Unveiling the Latest Addition to the Nasdaq-100: Its Value Skyrocketed by an Impressive 3,250% Since January of the Previous Year, and Analysts on Wall Street Suggest it's a Wise Investment Opportunity Until 2025.
Unveiling the Latest Addition to the Nasdaq-100: Its Value Skyrocketed by an Impressive 3,250% Since January of the Previous Year, and Analysts on Wall Street Suggest it's a Wise Investment Opportunity Until 2025.
The Nasdaq Composite is a broad-based index, primarily focusing on tech-related stocks, that tracks the performance of over 3,000 stocks listed on the exchange. The Nasdaq-100, a subset of this index, follows the performance of approximately 100 of the largest non-financial companies on the Nasdaq stock market, representing various sectors.
To be eligible for the Nasdaq-100, a company must meet the following requirements:
- It should be exclusively listed on the Nasdaq exchange
- It should have high liquidity
- It should have been listed on an eligible exchange for at least three full months
- At least 10% of its outstanding shares must be available for trading
- It should not have filed for bankruptcy
As of November 18, AppLovin (APP -3.33%) became the latest addition to the Nasdaq-100, replacing discount retailer Dollar Tree. Notably, its inclusion occurred outside of the index's annual rebalancing, which typically takes place on the second Friday in December.
Since last year, AppLovin's stock has soared by 3,250% due to leveraging artificial intelligence (AI) in its in-app gaming advertising. Despite this impressive performance, analysts believe there's still room for growth. Below, we explore the key drivers behind AppLovin's success and its future prospects.
AI-based algorithms
AppLovin, which went public in early 2021, aims to help app developers thrive. The company develops a comprehensive suite of tools called AXON, powered by AI, which assists businesses in gaining visibility in a crowded marketplace and automating the monetization of their apps.
AppLovin argues that most developers lack the necessary tools for marketing, monetization, and data analytics to stand out in the crowded mobile app market, particularly in the mobile gaming sector. Furthermore, many app developers benefit from including advertising in their apps but lack the expertise to execute it effectively. AppLovin provides the necessary support, maximizing revenue for developers while helping advertisers reach their target audiences.
AppLovin earns revenue when users download an app, ensuring that its success is directly tied to its customers' success. Since its inception, the platform has facilitated over 6 billion mobile-app installs for developers.
AppLovin's third-quarter results demonstrated its strength. Revenue surged 39% year over year to $1.2 billion, while diluted earnings per share (EPS) increased 317% to $1.25. These figures illustrate the incremental impact of each new customer on AppLovin's bottom line.
The company also raised its fourth-quarter revenue outlook, predicting $1.25 billion in revenue, representing a 31% year-over-year increase. AppLovin has a commendable track record of surpassing management's guidance.
Management projects that mobile game advertising alone can drive 20% to 30% growth for the foreseeable future, making the stock a compelling investment opportunity. Furthermore, AppLovin is exploring new verticals, which could potentially boost its growth trajectory.
For instance, the company is currently piloting an e-commerce advertising solution, with promising results. During the earnings conference call, CEO Adam Foroughi mentioned that the advertisers involved in the pilot had seen "substantial returns" exceeding those from other media channels, often surpassing 100% incrementality from AppLovin's traffic.
Given AppLovin's strong core business growth and the potential to succeed in ancillary markets, the company appears to have a robust long-term growth path.
Analysts remain optimistic about AppLovin
Wall Street analysts have a reputation for holding diverse views, so it's worth noting that a majority of analysts currently covering AppLovin are bullish on the stock. Out of the 25 analysts who have expressed opinions in December so far, 76% have issued a buy or strong buy rating, with no recommendation to sell.
While the stock's recent surge has pushed its price above the average price target, concerns about the stock being overvalued have been raised. However, analysts are revising their price targets upward to reflect AppLovin's robust growth.
Oppenheimer analyst Martin Yang is particularly enthusiastic about AppLovin, recently upgrading his price target to $480, indicating a potential return of 40%, compared to the stock's closing price on Tuesday. Beyond the beat-and-raise quarter, its e-commerce advertising initiative has shown promising results, with ROAS comparable to industry leaders like Meta Platforms.
The only challenge facing AppLovin is its elevated valuation. With a price-to-earnings ratio of 104, its valuation appears expensive. However, its price-to-earnings-to-growth ratio (PEG) is just 0.10, indicating that the stock could potentially be undervalued considering its robust growth.
Since AppLovin became publicly traded in April 2021, it has smashed the broader market's performance by a substantial margin, delivering a whopping 426% increase. This soars eight times higher than the 53% return of the Nasdaq-100. Considering the company's impressive execution, expanding market potential, and its storied history of continuous growth, I'd propose that AppLovin is a solid investment pick.
After becoming the latest addition to the Nasdaq-100, AppLovin's stock has seen significant growth, with a 3,250% increase since last year. This surge in value makes AppLovin an attractive investment opportunity for those interested in tech and finance, providing potential for further returns.
With a strong focus on leveraging artificial intelligence in its advertising platform, AppLovin helps app developers monetize their apps and reach their target audiences, generating revenue through app installs. The company's impressive financial performance, including a 39% year-over-year revenue increase in the third quarter, solidifies its position as a robust investment choice in the finance world.