AppLovin's AI-Powered Adtech Drives Explosive Growth, Challenging Industry Giants

Move Over The Trade Desk, This Is Wall Street's New Favorite Adtech Stock | The Motley Fool

This darling stock is growing revenue at an extraordinary rate and believes it can grow at a greater than 20% annual rate from here. When advertising technology (adtech) company The Trade Desk (TTD -3.01%) went public in 2016, few people understood what the company did. Even today, relatively few people likely understand what it does. But for those who researched the business and purchased shares, they've been richly rewarded. The Trade Desk stock is up over 4,000% since going public, as of this writing. The advertising industry is increasingly going digital. Video and audio content, for example, is being streamed more and more. And those things need a digital advertising solution. Here's what the The Trade Desk does: It partners with advertisers, working within their budgets to get ads placed at various content publishers. Ads are placed through split-second auctions. And The Trade Desk targets the audience demographics that the advertiser is going after based on the data it has from the publisher. This business model has paid off with incredible revenue growth. And investors haven't been able to get enough of The Trade Desk stock -- it frequently trades at a quite pricey valuation for this reason. However, there's a new Wall Street darling stock in the adtech space. Whereas it took The Trade Desk about eight years to go from a market capitalization of about $1 billion to over $60 billion today, the market cap for AppLovin (APP -1.75%) is quickly skyrocketing toward $100 billion, leaving The Trade Desk in the dust. Here's why AppLovin is Wall Street's newest darling in the adtech space. In August of 2022, it seemed like AppLovin's management was ready to throw in the towel. It proposed a merger with Unity with terms more favorable for Unity. Unity's shareholders would have the majority of the value, AppLovin co-founder and CEO Adam Foroughi would relinquish his role in deference to Unity's CEO, and Unity's board of directors would comprise the majority of the new board. Unity turned down AppLovin's unsolicited proposal. And in the very next quarter, the third quarter of 2022, AppLovin reported a 2% year-over-year drop in revenue. For perspective, the company's revenue had been up 90% in the prior-year period. In short, it seemed like the wheels were coming off the business, as evidenced by its plunging growth rate. No wonder AppLovin's management wanted out. At least, that's what it seemed like from a distance. But for those paying attention, something transformational was happening beneath the surface with AppLovin. It turns out that AppLovin has two parts to its business. At the time, the bigger part was its mobile app business. The company had its own portfolio of mobile games. But according to management, this part of the business wasn't the ultimate goal. It was merely trying to gather as much first-party data as possible to build artificial intelligence (AI) algorithms for its software business. In the same quarter that its revenue dropped 2%, AppLovin's software revenue was up a whopping 59% year over year and it's only gained ground from there. The company's customers are mobile app developers looking to monetize their apps. They turn to AppLovin, which uses its AI software to get the right ads placed in the right places. In the second quarter of 2023, AppLovin launched an upgraded version of its software called Axon 2.0. Here's a look at AppLovin's software revenue growth since then. Data source: AppLovin's financial filings. YOY = year over year. To say that Axon 2.0 catalyzed AppLovin's growth would be an understatement. In short, mobile app companies using the new version of its software have seen massive improvements in their return on investment, motivating them to increase usage even more. Furthermore, AppLovin's software did more than just catalyze its growth rate. The software business has great profit margins, which means that the company's profits are consequently soaring. Over the last 12 months, the company has $1.7 billion in free cash flow, which is around a 40% margin. Few businesses can match this. This explains the impressive rise of AppLovin stock. While the past is important context, investors really want to know what's next for AppLovin stock. There is an encouraging closing thought here. AppLovin's customers are primarily mobile gaming app developers. But considering how good its AI software is at monetizing these apps, management believes it's time to branch out. Right now it's piloting a launch into the e-commerce app sector. And early results are promising. By branching out into new app sectors, AppLovin's management believes it can grow revenue at over 20% annually from here. If it can preserve its profit margins along the way, AppLovin stock could indeed have more upside.

