3 Reasons We Love AppLovin (APP)

The past six months have been a windfall for AppLovin’s shareholders. The company’s stock price has jumped 114%, hitting $695 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Following the strength, is APP a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free for active Edge members.

Why Is APP a Good Business?

Sitting at the crossroads of the mobile advertising ecosystem with over 200 free-to-play games in its portfolio, AppLovin (NASDAQ:APP) provides software solutions that help mobile app developers market, monetize, and grow their apps through AI-powered advertising and analytics tools.

1. Skyrocketing Revenue Shows Strong Momentum

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, AppLovin’s sales grew at an excellent 33.6% compounded annual growth rate over the last five years. Its growth surpassed the average software company and shows its offerings resonate with customers.

2. Customer Acquisition Costs Are Recovered in Record Time

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

AppLovin is extremely efficient at acquiring new customers, and its CAC payback period checked in at 0.3 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give AppLovin more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

AppLovin has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 64.5% over the last year.

Final Judgment

These are just a few reasons why AppLovin ranks near the top of our list, and after the recent rally, the stock trades at 31.2× forward price-to-sales (or $695 per share). Is now a good time to buy? See for yourself in our full research report, it’s free for active Edge members.

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