AppLovin Analysts Like Near-Term Stability Post Q4 Performance; Remain Cautious Over Apple, Google's Privacy Covenants

Morgan Stanley analyst Matthew Cost maintained AppLovin Corp APP with an Equal-Weight and raised the price target from $15 to $16. APP's solid 4Q results were modestly ahead of expectations, but sequential stability in the 1Q guidance came as a positive surprise. 

The biggest upside driver in the quarter was the app business (i.e., in-game purchases and in-app advertising). However, the analyst remains cautious about the in-app advertising market in '23; stability is a win in this environment. 

Wedbush analyst Nick McKay maintained an Outperform and a $23 price target. AppLovin succeeded in delivering stability. 

 The analyst liked the potential for AppLovin's growth trajectory to rebound in lockstep with the economy. AppLovin's focus on the fast-growing mobile segment and its market share and technological expertise make it an ideal outlet for advertiser spending. 

Longer term, the analyst saw the ability to rejuvenate and divest its Apps business and push further into verticals outside of gaming, such as connected television. 

Benchmark analyst Mark Zgutowicz maintained a Sell and raised the price target from $7 to $9. AppLovin's 4Q revenue exceeded the analyst's expectations, driven by Software Platform (SP) revenue. The roughly in-line 1Q revenue guide was above the analyst's expectations.

The analyst believed the (sub-premium) hyper-casual mobile gaming sector is in secular decline. AppLovin's suggested platform efficacy improvements necessary to revive it will be overshadowed by Apple Inc AAPL and Alphabet Inc GOOG GOOGL Google's next restrictive privacy covenants.

DA Davidson analyst Franco Granda reiterated a Buy and $28 price target. Contrary to what many bears predicted, end market fundamentals have not deteriorated, and AppLovin just posted an upside to 4Q22 results and 1Q23 outlook, sending shares 30% higher AMH. 

Even if the digital ad market does not improve in 2023, the release of the APP's next-generation AI engine should drive growth Y/Y on higher efficiencies – a reason for optimism. 

Encouragingly, CTV and on-device marketing growth initiatives remain in place and should contribute in 2024+. 

Price Action: APP shares traded higher by 31.90% at $16.74 on the last check Thursday.