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Bull of the Day: AppLovin (APP)

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AppLovin (APP - Free Report)  is a Zack Rank #1 (Strong Buy) that engages in building a software-based platform for advertisers to enhance marketing and monetization.

The stock has become an AI play through its AI-powered software platform AXON. A combination of earnings momentum and the thirst for AI has helped investors see 2024 gains in APP of 100%.

While that move higher might scare some away, the company's momentum seems to have legs as analysts lift price targets and earnings estimates.

About the Company

AppLovin was founded in 2011, has a market cap of $27 billion, and employs over 1,700.

The company operates through two segments: Software Platform and Apps. Key software solutions include AppDiscovery for matching advertiser demand with publisher supply, MAX for optimizing ad inventory value through real-time auctions, Adjust for marketing analytics, and Wurl for distributing streaming video and providing advertising solutions. Other offerings include SparkLabs for app store optimization, AppLovin Exchange for connecting buyers to mobile and CTV devices, and Array for app management. The company also runs various free-to-play mobile games.

The stock has a Zacks Style Score of “A” in Growth and Momentum. It sports a Style Score of “D” in Value, with a Forward PE of 28. 

Q1 Earnings

In early May, APP reported a 17% EPS beat and a beat on revenues. Adjusted EBITDA came in at $549M, up 101% from last year, while margins were seen at 52%.

The company guided Q2 revenues above consensus, seeing $1.06-1.08B v the $998M expected.

Management attributed the success to improvements in the app ad market and a continued shift towards real-time bidding.

The stock reacted positively to the news, gapping up over 10%.

Estimates Rising

Since reporting earnings, analysts have been very positive, with many hiking estimates and price targets.

Over the last 30 days, estimates for the current quarter have gone up by 25%, from $0.59 to $0.74.

For the current year, numbers have been taken from $2.47 to $2.96. This is a 20% move higher over the last 30 days.

And for next year we see a similar trend, with estimates going up over 18% for that timeframe, moving from $3.01 to $3.57.

Along with estimates, several firms have upgraded their price targets for AppLovin:

-UBS increased its target to $100 from $55.

-Goldman Sachs raised its target to $100 from $73.

-Morgan Stanley adjusted its target to $80 from $70.

-Stifel Nicolaus upped its target to $98 from $85.

-Wedbush elevated its target to $100 from $87.

Overall, there is a trend of increased price targets and estimates, reflecting greater optimism among analysts.

The Technical Take

ApplLovin is up 100% in just five months, so a prudent investor will not want to chase. The stock is starting to pull back off the highs, so let us look at some buyable levels to target during a market sell-off.

The gap fill is $78.30, which was also the prior double top area before the earnings breakout. This is also aligned with the 21-day moving average (MA) which should see some short-term support.

The 50-day MA is $74.00 and the 200-day MA is $50.50. While the 200-day is unlikely anytime soon, investors could look for support in the $75 area.

If the stock continues to run higher, the long-term upside is substantial. The 161.8% Fibonacci extension, found drawing the $116.09 2021 highs to $9.14 2022 lows, is $183. This is another 125% higher than current trading levels.

In Summary

Overall, the bullish thesis on AppLovin is centered around its innovative AI-driven solutions, robust revenue growth, favorable market conditions, comprehensive product offerings, positive analyst sentiment, and strong market demand.

APP is up 100% this year, so investors should anticipate potential pullbacks and use those opportunities to position themselves for long-term gains.

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