Move Over Nvidia and Palantir, This AI Juggernaut Is Up 628% Year to Date. Can the Stock's Momentum Continue? | The Motley Fool

AppLovin owns a portfolio of gaming apps but its primary business is an adtech solution to help mobile app developers attract users and better monetize their apps. Since the launch of its Axon 2 AI-based advertising technology in the second quarter of 2023, the company has seen explosive growth. Let's take a close look at the company's Q3 results and whether the stock is still a buy. Axon 2 has been the source behind nearly all of AppLovin's growth, with its software platform revenue soaring 66% to $835 million. The company's legacy apps business, meanwhile, saw revenue increase 1% to $369 million. Overall revenue climbed 39% to $1.2 billion, topping the $1.13 billion consensus as compiled by LSEG. The company continues to see a ton of operating leverage in its business as sales climb, with gross margin for the quarter improving to 77.5% from 69.3% a year ago. The revenue surge also came despite the company reducing its sales and marketing spend by 3%. That combination is quite remarkable. Earnings per share (EPS) surged from $0.30 a year ago to $1.25. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), meanwhile, climbed 72% to $722 million. Software platform adjusted EBITDA jumped 78% to $653 million, while its apps business grew adjusted EBITDA by 19% to $68 million as the company optimized the business's cost structure. The company produced $551 million in operating cash flow and $545 million in free cash flow. It ended the quarter with $2.9 billion in net debt. AppLovin guided for fourth-quarter revenue to come in a range of $1.24 billion to $1.26 billion. That would equate to growth of between 30% and 32% and is above the company's long-term goal to grow revenue by between 20% and 30%. It is projecting Q4 adjusted EBITDA to be between $475 million and $495 million, up from $476 million a year ago. AppLovin has proven to be one of the biggest AI winners, as its Axon 2 AI adtech platform has led to soaring revenue with its gaming customers. At the same time, it has seen a ton of operating leverage in its business, being able to realize tremendous growth while not increasing its sales and marketing spend and improving its gross margin. The company expects consistent growth of between 20% and 30% from its gaming customers, but it has also just started piloting the platform with e-commerce. It has said early results are tracking above expectations and that it thinks this vertical can scale next year and start being a strong contributor. Moving beyond gaming is a huge potential opportunity for the company. With its stock up about 628% year to date, the company's forward price-to-earnings (P/E) ratio has risen to 47 based on 2025 analyst estimates. Its price/earnings-to-growth (PEG) ratio now sits at 1.28. A PEG ratio of under 1 is considered undervalued and growth stocks will often command multiples well above 1. I've written favorably about AppLovin several times this year, going as far back as April, while in June I listed it as one of two stocks that I thought could go parabolic. While the stock and its valuation have greatly increased since then, I think there could still be more upside ahead. If AppLovin can continue to grow revenue at a 30% pace while keeping expenses in check, its valuation is reasonable. Meanwhile, if it is able to move beyond gaming with Axon 2, the sky remains the limit. While I think it is prudent for investors with big gains to take some profits, I'd still be holding onto the stock even after this incredible run in its share price.

AppLovin Stock Soars. Is It Too Late to Buy This Artificial Intelligence Winner?

Parkev Tatevosian, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AppLovin. The Motley Fool has a disclosure policy. Parkev Tatevosian is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through his link, he will earn some extra money that supports his channel. His opinions remain his own and are unaffected by The Motley Fool.

Why AppLovin Stock Soared 45% This Week | The Motley Fool

Shares of AppLovin (APP 8.61%), an online gaming and advertising company, soared higher this week after it reported third-quarter financial results that blew past Wall Street's consensus estimates. AppLovin's shares jumped 45% this week, as of this writing, adding to the company's stunning gains over the past year of more than 500%. AppLovin's sales popped 39% in the quarter to $1.2 billion, which outpaced analysts' consensus estimate of $1.13 billion. Similarly, the company's diluted earnings per share of $1.25 easily surpassed Wall Street's consensus estimate of $0.92 per share. The biggest driver of AppLovin's growth came from its artificial intelligence (AI)-powered advertising engine, called Axon, that provides targeted advertising in gaming apps. Management said on AppLovin's earnings call that a combination of self-learning and updates from its engineering team is advancing Axon's targeting capabilities and bringing big steps forward, noting that the company "saw one of those step changes, with meaningful growth driven by advancements" to Axon in the quarter. AppLovin also impressed investors by issuing strong guidance. The company said fourth-quarter sales will be in the range between $1.24 billion and $1.26 billion, which represents 31% growth at the midpoint. AppLovin's huge draw among investors comes in part from its ability to generate profits. Net income jumped 300% in the quarter to $434 million and its adjusted profit margin is an impressive 78%. With AppLovin significantly boosting its sales and earnings, and management issuing impressive guidance, it's not surprising to see its stock skyrocket this week. More importantly, AppLovin's profitability and its ability to tap into the ultra-popular AI trend are giving investors a compelling investment opportunity.

