AppLovin (APP -3.33%) investors had much to celebrate last month, as shares of the stock jumped 98.8% in November, according to data supplied by S&P Global Market Intelligence.
The catalyst that initially lifted AppLovin stock higher was a blockbuster financial report. But that was just the beginning of an action-packed month for the app monetization and artificial intelligence (AI) specialist.
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(App)Lovin' the results
In early November, AppLovin released its third-quarter financial report, and the results were far better than investors had anticipated.
Revenue jumped 39% year over year to $1.2 billion, resulting in adjusted earnings per share (EPS) of $1.25. Both surpassed the high end of management's guidance. For context, analysts' consensus estimates were calling for revenue of $1.13 billion and EPS of $0.92, so the company sailed past expectations. But that was just the beginning.
Adding to the accelerating euphoria was the company's forecast. Management guided for revenue of $1.25 billion and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $750 million, both at the midpoint of its guidance. The bullish forecast was also well ahead of Wall Street's expectations, further fueling the stock's rise.
In the wake of AppLovin's stellar performance, analysts were sent scrambling to update their models regarding the company's future prospects. In the weeks following AppLovin's report, it received more than a dozen price target increases, an upgrade, and one analyst initiated bullish coverage on the stock. This stampede of bullish commentary from Wall Street helped drive investors' enthusiasm to new heights.
What the future holds
AppLovin's AI-fueled software helps developers increase the profitability of their apps. The most recent version of its system kicked the company's growth into high gear. On the Q3 earnings call, founder and CEO Adam Foroughi said he remains confident "in achieving 20% to 30% year-over-year growth for the foreseeable future" from mobile gaming advertisers alone.
However, Foroughi was quick to note that the company is exploring other areas of potential growth, including integrating e-commerce. "We're increasingly confident this vertical will scale significantly in 2025 and become a strong contributor for us over the next year and beyond," he said. He also suggested there would be occasional "step changes" from enhancement to its AXON AI-fueled algorithm -- which was part of what drove impressive results in the current quarter.
Wall Street remains remarkably bullish on AppLovin. Of the 25 analysts who offered an opinion thus far in December, 19 rated it a buy or strong buy, and none recommended selling. Oppenheimer analyst Martin Yang is the biggest bull, with a price target of $480, which represents potential upside of 20% compared to Friday's closing price. The analyst's research suggested AppLovin's return on ad spending was comparable with leaders in digital advertising, including Meta Platforms.
The company certainly has a lot going for it, but AppLovin will continue to be volatile. Furthermore, the stock is currently selling for 58 times next year's earnings, so it already has plenty of growth expectations baked in.
The growth story is compelling. Investors looking to initiate a position should watch for dips in AppLovin's stock price.
