Will 'New AI Darling' Applovin Surprise Wall Street Again in Upcoming Q4 Results?

In One Chart joined discussion · Feb 10 16:54

$Applovin (APP.US)$ is poised to release its earnings report after the market closes on February 12th. Analysts expect the company to report Q4 2024 revenue of $1.264 billion, reflecting a 32.58% increase year-over-year. Earnings per share are also expected to rise substantially to $1.26, marking a 156.71% increase from the previous year.

Will 'New AI Darling' Applovin Surprise Wall Street Again in Upcoming Q4 Results?

Labeled as Wall Street's 'new AI darling,' Applovin saw its stock soar by an impressive 712% last year, making it the best-performing tech stock of 2024. This remarkable rally predominantly occurred in the last two months of the year, driven by earnings that surpassed expectations and the buzz around the company's AI-driven advertising technology. The inclusion of Applovin in the Nasdaq 100, replacing Dollar Tree Inc., and a shift in investor focus from semiconductor stocks to AI-centric software firms also contributed significantly to the surge in its stock price, which peaked at around $401 in early December before experiencing a slight pullback by year-end.

Such trading patterns are common among AI-related companies, where initial excitement about new technologies leads to substantial gains, often followed by a correction as investors wait for real-world results. Despite the widespread belief in AI's potential, the hefty investments made by major tech companies without immediate returns have caused some investors to become cautious.

Nevertheless, Applovin has maintained a strong upward momentum this year, with an 18% increase year-to-date, pushing its market capitalization to $126 billion and surpassing industry giants like Starbucks, Micron Technology, and Intel. Reflecting on the previous quarter, Applovin exceeded expectations with Q3 earnings per share of $1.25 and revenue nearing $1.2 billion, a 39% increase from the previous quarter. The stock price jumped 46% the day following the Q3 earnings announcement, fueled by strong performance and optimism regarding the future role of AI in the company.

Looking forward to Q4, the spotlight is on Applovin's core business segments: the software platform and applications. In the last quarter, the software segment accounted for 70% of total revenue. Key areas of focus include the expansion of its AI-driven advertising engine and exploring new market opportunities. According to Bloomberg, the Q4 revenue for the software platform is projected to be $890 million, up 54.73% year-over-year, while the revenue from applications is expected to dip slightly to $370 million.

AI Advertising Sector Stays Buoyant, Applovin Leads in Monetizing

In recent years, AI technology has experienced exponential growth. As a pioneer in adopting AI in advertising and marketing, Applovin has been at the forefront of leveraging this technology. The company specializes in online gaming and advertising technology, generating profits through e-commerce advertising on mobile apps and gaming platforms. At the heart of its operations is AXON, Applovin's AI-based recommendation engine, which enables advertisers to optimize their marketing, engagement, and monetization efforts.

A prime example of this technology in action is AppDiscovery, a major revenue driver for Applovin, which utilizes AXON’s predictive algorithms to match advertisers with users likely to download their apps. This targeted advertising strategy not only prioritizes end-users, helping advertisers connect with the right audience but also improves user retention and ultimately enhances profitability.

Applovin's performance exceeding expectations demonstrates the efficacy of its marketing business model, powered by the AI recommendation engine AXON. Advertisers are prepared to pay premium prices for improved advertising outcomes, ensuring that the company's revenue adequately covers the costs associated with AI computing power and other related expenses.

Applovin Named 'Top Pick' During 'Software Year'

As AI reshapes the marketing industry, major corporations like $Meta Platforms (META.US)$ and $Alphabet-A (GOOGL.US)$, along with smaller entities such as Applovin, are anticipated to further advance AI marketing techniques. The potential in software stocks is gaining increased recognition among analysts, leading firms like Wolfe Research to express considerable enthusiasm for the sector, predicting that 2025 could emerge as a pivotal "Software Year."

In line with this optimistic outlook, Jefferies has increased its price target on AppLovin from $400 to $425 and maintains a Buy rating on the shares, highlighting the company as a "Top Pick for 2025." Enhanced channel checks and a more detailed assessment of the e-commerce sector have prompted Jefferies to adjust its advertising revenue forecasts for AppLovin, now expecting them to surpass Street predictions by 9% and 11% for FY25 and FY26, respectively. Despite the stock currently trading 20% below its peak, it is considered undervalued compared to its peers when factoring in growth, according to the analyst.

Source: Bloomberg, the Fly