Applovin To Gain From High-Margin Software Platform Business In Q2: Analyst Raises Expectations

Stifel analyst David Pang reiterated a Buy rating on Applovin Corporation APP, raising the price target to $36 from $22.50.

AppLovin is scheduled to report Q2 results on August 9th, 2023. 

Pang is forecasting software platform growth in the quarter to be reported, with AEBITDA growth of +9% y/y to $294 million.

Software Platform revenue is expected to contribute 51% of total revenues, increasing by 17% y/y (+5% q/q) to $372 million.

Growth from the high-margin Software Platform business with improving profitability for the Apps business is likely to drive Applovin's growth trajectory, the analyst notes. 

The analyst forecasts AEBITDA margin of +570 bps y/y to 40.4% in Q2, which reflects the ongoing mix shift to the higher margin Software Platform revenue and lower opex (est. -16% y/y). 

For the quarter to be reported, the analyst forecasts revenue to decrease by 6% y/y (+2% q/q) to $727 million, vs. the Street at $724 million.

In Q2, the analyst anticipates an update on AXON 2.0 amid a staged rollout. 

Pang thinks that the upgrade to the recommendation engine is expected to improve the ad targeting capabilities of the company by providing more accurate predictions that should yield efficiency gains.

Based on the above, Pang raised Applovin's forecast for AEBITDA of $1.202 billion and $1.386 billion for 2023 and 2024, respectively (vs. $1.172 billion and $1.313 billion previously).

The analyst also raised 2023 and 2024 revenue estimates to $2.990 billion and $3.308 billion, respectively (vs. $2.937 billion and $3.200 billion previously).

Price Action: APP shares are trading higher by 0.03% to $31.41 on the last check Tuesday.