Unlocking AppLovin's Potential: Analysts See Growth Opportunities in CTV, Carriers, and OEMs as Mobile Ad Market Recovers

Credit Suisse analyst Stephen Ju maintains AppLovin Corp APP with an Outperform, raising the price target from $46 to $49.

The biggest takeaways from 1Q23 were the ongoing stabilization of mobile ad budgets 1H23. Further, the company noted that advertiser confidence is increasing, which positions AppLovin well as it continues to execute against upgrading Axon to 2.0, expanding ad solutions to CTV, and extending the marketing platform to carriers and OEMs to unlock incremental sources of revenue over time. 

The re-rating reflects operations in the fastest-growing segment in video games, software to offer more diversified exposure to mobile games' secular growth theme, and optionality to expand TAM to non-gaming apps.

Benchmark analyst Mark Zgutowicz maintains AppLovin with a Sell and raises the price target from $9 to $14.

He did not expect the AppDiscovery signal to deliver the level of efficacy improvement following the loss of Apple Inc's AAPL The Identifier for Advertisers (IDFA) and APP's 1P data.

He also under-appreciated the extent of APP-cornered pub supply post-acquisition/integration of MoPub, which fortified its respective moat. 

APP is reinvesting in a dying Apps division, weathering complex MAU/ARPU trends with a trough nearing 2Q or 3Q. 

Given substantial valuation declines witnessed across its (highly inorganic) Apps portfolio, APP is forced to reinvest for new game development and user acquisition. 

With the division's sustained declines and subsequent financial vs. strategic value, he argues that its Software Platform should be valued separately.

Needham analyst Bernie McTernan maintains a Hold rating on AppLovin. The Q1 beat led him to increase his FY23, and FY24 adjusted EBITDA estimates driven by strength in the Software Platform and a higher margin mix shift. 

Both macro factors and core technology improvements drove the Software Platform's strength. He expects further technological improvements shortly as management announced the launch of Axon 2.0 in Q1. 

The launch did not have a material impact on Q1 results, and he suspects management is taking a conservative approach to include the tech gains in their 2Q guidance as they are still unknown, and the wide rollout will take time.

Price Action: APP shares traded higher by 22.80% at $21.87 on the last check Thursday.