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On Wednesday, Jefferies reaffirmed a Buy rating on AppLovin Corp (NASDAQ:APP) with a price target of $425.00, positioning it well within the range of analyst targets spanning from $105 to $480. The firm's analysts highlighted multiple reasons to be bullish on AppLovin's e-commerce initiatives. The company's impressive 739.92% return over the past year and market capitalization of $110.75 billion reflect strong investor confidence.
According to InvestingPro data, AppLovin maintains a "GREAT" overall financial health score, supported by robust growth and profitability metrics. They pointed out that mobile gaming has historically been under-monetized, with AppLovin monetizing at a 76% discount compared to the average of its peers, which include companies like Meta Platforms Inc (NASDAQ:META)., Pinterest (NYSE:PINS), Snapchat, and TikTok. The introduction of e-commerce advertisements to AppLovin's network, which boasts approximately 1.4 billion daily active users, is expected to significantly narrow this monetization gap.
According to Jefferies, early feedback from experts has been overwhelmingly positive, with many customers allocating over 10% of their total advertising budgets to AppLovin, achieving returns comparable to those from Meta's platforms. AppLovin has been recognized as a cost-efficient performance channel that's also effective for brand building.
Unique offerings such as 30-second non-skippable ads that reach an older and more female demographic distinguish AppLovin from its competitors. Furthermore, the analysts noted that increased advertising spend on AppLovin is generally incremental and does not cannibalize budgets from other channels.
The expansion into e-commerce is seen as a significant growth driver for AppLovin, potentially increasing the platform's conversion rate from the current 1% to as much as 5%, in line with Meta's performance.
This growth potential is already evident in AppLovin's impressive 41.48% revenue growth over the last twelve months. InvestingPro subscribers have access to over 15 additional key insights about AppLovin's growth trajectory and financial health, including detailed analysis of its revenue streams and profitability metrics.
Jefferies anticipates that AppLovin will broaden its advertising verticals beyond gaming and e-commerce. They expect positive developments in 2025, including the general availability launch of the self-serve platform Audience+, new advertising formats, and the start of larger advertisers allocating budgets towards AppLovin.
Despite some advertiser concerns about a potential decrease in performance due to new advertisers joining AppLovin in 2025, Jefferies believes that the influx will enhance the platform's ad-serving capabilities and strengthen its self-learning model. With a robust current ratio of 2.41 and strong gross profit margin of 73.89%, AppLovin appears well-positioned to support this expansion. For a comprehensive analysis of AppLovin's valuation and growth prospects, investors can access the detailed Pro Research Report available exclusively on InvestingPro, which covers over 1,400 US stocks with expert insights and actionable intelligence. As a result, the firm has raised its advertising revenue estimates and increased its price target to $425.
This new target is based on the expectation that AppLovin will significantly exceed the Street's current e-commerce revenue projections for 2025, which stand at approximately $115 million. Jefferies is modeling close to $550 million, up from a previous estimate of $270 million, and has accordingly raised its FY25 revenue and EBITDA forecasts by 4% and 5%, respectively. The $425 price target represents a 30x multiple of the firm's FY26 EBITDA estimates for AppLovin.
In other recent news, AppLovin Corp has been the subject of several significant developments. The company's third-quarter results showed a 39% year-over-year increase in revenue, reaching $1.2 billion. Projections for Q4 2024 revenue are between $1.24 billion and $1.26 billion, with adjusted EBITDA expectations of $740 million to $760 million.
In a strategic move, AppLovin issued $3.55 billion in senior notes and secured a new $1 billion unsecured revolving credit facility with JPMorgan Chase (NYSE:JPM). These financial maneuvers aim to repay existing senior secured term loan facilities due in 2028 and 2030.
Several financial firms have maintained positive ratings on AppLovin. BofA Securities reiterated a Buy rating, Piper Sandler maintained an Overweight rating, Loop Capital maintained a Buy rating with an increased price target, and Oppenheimer kept an Outperform rating. All firms highlighted the company's growth prospects, despite some short-term fluctuations in its gaming portfolio.
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