KeyBanc analyst Tyler Parker initiated coverage on Applovin Corp APP, ironSource Ltd IS, and Unity Software Inc U with a focus on enabling the business and development of mobile apps.
APP (Overweight; Price Target: $55) enables developers to grow and monetize mobile apps. As the most scaled solution, with increasing capabilities, he saw the opportunity for APP to sustain healthy growth and expand margins at a depressed multiple.
IS (Overweight; PT: $3.50) enables developers to grow and monetize mobile apps. IS has carved out a strong position in gaming and should benefit from growth in its Aura business and new verticals beyond gaming.
U’s (Sector Weight; PT: $41) software development engine provides a unique combination of businesses with Create and Operate. Despite this, he saw a higher relative risk to estimates at a premium valuation as Operate recovers from operational issues and the Company cuts costs to achieve non-GAAP profitability.
Parker saw the market for expanding and monetizing mobile apps as large and growing. He saw the companies gaining from user privacy policies enacted by Apple Inc AAPL.
The potential for further restrictions on tracking users presents an ongoing overhang. However, he expected to continue to see advertising take share as a form of app monetization as the in-app purchases market struggles with less tracking signal.
Mobile gaming is the primary market, though these solutions thrive on fragmented markets requiring the discovery and should see increasing opportunity in apps outside of mobile gaming as per him.
Customers were very sticky with the win-win proposition of performance advertising, with strong land-and-expand characteristics.
Scale matters, as more data and access to supply/demand fuels better performance, he added.
Price Action: APP shares traded lower by 4.95% at $33.80 on the last check Thursday.
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