On Thursday, BTIG increased its price target on shares of AppLovin Corp (NASDAQ:APP) to $291 from the previous target of $202, while maintaining a Buy rating on the stock. The firm's analyst highlighted the company's third-quarter performance, where the Software (ETR:SOWGn) revenue, soon to be renamed as the "Advertising" segment, exceeded expectations by 11% due to the impact of the Axon 2.0 model enhancement.
The analyst noted that the recent results and management's comments during the earnings call provided evidence supporting the view that the gaming industry is becoming a winner-take-most market. Additionally, it was mentioned that AppLovin's commerce product, AudiencePlus, is anticipated to be a significant contributor to the company's business starting from the next year.
Management's belief that AudiencePlus is the best and fastest-growing product developed by AppLovin to date was also underscored. The analyst expressed confidence in the potential impact of AudiencePlus, estimating that it could surpass $1 billion in cumulative revenue by 2027, with a 1.5 to 2-year ramp-up period.
The report also anticipates that AppLovin could secure approximately 60% of the gaming market share by 2028.
The revisions in BTIG's report reflect nearly a 25% increase in their Software revenue estimates, which are detailed for both Gaming and Non-Gaming segments, including Commerce. The firm also expanded their valuation multiple by another 15%, citing the company's strong compound annual growth rate (CAGR) from 2023 to 2028.
Despite the substantial increase in both estimates and the price target, the analyst suggests there might still be room for further upward adjustments, barring a faster-than-expected ramp in AudiencePlus and Commerce. AppLovin remains a top pick at BTIG.
In other recent news, AppLovin Corporation reported strong third-quarter earnings that exceeded analyst expectations, leading to robust revenue growth and an upbeat outlook for the upcoming quarter.
The company's adjusted earnings per share for the quarter were $1.25, outpacing the analyst consensus of $0.92. Revenue for the period reached $1.2 billion, marking a 39% year-on-year increase and surpassing the analyst estimate of $1.13 billion.
AppLovin's Software Platform revenue, a significant growth driver, surged 66% year-on-year to $835 million. Looking ahead, the company provided a positive forecast for the fourth quarter of 2024, expecting revenue between $1.24 billion and $1.26 billion, which would surpass the analyst consensus of $1.18 billion. Adjusted EBITDA is projected to be between $740 million and $760 million, with an adjusted EBITDA margin of 60%.
Additionally, AppLovin's net income for the quarter soared 300% year-on-year to $434 million. The company also reported strong cash flow, generating $551 million in net cash from operating activities, a 177% year-on-year increase.
In a recent development, AppLovin's board of directors increased the company's share repurchase authorization by $2.0 billion, bringing the total remaining authorization to $2.3 billion.
InvestingPro Insights
AppLovin Corp's recent performance aligns with several key metrics and insights from InvestingPro. The company's revenue growth of 41.48% over the last twelve months supports BTIG's optimistic outlook on AppLovin's market position and potential. This growth is further reinforced by an impressive EBITDA growth of 136.56% over the same period, indicating strong operational efficiency.
InvestingPro Tips highlight that AppLovin's net income is expected to grow this year, and analysts anticipate sales growth in the current year. These projections align with BTIG's positive stance on the company's future performance, particularly with the anticipated success of AudiencePlus.
The stock's strong performance is evident in its 312.2% price return over the past year, trading near its 52-week high at 95.23% of that peak. This aligns with BTIG's increased price target and maintains AppLovin as a top pick.
It's worth noting that AppLovin is trading at a high earnings multiple with a P/E ratio of 68.71, which could be justified by its strong growth prospects. For investors seeking more comprehensive analysis, InvestingPro offers 20 additional tips for AppLovin, providing a deeper understanding of the company's financial health and market position.
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