AppLovin, the best-performing US tech stock of 2024, continued its meteoric rise after the company reported fourth-quarter earnings that far exceeded Wall Street expectations.
Shares soared nearly 30% in extended trading on Wednesday as the company posted higher-than-expected revenue and profit, further validating its artificial intelligence-driven advertising business, and continued to rise 29% in pre-market trading on Thursday.
According to analyst estimates compiled by LSEG, AppLovin reported earnings per share of 1.73 dollars, well above the expected 1.24 dollars.
Revenue for the quarter came in at 1.37 billion dollars, surpassing the projected 1.26 billion dollars.
Net income more than tripled to 599.2 million dollars, compared to 172.3 million dollars in the same quarter a year ago.
AI-powered ad platform AXON 2.0 drives massive growth
The company’s staggering 854% stock return since the start of 2024 has been largely fuelled by its AI-powered advertising system, AXON 2.0.
The platform optimizes targeted ads within gaming apps, both on AppLovin’s own properties and those of third-party developers who license the technology.
AppLovin first introduced AXON in 2023 and has continued to enhance its capabilities, positioning itself as a leader in AI-driven advertising.
The system’s ability to increase engagement and monetization for advertisers has significantly contributed to AppLovin’s revenue growth.
The company’s success has attracted attention from investors looking for high-growth tech stocks.
While the S&P 500 gained 22% over the past year, AppLovin’s stock surged 730% in the same period, making it one of the most lucrative bets in the market.
Analysts bullish on APP despite valuation concerns
AppLovin expects first-quarter revenue in 2025 to reach approximately 1.37 billion dollars, with an EBITDA margin expanding to 63.5%, exceeding market consensus estimates of 1.32 billion dollars.
Analysts remain optimistic about the company’s outlook, with several firms reaffirming their bullish stance.
Following its earnings announcement, Wolfe Research maintained its outperform recommendation on the stock, and raised the target price from $370 to $550.
Last month, Bank of America reiterated its strong position on AppLovin, naming it a top pick for 2025 in its “Internet Year Ahead” report.
The optimism stems from the company’s strong business performance, expansion into e-commerce advertising, and continued innovation in AI-powered marketing technology.
Jefferies also reaffirmed a buy rating on the stock last month, with a price target of $425.
The firm highlighted AppLovin’s growing presence in e-commerce advertising, with early feedback from advertisers showing strong returns comparable to those on Meta’s platforms.
According to Jefferies, many clients have allocated over 10% of their advertising budgets to AppLovin, citing its cost efficiency and ability to drive conversions.
Despite its strong performance, AppLovin’s stock is not without risks.
Its price-to-sales ratio has surged to 36 times, significantly above its four-year average of 10 times, raising concerns about overvaluation.
The company’s past volatility—losing 89% in 2022 before rebounding 278% in 2023—adds to investor uncertainty about whether the stock can maintain its current trajectory.
Macroeconomic risks and business model scrutiny
The broader economic environment, including potential interest rate hikes and trade tensions, could impact AppLovin’s growth.
Higher borrowing costs could slow down advertising spending, which is a key revenue driver for the company.
Additionally, the company has faced criticism regarding its revenue sources.
Some analysts have pointed to related party transactions and alleged circular revenue flows through game studios based in Cyprus and Belarus.
These concerns have raised questions about the sustainability of AppLovin’s revenue model, although the company has repeatedly defended its ad exchange business, arguing that its growth is driven by real demand from advertisers.
Despite these concerns, AppLovin remains focused on expanding its ad exchange model, which helps maximize revenue from partnered gaming apps.
The company continues to innovate, with plans to expand its AI-driven advertising beyond mobile gaming and into new markets.
As AppLovin continues its rapid growth, investors will be watching closely to see whether its AI-driven advertising success can sustain its market momentum or if valuation concerns will temper enthusiasm in the months ahead.
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