AppLovin Stock Plunges 26% in 3 Months: Is it a Smart Investment Now?

AppLovin Corporation APP has witnessed its stock decline 26% over the past three months, worse than the industry’s 15% decline. Notably, competitors in the in-game mobile advertising space have also faced headwinds. Alphabet GOOGL shares have dropped 11%, while Meta Platforms META has seen a 10% decrease during the same period, reflecting broader weakness in the digital ad ecosystem.

However, the tide appears to be turning. APP has surged 64% in the past month, signaling a strong rebound. Alphabet has also shown signs of recovery with an 8% gain, while Meta Platforms has rallied 31% during the same timeframe.

As major players like Alphabet and Meta Platforms regain momentum, their performance may signal improving market conditions for digital ad companies. This analysis will explore whether APP now presents an attractive opportunity for investors.

APP’s Strategic Shift Toward a High-Margin Business Model

AppLovin is actively transforming into a pure-play advertising platform, sharpening its focus on high-growth, high-margin segments. A major milestone in this transition was the $900 million sale of its gaming unit to Tripledot Studios. This divestiture allows APP to concentrate on its ad technology, a move that aligns with its vision of serving the global digital advertising market, which includes over 10 million businesses. To capitalize on this vast market, the company is investing in automation, developing advanced tools to enhance customer efficiency and maximize ad performance.

Strong Financial Performance Underscores Growth Potential

AppLovin’s latest earnings report reinforces its strong financial health and growth trajectory. The company continues to benefit from its AXON 2.0 technology and strategic expansion within the gaming and in-app advertising sectors. In the first quarter of 2025, revenues surged 40% year over year, reflecting strong market demand. Adjusted EBITDA jumped 83% year over year, showcasing improved operational efficiency. Net income skyrocketed 144% from the prior year, demonstrating APP’s ability to translate revenue growth into significant profitability. For the full year 2024, revenues climbed 43% year over year, while adjusted EBITDA surged 81%, underscoring AppLovin’s ability to seize market opportunities while maintaining efficiency.

Analysts Project APP’s Robust Earnings and Revenue Expansion

The Zacks Consensus Estimate for second-quarter 2025 earnings is $2.01 per share, indicating an impressive 125.8% increase from the prior-year quarter. Moreover, earnings for the full years 2025 and 2026 are expected to grow by 85.2% and 41.9%, respectively, compared to the previous years.

The Zacks Consensus Estimate for second-quarter 2025 revenues is $1.45 billion, representing an impressive 33.9% increase from the prior-year quarter. Moreover, earnings for the full years 2025 and 2026 are expected to grow by 24.3% and 19.7%, respectively, compared to the previous years.

APP is a Buy

APP presents a compelling investment opportunity due to its impressive financial performance and robust growth prospects. The company's recent results and strategic initiatives underscore its potential for continued success in the gaming and software sectors. AppLovin’s strong fundamentals, innovative technology and strategic growth initiatives position it as a leader in its industry. With a solid financial outlook and increasing analyst confidence, we recommend a "Buy" rating for APP stock to capitalize on its promising growth trajectory.

APP currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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