Citi raises AppLovin (APP) price target to $160: can it hit the mark?
On September 19, 2024, Citi analysts raised their price target on AppLovin (NASDAQ: APP) to $155 from $110, citing the company’s strong growth potential and dominance in mobile gaming software.
This represents a nearly 25% upside from the current stock price, which has already surged over 200% year-to-date.
The new target was driven by multiple growth drivers, including gains in mobile gaming ad spend and potential expansion into e-commerce advertising, as noted by analyst Jason Bazinet.
Bazinet maintained his “Buy” rating, emphasizing confidence in AppLovin’s ability to achieve revenue growth of 20% to 30%.
AppLovin stock receives ‘Buy’ rating from UBS
UBS analysts echoed this positive outlook earlier in the week, upgrading their rating on AppLovin to “Buy” from “Neutral” and raising their price target to $145 from $100.
They noted the company’s impressive execution in the gaming sector and the significant upside potential in e-commerce, which could contribute further to the company’s already solid performance.
UBS analysts pointed out that AppLovin’s ability to monetize its ad-tech offerings efficiently could drive significant revenue gains over the next few quarters.
AppLovin Q2 performance
Fundamentally, AppLovin has continued to impress. In its second-quarter 2024 results, the company posted GAAP earnings per share of $0.89, surpassing the consensus estimate of $0.73.
Revenue for the quarter came in at $1.08 billion, marking a 44% year-over-year increase.
The company’s software platform, which has been the main growth engine, contributed $711 million in revenue, a 75% jump from the prior year, while the apps segment saw a more modest 7% growth.
Despite this, AppLovin’s overall business continues to flourish, with third-quarter guidance projecting revenue between $1.115 billion and $1.135 billion, higher than market expectations.
Headwinds & tailwinds for AppLovin stock
Currently, headwinds are primarily seen in the company’s debt levels, with AppLovin carrying $3.05 billion in net debt.
However, the company’s expanding EBITDA, which reached a margin of 57% in Q2, helped mitigate concerns over leverage.
Notably, the company’s adjusted EBITDA margins continue to improve, with the software business achieving an impressive 73.1% margin.
These strong financials give AppLovin a buffer against market volatility and rising interest rates.
Tailwinds include the expanding total addressable market for AppLovin, particularly its entry into e-commerce and connected TV (CTV) advertising.
The company’s AI-powered platform, AXON, is increasingly enabling advertisers to target users more efficiently, which has contributed to its strong performance in gaming and other sectors.
Moreover, early results from the company’s web advertising pilot have been promising, with expectations for this vertical to drive significant growth in 2025.
APP stock valuation
Valuation-wise, AppLovin trades at a forward EV/EBITDA multiple of 17x, near its three-year average of 16.42x, making it adequately priced compared to its historical averages and sector peers.
With projected GAAP EPS growth of 74.9% through 2026, some analysts believe AppLovin offers a compelling valuation at its current price.
Investors also benefit from the company’s ongoing share buyback program, which has already retired 5% of the float over the last year.
Now, having explored the business fundamentals and valuation, it’s time to look at what the technical charts suggest about AppLovin’s price trajectory.
This will help assess whether the stock can maintain its momentum in the near term or face potential pullbacks.
APP stock: strong upward momentum
Applovin’s stock has seen an unprecedented surge from the $85 level to the current $125 level over the last few days bringing its year-to-date gain to over 210%.
Source: TradingView
After this rapid surge major momentum indicators like the RSI have entered the overbought territory, which means the stock can see some consolidation or retracement near the current levels at least for a few days.
Investors who are bullish on the stock must try to buy it below $120 with a trailing stop below its 50-day moving average.
If this upward momentum continues, the stock can soon reach Citi’s price target of $155.
Traders who are bearish on the stock must refrain from shorting it at current levels considering the strong upward momentum it is witnessing currently.
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