Benchmark adjusted its financial outlook for AppLovin Corp (NASDAQ:APP), raising the price target to $66 from the previous $48, while continuing to recommend selling the stock. The firm cited several reasons for maintaining the sell rating despite the increase in the price target.
The analyst from Benchmark highlighted that AppLovin has shown strong momentum in its Software Platform over the last twelve months. However, the firm anticipates that the adjusted EBITDA contribution from the Software Platform will be below the consensus estimate for 2025, expecting a margin of around 25%, down from the 82% estimated for 2024.
This is attributed to reduced revenue leverage and the impact of lower user acquisition spending in the App segment during the second quarter.
Additionally, the analyst expects that AppLovin's investment in its e-commerce initiative will place unexpected pressure on margin expectations for 2025 and may pose a challenge in a market dominated by established competitors.
The lack of first-party data scale is seen as a significant disadvantage for the company in this new venture.
The firm also forecasts a deceleration in Software Platform gains driven by the MAX advertising platform through 2025, as AppDiscovery pricing growth has normalized and limited near-term gains are expected from the AXON feature.
Although technical disruptions at Unity since its acquisition of Ironsource have shifted market share to MAX, early tests of Unity's closed-loop ecosystem suggest that this advantage may be temporary and that market share and economics could balance out in 2025.
Lastly, the analyst anticipates that Apple (NASDAQ:AAPL) may introduce further restrictions on iOS fingerprinting, which could significantly impact AppLovin's platform economics, especially if Apple moves forward with its own demand-side platform plans.
Following the revision of 2024 estimates and a reduction in the weighted average cost of capital assumptions, Benchmark has increased the price target for AppLovin.
In other recent news, AppLovin Corporation posted impressive Q2 financial results, with a notable 44% rise in revenue, reaching $1.08 billion.
AppLovin's CEO, Adam Foroughi, emphasized the organization's focus on organic growth, share management, and balance sheet strengthening. The company also provided future guidance, projecting Q3 revenue between $1.115 billion and $1.135 billion, and adjusted EBITDA ranging from $630 million to $650 million.
Moreover, AppLovin launched a web advertising program for e-commerce, which showed positive results in its pilot phase. The company anticipates its software business to grow by 20% to 30% in the long term, driven by model enhancements, new vertical demand expansion, and supply expansion.
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