AppLovin, top tech stock of the year, soars another 45% on earnings beat

AppLovin shares soared 45% on Thursday after the online gaming and advertising company issued guidance that was well above estimates and reported better-than-expected earnings and revenue. The stock jumped past $245 in early afternoon trading. It's now up 515% this year, far outpacing all other tech companies valued at $5 billion or more, according to FactSet data. The rally has lifted AppLovin's market cap to over $80 billion. Revenue in the third quarter climbed 39% to $1.2 billion, topping the $1.13 billion average estimate, according to LSEG. Earnings per share of $1.25 exceeded the 92-cent average estimate. For the fourth quarter, AppLovin sees revenue of $1.24 billion to $1.26 billion, representing growth of about 31% at the middle of the range. Analysts were expecting about $1.18 billion. Founded 12 years ago, AppLovin went public in 2021, riding a Covid-era wave of excitement in online games. Now, the company's games unit generates relatively slow growth, but its online ad business is bustling from advancements in artificial intelligence that have improved ad targeting. AppLovin attributes much of its growth to its AI advertising engine called AXON, particularly since releasing the updated 2.0 version last year. The technology helps put more targeted ads on the mobile gaming apps the company owns, and it works for other studios that license the software. The company said software platform revenue in the quarter increased 66% to $835 million, driven by improvements in AXON's models. "As we continue to improve our models our advertising partners are able to successfully spend at a greater scale," the company said in a letter to shareholders. While revenue is increasing at a rapid rate, Wall Street is most attracted to AppLovin's profitability. Net income in the quarter increased 300% to $434.4 million, or $1.25 a share, from $108.6 million, or 30 cents a share, a year earlier. The software platform had an adjusted profit margin of 78%. "AppLovin continues to impress with outsized revenue growth and incredible EBITDA conversion," analysts at Wedbush wrote in a report on Thursday. They recommend buying the stock and increased their price target from $170 to $270. AppLovin CEO Adam Foroughi, whose net worth swelled on Thursday by more than $2 billion to about $7.4 billion, provided an update on the company's pilot e-commerce project. The technology allows businesses to offer targeted ads in games. "In all my years, It's the best product I've ever seen released by us, fastest growing, but it's still in pilot," Foroughi said on the earnings call. E-commerce "is looking so strong that it's something that we think will be impactful to the business financially in 2025 and then for the long-term."

AppLovin Stock Price Levels to Watch After Post-Earnings 46% Surge

Investors should watch key support levels on the stock's chart around $228 and $172. AppLovin (APP) shares are in the spotlight after soaring Thursday following the release of better-than-expected results and a rosy outlook from the company, which benefitted from higher digital advertising spending on its artificial intelligence-powered advertising platform. The company, which offers software products to assist app developers market, monetize and analyze their apps, reported a 66% increase in its software revenue in the quarter, driven by AI enhancements to its AXON platform that enabled advertising partners to spend at a greater scale. AppLovin shares rose 46% to $246.53 on Thursday. The stock has surged more than six-fold since the start of the year through Thursday's close, making it 2024's best performing technology stock that has a market capitalization of $5 billion or more. Below, we take a closer look at the technicals on AppLovin's chart and identify important price levels to watch out for. Since retracing to the closely watched 200-day moving average in early August, AppLovin shares have trended sharply higher, with the price staging a breakaway gap after the company's better-than-expected quarterly report. Importantly, Thursday's earnings-fueled rally occurred on the highest trading volume since August last year, signaling strong buying conviction from larger market participants, such as asset managers and hedge funds. In this case, we take the stock's trend higher from February to July, which also followed a breakaway earnings gap, and reposition it from today's low. This predicts a potential move to around $360, about 45% above Thursday's closing price. It's also worth pointing out that the prior trend selected played out over 96 trading days before a meaningful pullback in the stock, indicating the current bullish move may continue until late March next year if price history rhymes. During dips, investors should initially monitor the $228 level near Thursday's low. A failure by bulls to defend this area could potentially lead to a fill of the stock's breakaway gap. If a gap fill eventuates, the next lower level to focus on sits around $172, a location on the chart where the shares may attract buying interest near a series of prices positioned around the late October peak. The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info.