Economic Uncertainty, Controlled Ad Spend, Lower Visibility Restrict AppLovin's Upside, Analyst Says

UBS analyst John Hodulik downgraded AppLovin Corp APP from Buy to Neutral and lowered the price target from $59 to $16.
While the analyst thought AppLovin's software business is well positioned to benefit from growth in the app economy, he believed the macro uncertainty, measured ad spend, and lower visibility limits upside to shares.
Hodulik reduced estimates to reflect stable sequential trends in software due to lower spending in the current environment, while apps saw gradually improving revenue declines & more stable profits as management managed the business for cash. The optimization efforts were nearly complete and were open to strategic alternatives.
The analyst sought 1% (down from the prior 40%) core software revenue growth and 13% (down from the prior 12%) apps revenue declines in '23. At the same time, margins expand given the mix shift toward higher-margin software, leading to $1.07 billion of EBITDA in '23E (down from prior $1.48 billion) and ~$800 million of FCF (down from prior $1.1 billion).
The analyst showed a ~4% revenue (down from the prior 15%) and ~8% (down from the previous 20%) 2-yr EBITDA CAGR.
Price Action: APP shares traded lower by 6.13% at $14.24 on the last check Thursday.

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