Applovin Corp
On Wednesday, the company reported third-quarter revenue of $1.2 billion, up 39%, beating analyst consensus estimates of $1.13 billion. Applovin increased the company's share repurchase program by $2 billion.
It expects fourth-quarter revenue of $1.24 billion-$1.26 billion.
Multiple Wall Street analysts rerated the stock after the quarterly results.
- JP Morgan analyst Cory Carpenter maintained AppLovin with a Neutral and raised the price target from $160 to $200.
- Needham analyst Bernie McTernan reiterated AppLovin with a Hold.
- Benchmark analyst Mark Zgutowicz maintained AppLovin with a Sell and a $66 price target.
Carpenter highlights the Software Platform's impressive 17% sequential growth, driven by technology upgrades to the Axon algorithm, which significantly outpaced the typical 4%- 5% growth target.
The gaming sector fueled this strong performance, while the company's e-commerce pilot exceeded expectations. Management now expects e-commerce to become a significant growth driver in 2025 and beyond, with resources increasingly redirected to this segment.
The fourth-quarter projections imply moderate sequential growth for the Software Platform, as costs related to vesting and expanded data capacity slightly reduce incremental margins.
Despite being optimistic about AppLovin's mobile gaming ad monetization leadership, Carpenter remains cautious about the company's expansion beyond gaming.
He raised the December 2025 price target from $160 to $200, noting a revised multiple of 22.5x on the estimated 2025 EBITDA, reflecting confidence in the e-commerce outlook.
This multiple, though a premium compared to most ad tech peers, still presents a discount relative to The Trade Desk, In's
Carpenter expects fourth-quarter revenue of $1.26 billion and EPS of $1.30.
Needham: The latest results led McTernan to raise his adjusted EBITDA estimates for 2025 by 14%, reflecting a 23% year-over-year increase, with minimal assumptions for e-commerce contributions. However, management's positive outlook on e-commerce suggests the potential for further growth.
AppLovin's software segment has consistently outperformed, posting over 60% year-over-year growth in the past five quarters. In the third quarter, software revenue grew 66% year-over-year and 18% sequentially, primarily driven by advancements in Axon 2.0. Adjusted EBITDA for the software segment reached $653 million, up 80% year-over-year, with a margin of 78% and incremental margins of 87%.
Management attributes this success to its technology's ability to expand the total addressable market (TAM) and increase client spending by demonstrating a high return on investment.
AppLovin's pilot for its e-commerce advertising platform, introduced in the recent earnings call, is already yielding positive feedback. While the program is still in its early stages and expected to remain relatively small in 2024, management projects a meaningful impact by 2025. Management believes the e-commerce platform could expand into new markets, such as connected TV (CTV), potentially driving additional upside, citing customer satisfaction and strong returns.
Based on AppLovin's third-quarter results and revised fourth-quarter projections, McTernan raised fiscal 2024 revenue and adjusted EBITDA estimates by 5% and 9%, respectively.
The 2025 revenue and adjusted EBITDA estimates also increased by 6% and 14%, considering the anticipated long-term benefits from the e-commerce platform expansion.
McTernan expects fourth-quarter revenue of $1.25 billion and EPS of $1.25.
Price Action: APP stock is up 44.1% at $242.31 at last check Thursday.
