outline
AppLovin (NASDAQ: APP) once recorded rapid growth and high stock price growth in the app ecosystem, but has recently been on the decline due to negative issues such as market correction and short-selling reports. However, mid- to long-term growth momentum is supported by management's quick response, strategy shift to focus on advertising platforms, and securing a high-margin structure through separation of the app business.
In particular, while the advertising business maintains a high margin rate (over 78%) and drives performance, AI-based advertising optimization technology (Axon 2.0) and e-commerce and CTV advertising market expansion strategy are expected to further strengthen AppLovin's long-term growth potential.
Reasons for recent stock price fluctuations
Recently, AppLovin's stock price fell by as much as 50% from its peak on February 14th, but has been rebounding by about 20% over the past five days. If we check the cause of the decline, whether it is a recovery after an excessive decline or a brief struggle, the causes are as follows.
- Market concerns about Sale of game business
- As the highly profitable game business was abandoned, uncertainty about changes in profit structure increased.
- Although the advertising margin is high at 78%, this reflects concerns about whether it can quickly replace existing game sales.
- Short selling reports and negative reports
- Recently, some Short Sellers Issue Negative Report on AppLovin's Business Structure and Financial Health have worsened investment sentiment.
- The report raises questions about the sustainability of advertising business expansion and the effectiveness of Axon's AI technology, raising concerns about a slowdown in future performance growth.
- As a result, investors showed risk aversion and selling pressure intensified.
- Possibility of intensifying competition and delay in introducing AI advertising solutions
- Competition for market share is likely to intensify with the launch of Unity's AI advertising solution (Vector).
- If AI-based advertising solutions do not perform as quickly as expected, there is a possibility of short-term performance decline.
- Increased short-term performance volatility
- In the process of expanding the advertising business, initial costs are expected to increase, which may result in short-term profitability deterioration.
- However, the recent plunge in the stock price may act as an opportunity to buy at an undervalued stock.
Among the above concerns, the areas that need to be checked are the gaming business and short selling. In my personal opinion, I welcome the management's decision to focus on the advertising industry because the motivation for investing in AppLovin itself was focused on the advertising industry rather than games. It seems that the short selling part will require monitoring of additional reports from the short selling side, but the current position is We trust AppLovin's strongly refuted claims..
AppLovin Q4 2024 Performance Summary
ItemsQ4 2024 performanceYoY growth rateTotal revenue$1.37B+44%Advertising revenue$999M+73%App revenue$373M-1%Adjusted EBITDA$848M+78%EBITDA margin62%+16%pFree cash flow (FCF)$2.1B-Earnings per share (EPS)$1.73-
During FY2024, AppLovin achieved significant growth thanks to explosive growth in advertising sales, and also recorded shareholder return of approximately 2.3% through active shareholder return policies such as share repurchases. Recently, Announces immediate purchase of $500 million. In 2025, we plan to expand the share repurchase scale to 4%.
Performance analysis by segment
AppLovin previously operated two business divisions, advertising and apps, but is pursuing a strategy of selling the app business, which shows low growth and margins, to focus on the advertising platform. The performance of the advertising division is driving overall profitability, and through this, the company's growth strategy has become clearer.
ItemQ4 FY2024Q1 FY2025 (Guidance)Advertising Segment Revenue$999M$1.03B ~ $1.05BAdvertising EBITDA$777M$805M ~ $825MAdvertising EBITDA Margin78%78% ~ 79%App App Segment Revenue$373M$325M ~ $335MApp Segment EBITDA$71M$50M ~ $60M
The advertising sector accounts for approximately 68% of total sales and 78% of profits, and is positioned as a key growth engine that maintains high profitability.
Mid to long-term growth outlook and valuation
AppLovin is in the process of spinning off its app business and transitioning to a pure advertising platform, focusing on growing its high-margin advertising segment. Growth stocks such as AppLovin are expected to be highly volatile during the current market-wide correction, but their long-term growth prospects and valuation indicators remain positive.
ItemFY2025 (expected)FY2026 (expected)Advertising segment total revenue$4.16B-Q1 advertising revenue (guidance)$1.03B ~ $1.05B-EBITDA margin approximately 78%Adjusted above 79% EV/EBITDA (expected)-19.3xPEG ratio0.88x-
Technical Analysis and Market Sentiment
Recently, the stock price fell 25-26% due to short-selling reports and negative market sentiment, but the CEO's quick response and management's clear statement of position had a positive impact on investors.
A strong support line is forming approximately in the $350~$360 range, and it appears that there is a high possibility of a rebound from this point. The fact that several institutions and hedge funds maintain and still hold the existing buy opinion is also a factor that increases market confidence.
conclusion
AppLovin is securing mid- to long-term growth momentum based on the transition to a pure advertising platform through the separation of the app business, solid performance in the high-margin advertising sector, and rapid response from management.
Short-selling reports and stock price volatility may be a burden in the short term, but explosive growth rates and low PEG ratios can be considered good factors in the long term.