AppLovin Analyst Sees ‘Plenty Of Further Upside’ For Stock — But Retail Stays Guarded

AppLovin Corp. (APP) stock, which has held up reasonably well this year despite the controversies surrounding the app marketing platform, received a bullish call from an analyst late Monday.

Scotiabank initiated coverage of AppLovin stock with an ‘Outperform’ rating and a $430 price target, the Fly reported. The price target implies roughly 25% upside from the stock’s closing price on Monday.

 Analysts at the firm said the company has blown through the “Rule of 40” into the triple-digits of earnings before interest, taxes, depreciation and amortization (EBITDA) margin plus revenue growth. 

The “Rule of 40” is a metric used for measuring performances of software-as-a-service (SaaS) companies. It specifies that to be a healthy software company, the sum of its revenue growth and profit margin should equal or exceed 40%.

The first-quarter results released in early May showed that AppLovin’s total revenue grew 40% year over year (YoY) and its adjusted EBITDA margin was at 68%.

The research firm conceded that the valuation, in terms of sales, appears expensive. Still, it believes "there is plenty of further upside" on EBITDA, especially as AppLovin "fundamentally reshapes the landscape of performance advertising.”

AppLovin has been a target of multiple short sellers. In late March, Muddy Waters said its web traffic analysis found that about 52% of AppLovin's e-commerce conversions are retargeting, but in reality, the number is only about 25%-35%.

In late February, Bear Cave substack newsletter author Edwin Dorsey alleged that AppLovin's rapid rise was fueled by low-quality revenue growth from "ads that are deceptive, predatory, and at times unreadable or unclickable."

But sell-side analysts are optimistic. 

Out of the 25 analysts covering AppLovin stock, 19 have a ‘Buy’ or ‘Strong Buy’ rating, according to Koyfin data. Five rate the stock as a ‘Hold,’ while one rates it as a ‘Sell.’  The consensus price target for the stock is $465.49.

On Stocktwits, retail sentiment toward AppLovin stock stayed ‘neutral’ (53/100) by early Tuesday, with the message volume at a ‘low’ level.

A bullish watcher based his optimism on the company potentially supplying algorithms for TikTok once a deal for selling the U.S. arm of the Chinese app is struck.

However, another user raised the specter of the stock dropping to the $150 level, given there is “absolutely no support anywhere.”

AppLovin stock has gained 6.5% year-to-date, aligning with the S&P 500’s 6% advance. In Tuesday’s early premarket session, the stock is up about 0.87%.

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