level or if waiting for a pullback might offer a better entry point.

APP’s Strong Fundamentals Drive Growth

AppLovin's recent financial results underscore its strong fundamentals and impressive growth trajectory. The company has achieved remarkable revenue growth by leveraging its AXON 2.0 technology and strategic expansion in gaming studios. In the third quarter of 2024, revenues increased 39% year over year and 11% sequentially, reflecting robust operational performance and market demand.

The company's profitability metrics also demonstrate significant improvement. Adjusted EBITDA surged 72% year over year and 20% sequentially during the quarter, underscoring the efficiency of its business model. Net income saw an exceptional 300% increase from the same quarter in 2023, along with a 40% sequential rise, highlighting AppLovin’s ability to convert revenue growth into bottom-line gains effectively.

For 2023, AppLovin reported a 76% year-over-year revenue increase and a 41% rise in adjusted EBITDA. These figures highlight its capacity to capitalize on market opportunities, especially within the gaming and in-app advertising segments, while maintaining operational efficiency.

However, potential risks persist. The growth in the in-game advertising segment may face challenges, and the uncertain impact of the company’s ventures outside gaming could introduce volatility. Nonetheless, AppLovin's strategic focus on innovative technology and expansion within the gaming industry positions it well for sustained growth. With AXON 2.0 driving operational efficiencies and a diversified approach to revenue generation, AppLovin is poised to maintain its growth momentum, making it an attractive option for long-term investors.

APP’s Liquidity Indicates Financial Stability

AppLovin's robust liquidity position, highlighted by a current ratio of 2.41 at the end of the third quarter of 2024 compared to the industry average of 2.16, underscores its strong financial health. A current ratio above 1 indicates that the company can easily cover its short-term obligations with its current assets, reducing the risk of financial strain in the near term.

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For APP stock, this strong liquidity signals financial stability and operational efficiency, which are critical in managing day-to-day operations and funding growth initiatives. It reflects the company’s ability to invest in innovation, expand its market presence and navigate potential economic uncertainties.

Analysts Confident in APP’s Earnings Growth

The Zacks Consensus Estimate for APP’s 2024 earnings is pegged at $4.06, indicating 314.3% growth from the year-ago level. Earnings in 2025 are expected to increase 45.3% from the prior-year actuals. The company’s sales are expected to grow 40% and 21.8% year over year, respectively, in fiscal 2024 and 2025.

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In the past 60 days, seven estimates for 2024 earnings have been revised upward, with no downward revisions. The Zacks Consensus Estimate for the quarter’s earnings has increased 17% during this period. For 2025, seven estimates moved north over the past 60 days versus no southward revisions. This indicates strong confidence among analysts in the company's ability to improve its financial performance soon. The Zacks Consensus Estimate for the quarter’s earnings has increased 28% during this period.

APP Stock is a Buy

APP presents a compelling investment opportunity due to its impressive financial performance, strong liquidity and robust growth prospects. The company's recent results and strategic initiatives underscore its potential for continued success in the gaming and software sectors. AppLovin’s strong fundamentals, innovative technology and strategic growth initiatives position it as a leader in its industry. With a solid financial outlook and increasing analyst confidence, we recommend a "Strong Buy" rating for APP stock to capitalize on its promising growth trajectory.

APP currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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