Wells Fargo maintains $538 target on AppLovin stock

On Thursday, Wells Fargo (NYSE:WFC) analyst Alec Brondolo reaffirmed an Overweight rating and a $538.00 price target on AppLovin Corp (NASDAQ:APP), countering concerns raised in a short report. Currently trading at $261.53, the company has demonstrated remarkable momentum with a 375% return over the past year. According to InvestingPro data, analyst targets for APP range from $105 to $650, reflecting diverse market opinions on this volatile tech stock. Brondolo’s research, which included conversations with advertising agencies, provided a more optimistic view of AppLovin’s performance in the e-commerce sector.

The analyst pointed out that agency checks revealed 55-60% of AppLovin’s e-commerce customers were net new to brands, a figure that contrasts sharply with the short report’s claim that more than half of AppLovin’s ad spend was for retargeting. These findings were supported by data from measurement services like Liftlab and Knocommerce and a recent Linkedin post from Northbeam, which suggested an 85% rate of net new customers. This customer acquisition success has contributed to AppLovin’s impressive 43.44% revenue growth over the last twelve months, with the company generating $4.7 billion in revenue.

Brondolo also addressed the turnover of AppLovin’s customer base, noting that as the company has only been operating in the e-commerce space for a few months, it is not surprising to see some churn. He explained that advertisers typically allocate test budgets before increasing their spending, which is a standard practice in digital advertising.

Furthermore, the analyst commented on the rapid growth of websites incorporating AppLovin’s pixel, as reported by BuiltWith through January, indicating a scaling presence in the market. This growth signifies continued adoption of AppLovin’s advertising technology despite the churn mentioned in the short report.

Regarding the allegations of fingerprinting and potential violations of the App Store’s Terms of Service (TOS), Brondolo suggested that the concerns might be misplaced. He clarified that the screenshots from the report were taken from AppLovin’s browser pixel in a desktop environment, while the TOS violations in question pertain to the mobile app environment. Brondolo expressed uncertainty over whether the App Store TOS would apply to an advertiser’s behavior on a web page or if the data collected by AppLovin’s pixel was significantly different from other advertising pixels. InvestingPro analysis shows the company maintains strong financial health with a 75.22% gross profit margin and robust liquidity, with current assets exceeding short-term obligations. For deeper insights into AppLovin’s financial metrics and growth potential, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

In other recent news, AppLovin Corporation has been under scrutiny following a critical report by Muddy Waters Research. The report accuses the company of potentially violating terms of service on major platforms like Meta (NASDAQ:META) and Google (NASDAQ:GOOGL), suggesting that AppLovin’s e-commerce conversions may largely be retargeting rather than new sales. These allegations raise concerns about the company’s ad targeting methods and potential deplatforming risks. Meanwhile, Citi maintains a Buy rating on AppLovin, with a price target of $600, expecting revenue growth from strategic moves such as the planned sale of its game studios. Jefferies also reaffirms a positive outlook, noting a 75% increase in advertising revenues in 2024 and highlighting AppLovin’s competitive data advantage. Bank of America Securities has also maintained a Buy rating with a $580 price target, citing AppLovin’s potential to capture significant digital ad spend. The analyst from BofA suggests that current market conditions present an attractive entry point for investors, emphasizing the company’s growth trajectory and competitive positioning. Despite the challenges, these endorsements reflect continued confidence in AppLovin’s strategic plans and financial prospects.

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