Given the solid ad tech growth trend, AppLovin (NASDAQ:APP) remains a cheap buy.

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Applovin’s advertising thesis remains strong Aprovin (NASDAQ:Nasdaq:Apps) is a SaaS company that provides advertising software solutions to mobile and web app developers, powering app marketing and monetization worldwide. A strong recovery Two market leaders in the global advertising market Google (Google) and Meta (Meta) has already reported solid sales and profit growth despite an uncertain macroeconomic outlook. The most popular advertising and monetization SDK App numbers Combined with the most popular market share, Advertising and monetization It’s not surprising then that APP, which offers software development kits for both iOS and Android platforms, reported better-than-expected results in its Q1 2024 earnings report. Revenue: $1.06 billion (+11% compared to last quarter/ YoY +47.9%), and GAAP EPS was $0.67, up 36.7% quarter-over-quarter and 6,800% year-over-year. Many of the sales and profit tailwinds This was driven by accelerating growth in its software platform, with annualized revenue of $2.71 billion (up 17.6% quarter-over-quarter and 91.2% year-over-year), and continued expansion in its higher-margin SaaS segment, which led to adjusted EBITDA margins of 72.5% (down 0.3 points quarter-over-quarter and up 10.9 points year-over-year). APP AXON 2.0 Technology The service, which launched in early 2023, has provided significant benefits to the company’s core business, with “continuous self-learning, additional data and enhanced engineering” leading to “better return on advertising spend (ROAS) for advertisers, increased investment” and revenue growth. This also explains the stable monthly active payers (MAP) at 1.8 million (inline QoQ/inline YoY) and the increase in average revenue per MAP (ARPMAP) at $48 (+2.1% QoQ/+4.3% YoY). At the same time, in its first quarter 2024 financial results announcement, APP has already announced the gradual improvement of AXON 2.0’s AI model and the strong demand for advertising on online/mobile gaming platforms, especially the fact that “many major game advertisers remain The integration process This will lead to increased UA spending.” Combined with management’s highly efficient operating expenses of $329.16 million (up 2.1% quarter-over-quarter and up 9.9% year-over-year) after discounting non-cash stock-based compensation, it’s not surprising to see the SaaS company report accelerating growth in overall adjusted EBITDA to $549 million (up 15.1% quarter-over-quarter and up 100% year-over-year) and an increase in overall adjusted EBITDA margin to 51.8% (up 1.9 points quarter-over-quarter and up 13.6 points year-over-year). As a result, it is not surprising that APP is providing encouraging Q2 2024 guidance of total revenue of $1.07 billion (up 1% quarter-on-quarter/up 41.3% year-on-year) and total adjusted EBITDA of $560 million (up 2% quarter-on-quarter/up 67.1% year-on-year), implying an equally strong total adjusted EBITDA margin of 52.3% (up 0.6 points quarter-on-quarter/up 7.9 points year-on-year). Consensus Forecast Tickle Terminal Perhaps this is why the consensus has raised future estimates, with APP expected to generate accelerating revenue/profit growth at a CAGR of +18.1%/+58.9% through FY2026. This compares with previous estimates of +10.8%/ +31.1% and historical growth rates of +34.8%/ +28.4% from FY2016 to FY2023. Retail media advertising expenses E-Marketer Much of this optimism can also be attributed to new growth opportunities for APP. Web E-commerce SegmentRetail media advertising spending is projected to grow from $115 billion in 2023 to $165.94 billion in 2025, expanding at a CAGR of +20.1%. The management team has alreadyWeb Advertising Given that sales “on our platform” in the second quarter of 2024 exceeded the same period of the previous year, we believe that sales and profits will gradually increase going forward, and that we may achieve better-than-expected results in the second quarter of 2024 as well. At the same time, APP’s robust free cash flow generation over the past decade ($1.16 billion) and forecasted expanding cash flows through fiscal 2026 indicate its ability to invest agilely in growth opportunities without straining its balance sheet. This will enable management to maintain its historically strong shareholder returns, based on the write-off of 24.57 million shares (representing 6.5% of shares outstanding) over the past 12 months. 39.71 million/10.2% from FY2021 onwards $500 million still remains available under the existing share repurchase program. The company has a relatively healthy balance sheet with net debt of -$3.09 billion (+17.9% QoQ, +26.7% YoY). Debt maturities through 2028/2030We believe APPs will continue to dominate the adtech boom over the next few years. So, is APP stock a buy?sell or hold?

Wooden five star shape with chat bubbles — Yagi Studio

Applovin’s advertising thesis remains strong

So, is APP stock a buy?sell or hold?

APP 2 year stock price

At the moment, APP has given up some of its recent gains after an impressive Q1FY24 earnings report, but it is still trading well above its 50-, 100-, and 200-day moving averages.

APP Evaluation

Nonetheless, we believe APP is still fairly valued at a FWD EV/EBITDA valuation of 12.79x and a FWD P/E GAAP valuation of 27.10x.

This is a very profitable trade desk (TTDD) 44.25x/130.31x, Perion Network (Peri) was 4.84x/12.59x before the recent adjustment. Bing changesand profitable Digital Turbine Inc.Apps) were 5.96x/NA, respectively.

This is especially true when comparing APP’s projected sales/earnings growth to 2026 with TTD’s +21.6%/ +22.9%, PERI’s +16.2%/ -30.1% and APPS’s -2.8%/ -22.8%, suggesting that the former’s accelerated earnings growth is indeed undervalued.

Readers should also note that generative AI is expected to enter the ad tech space, with the ecosystem expected to benefit from “faster content creation.” More effective advertising campaignsand improved advertising revenues,” naturally accelerating the growth of a market leader like APP.

This is especially true for Global advertising technology market size It is expected to exponentially grow from $987.52 billion in 2023 to $2.81 trillion by 2030, expanding at a staggering CAGR of +16.1%.

As of now, with Q1 2024 GAAP annualized EPS of $2.68 (up 36.7% QoQ and 6,800% YoY) and a FWD P/E GAAP valuation of 27.10x, it’s clear that APP is trading above our fair value estimate of $72.60.

Still, with fiscal 2026 GAAP EPS estimates of $4.66, it’s clear that the stock still offers excellent upside potential of +59.2% relative to our long-term target price of $126.20.

Combining solid shareholder returns with an attractive risk/reward ratio, we initiate a Buy rating on APP, but there is no specific entry point as it will depend on each individual investor’s dollar-cost averaging and risk tolerance.

Currently, the stock is retesting the previous resistance level of $80 and interested readers may wish to watch the move for a bit more time before buying further following the gradual pullback to the previous trading range of $66 to $74 for an improved margin of safety.