AppLovin Analyst Maintains Bearish View on Stock Ahead Of Q2 Amid Concerns Over Apple's Impact

Benchmark analyst Mark Zgutowicz maintained AppLovin Corp APP with a Sell and raised the price target from $14 to $17.

The analyst re-rated ahead of APP's 2Q report on August 9 despite YTD's stabilization of mobile gaming usage trends through 2Q. 

The price target boost reflects a less conservative exit-EBITDA multiple of 7.0x (terminal year FY30E). 

The timing of AXON 2.0's rollout aligned well with macro-AI/ML hyperfocus, and given the expectation for material efficacy improvement, buy-side assumptions are likely expecting the product can pull-forward the expected FY24E (consensus) recovery timetable. 

The analyst still does not believe APP's long-term business model is sound given 1) platform signals are materially dependent on fingerprinting, leaving APP at high risk to Apple Inc's AAPL inevitable eradication of the practice; 2) ongoing restrictive IDFA dynamics will continue to limit platform efficacy improvements. 

Absent proprietary data signals post-IDFA, the rescindment of incremental data feeds from its 1P Apps studio leads him to question its longer-term ROAS trajectory. 

Further, management has said it cannot predict platform efficacy improvements.

The analyst reserves his questions for the earnings call. As APP continues to invest in differentiated ML, he wanted to understand how Software Platform incremental revenue flow to the bottom line. 

He also wanted to know how dilutive Mediation revenue impact its longer-term margin trajectory.

The analyst flagged that consensus expectations point to Y/Y FY24E Apps segment revenue growth despite the continued degradation of its top 3 revenue-generating apps. 

He estimates revenue of $727.2 million in Q2, $733.0 million in Q3, $739.7 in Q4, and expects EBITDA of $290.8 million in Q2, $293.4 in Q3, and $295.8 in Q4.

Price Action: APP shares closed lower by 2.37% to $30.05 Tuesday.