Discover the Latest Artificial Intelligence Company to Join the Nasdaq-100. It Experienced a Staggering 2,140% Increase in Value Over Two Years, Suggests a Financial Expert on Wall Street.
The Nasdaq-100 incorporates the 100 largest non-financial corporations on the Nasdaq Stock Market. On Nov. 18, mobile advertising firm AppLovin (-0.53%) entered the index, replacing discount store Dollar Tree.
AppLovin has earned a reputation as one of the fastest-evolving stocks on the market. Its share price skyrocketed 2,140% over the past two years, surpassing Nvidia's growth rate during that period. Despite this stellar performance, 79% of the 29 analysts tracking the company still recommend a buy.
Recently, James Callahan at Piper Sandler initiated coverage on the company, setting a target price of $400 per share. This prediction implies a 25% rise from its current share price of $321. Dive deeper to learn more about this high-powered AI stock.
AppLovin: A Lesser-Known Ad Tech Company with a formidable AI Engine
AppLovin is an ad tech company that utilizes a potent artificial intelligence (AI) engine to aid mobile app and connected TV (CTV) content publishers in identifying and commercializing users. The company splits its operations into two segments: software platforms and apps. The former accounts for approximately 70% of revenue, while the latter contributes around 30%.
- Software platforms: AppLovin's flagship product is AppDiscovery, which leverages its AI engine Axon to help mobile app publishers attract users. Axon's proficiency in aligning demand with suitable supply improves as usage increases, resulting in a network effect known as self-learning. The company also sells software for in-app advertising and CTV advertising.
- Apps: AppLovin operates a portfolio of over 200 free-to-play mobile applications. The company uses its own software to promote, monetize, and expand these applications through in-app purchases and in-app advertising.
Notably, AppLovin has also started licensing its AI technology to other companies. The expanding social commerce platform Flip recently integrated AppLovin's Axon engine to assist brands in reaching consumers with more pertinent content.
AppLovin's Rapid Growth and Manageable Valuation
AppLovin unveiled impressive financial results in the third quarter, surpassing estimates on both revenue and earnings. Total revenue saw a 39% increase to $1.2 billion, with the software platforms segment driving the bulk of the growth. GAAP net income more than quadrupled to reach $1.25 per diluted share.
In the second quarter, AppLovin launched a web advertising product in trial that enables e-commerce brands to reach mobile app users and CTV viewers. During the third-quarter earnings call, CEO Adam Foroughi offered an encouraging update, stating it was not only the "best product," but also the "fastest growing" product the company has released. Although the product is still in trial today, he anticipates e-commerce advertising to be a substantial revenue source by 2025.
Moreover, AppLovin introduced an upgraded version of its AI engine (Axon 2.0) with enhanced targeting in the second quarter. Foroughi highlighted this as a major factor in the company's strong third-quarter performance, and presented an optimistic outlook:
In the last quarter, I expressed confidence in achieving a 20% to 30% year-over-year growth rate for an extended period. We continue to anticipate 4% to 5% quarterly growth due to self-learning and market growth, with occasional leapfrogs resulting from enhancements to our Axon algorithm. This quarter, we witnessed one such leapfrog, with significant growth propelled by advancements in Axon.
Wall Street forecasts AppLovin's earnings to rise 60% over the next 12 months, while expanding at a 45% annual pace through 2026. Given this context, the current valuation of 98 times earnings appears manageable, although hardly inexpensive.
Investors inclined towards volatility may consider acquiring a modest position in this newly inducted Nasdaq-100 stock today. However, it may be more judicious to wait for opportune dips to purchase shares.
Given AppLovin's impressive financial performance and the predicted growth of their e-commerce advertising product, it may be an attractive investment opportunity for those willing to accept some market volatility. With Wall Street forecasting a 60% earnings increase over the next 12 months and a manageable valuation of 98 times earnings, it could be a worthwhile consideration for investors' portfolios, particularly during potential dip periods. Additionally, the company's expanding licensing of its AI technology to other companies enhances its long-term investment potential.
