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Investing.com -- Morgan Stanley analysts raised their price target for AppLovin (NASDAQ:APP) to $460 from $420 a share in a note Monday, arguing that the company would be "more valuable without its 1P games."
The firm expressed bullishness on Overweight-rated AppLovin’s plan to sell its apps segment, anticipating that this move would "enhance shareholder value and be neutral to future earnings."
As announced in February, AppLovin intends to sell its first-party mobile games business, known as the Apps Segment, to Tripledot Studios in Q2 2025 for $400 million in cash and $400 million in Tripledot stock.
While this segment contributed 32% of revenue and 10% of EBITDA in 2024, Morgan Stanley (NYSE:MS) views the divestiture as a "bullish development."
The analysts explain that the sale would enable AppLovin to recognize "high-margin revenue that the 1P studios spend on APP’s ad network, offsetting most of the lost earnings from 1P games."
The strategic shift is said to effectively reallocate profits "from the low multiple games business to the high multiple ad business, increasing the total value of the company."
Morgan Stanley has adjusted its 2026 and 2027 EBITDA forecasts for the company down by 1% for each year. However, they are applying a higher EBITDA multiple of 29x, up from 26x previously.
This adjustment reflects a move away from a Sum-of-the-Parts (SOTP) valuation where the apps EBITDA was valued at a mere 4x.