AppLovin Analyst Fears Competition From Meta, Google, Apple

  • Needham analyst Bernie McTernan initiated coverage on AppLovin Corp APP with a Hold rating.
  • The company's robust organic revenue growth over the past two years was driven by its best-in-class AXON machine-learning platform executing strongly in a favorable operating environment. 
  • While he expects a still-commendable 25% organic revenue CAGR over the next two years, he does not foresee a catalyst that will boost the stock's adjusted EBITDA multiple (7.5x his NTM estimate).
  • He anticipates greater competition from Meta Platforms Inc METAAlphabet Inc GOOG GOOGL Google, and increasingly Apple Inc AAPL.
  • He believes AppLovin will benefit from the shift in monetization in mobile apps toward in-app advertising (IAA) and the re-valuing of first-party consumer data. 
  • AppLovin has built and acquired the necessary tools and data to drive user acquisition and subsequent in-app ad monetization for its software clients. 
  • He thinks there is a further runway in in-app advertising for ad load in casual gaming apps, which would create a blueprint for non-gaming apps to follow. 
  • He also thinks that the breadth of potential advertisers will grow as brands realize the potential value of gaming app users. 
  • Further, he sees other form factors beyond mobile phones where AppLovin's flywheel can drive similar results, such as connected TV.
  • Price Action: APP shares traded lower by 9.2% at $18.65 on the last check Friday.
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