Will AppLovin's Shares Continue to Climb with a 850% Expansion and More?
AppLovin's Q4 Triumph and Looking Ahead
In a breath of fresh air for mobile app developers, AppLovin Corp (NASDAQ: APP) delivered impressive earnings for Q4, leaving analysts bewildered and investors thrilled. The company announced earnings of $1.73 per share on revenue of a staggering $1.37 billion, outperforming predictions of $1.24 per share on $1.26 billion in revenue. This stellar performance sent AppLovin's stock soaring nearly 30% in after-hours trading. But can this momentum continue?
Since the start of 2024, APP stock has been nothing short of a rollercoaster ride. With an astounding 854% return, it leaves the S&P 500, which gained 28% during the same period, in the dust. But what's the secret to AppLovin's success?
The Power of AI
AppLovin's recent growth can be attributed to its AI-driven ad search engine, named AXON. This ingenious tool enhanced and automated various aspects of advertisers' operations, from marketing to user engagement and revenue optimization. The impact of AXON is clear - it propelled AppLovin's advertising revenue to a whopping 73% growth, totaling $999 million, while revenue from apps saw a marginal decline of 1%.
However, AppLovin's success didn't stop at impressive revenue growth. The company also observed an impressive improvement in its adjusted EBITDA margin, which reached a jaw-dropping 62% in Q4'24, up from a humble 50% in the previous year. This combination of triumphant earnings and expanding margins not only bolstered AppLovin's financial health but also raised its EPS by a whopping 3.5x compared to the previous year.
The Future Awaits
Looking ahead, AppLovin has set its sights on Q1'25 with revenue forecasted to reach approximately $1.37 billion. More importantly, the company's projected EBITDA margin is expected to rise to 63.5% at the midpoint of its projected range, surpassing the market's consensus of $1.32 billion.
And, AppLovin isn't content with resting on its laurels. The company is actively diversifying its advertising platform beyond gaming, targeting e-commerce and non-gaming verticals. At the same time, AppLovin is focusing on creating self-service advertising tools and exploring Connected TV (CTV) advertising opportunities.
But, with such scorching returns, some investors may worry about AppLovin's valuation. Currently, the stock trades at a hefty price-to-sales (P/S) ratio of 36x, significantly above its four-year average of 10x. Is this valuation justified?
While the valuation may appear elevated, AppLovin's exceptional growth in both revenue and profitability seems to validate the premium price. With projected revenue growth in excess of 20% over the next few years, AppLovin remains a captivating growth story. Even when the P/S ratio comes back into alignment, AppLovin's surging earnings potential, which outpaces its remarkable sales growth, suggests that its stock still has room to run.
In conclusion, AppLovin's stock performance has been influenced by its strong earnings in the past, and it's likely to continue on this trajectory due to its robust financial health, strategic diversification, and cutting-edge technology. Of course, valuation concerns should always be considered, but with its impressive growth and innovative approach to advertising, it's certainly an investment to keep a close eye on.
- Investors are optimistic about Applovin Corp's (NASDAQ: APP) stock performance after the company exceeded Q4 earnings predictions with $1.73 EPS and $1.37 billion in revenue.
- Applovin's target for Q1'25 revenue is set at approximately $1.37 billion, with an expected rise in the EBITDA margin to 63.5%.
- The company's valuation has drawn some concern, with its current P/S ratio of 36x significantly higher than its four-year average of 10x.
- Twilio, a rival in the app industry, saw its stock drop by 12% after presenting disappointing Q4 earnings, while Applovin's stock soared nearly 30% in after-hours trading.
- Applovin's success in recent quarters can be attributed to its AI-driven ad search engine, AXON, which enhanced various aspects of advertisers' operations, resulting in a 73% growth in ad revenue.
- Analysts are bullish about AppLovin's ability to sustain its growth momentum, as its surging earnings potential outpaces its remarkable sales growth, suggesting that the stock still has room to run.
