AppLovin’s Stock Soars: The Power of AI in Mobile Gaming Marketing
AppLovin (NASDAQ: APP) stock has experienced a dramatic increase in 2024, with shares rising over 400%. Despite this impressive growth, analysts remain optimistic about the tech company’s future. In October, MarketBeat indicated that six out of eight analysts have set price targets above its current share price. So, what does AppLovin do that has captivated investors this year? Let’s take a closer look at the company and what lies ahead.
Harnessing AI to Boost Mobile Game Downloads
AppLovin specializes in software that enables companies to maximize their marketing budgets. Primarily catering to mobile application developers, particularly in the gaming sector, the company optimizes advertising strategies so that a larger share of viewers download their apps. AppLovin earns revenue when users download these applications, aligning its success with that of its clients.
Once users download an app, developers often monetize it by selling advertising space within the application. AppLovin offers a platform that connects app developers with businesses willing to pay for advertisements. This partnership allows developers to enhance their ad revenues while helping advertisers find the best apps to reach potential customers. All this is driven by advanced AI algorithms, facilitating effective matches between app developers and advertisers.
The software segment of AppLovin has shown remarkable growth, expanding by 75% last quarter compared to the previous year. It surged ahead as the company’s main revenue source in Q2 2023, contributing 66% to total revenue.
In addition to its software services, AppLovin also creates mobile gaming apps, generating revenue through in-app purchases and ads following the “freemium” model. For several years, this was its primary revenue stream, but it has since declined by 33% since peaking in Q4 2021. Nonetheless, app revenue rose by 7% last quarter compared to the year before.
AppLovin’s Advertising Business Outpaces Meta
The financial community is particularly enthusiastic about the profitability of AppLovin’s software division. Its adjusted EBITDA margin increased from 67% in Q2 2023 to 73% in Q2 2024. When compared to similar measures from Meta (NASDAQ: META), which operates one of the largest ad platforms globally, AppLovin’s margins stand out.
Meta’s operating margin for its “family of apps” was 51% last quarter. While these figures aren’t directly comparable due to Meta including depreciation and amortization costs, the 22% difference highlights AppLovin’s potential for generating higher profits within its ad segment.
Promising Future with Mobile Gaming and Growth Potential
Looking ahead, AppLovin’s growth will depend on several key factors. Firstly, the company needs to refine its algorithms to continue delivering value to customers while fending off competitors. Secondly, there is significant potential for expanding its software services into areas beyond gaming. Lastly, the increasing popularity of mobile gaming is a positive sign, with Statista predicting a 6% annual growth in the mobile gaming market through 2029.
While the challenges of competing with established AI companies remain, AppLovin has carved out a solid position in the gaming niche. The company notes that its software venture beyond gaming is still in its infancy, presenting a substantial opportunity for growth, albeit with fierce competition against giants like Meta.
Although AppLovin’s stock appears somewhat expensive by various valuation measures, its forward price-to-earnings ratio of 32x remains lower than that of 36% of competitors in the U.S. tech sector. Overall, the company exhibits strong momentum and potential opportunities for expansion, which may justify its current valuation.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
