In a world where technology dictates market trends, AppLovin (APP) stands out as a beacon for savvy investors looking to capitalize on the AI revolution in advertising. With an unprecedented 288% earnings growth in 2023 and projections for even more in 2024, AppLovin isn't just riding the wave of tech success—it's creating its own. This Silicon Valley giant, specializing in AI-driven ad tech, has not only captured the attention of institutional investors but is also redefining how businesses connect with consumers across digital platforms. As we approach the company's Q4 earnings, the question isn't whether AppLovin will perform, but how much further it can soar. Dive into this newsletter to understand why AppLovin could be the cornerstone of your investment strategy in 2025.

Today’s episode - Bullish!

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📈The AppLovin Surge: Why Smart Investors Are Betting Big on This AI-Powered Stock

In the fast-paced world of tech investing, few companies have generated as much excitement as AppLovin (APP). After a meteoric rise in 2023, this Silicon Valley-based enterprise software firm is positioned to continue its high-growth trajectory well into 2025. Investors who recognize the potential of AI-driven ad monetization are looking at AppLovin as a strategic long-term play, and the data suggests they might be onto something.

A Year of Explosive Growth

AppLovin posted a staggering 288% earnings growth in 2023, and analysts expect an even bigger 315% jump in 2024, pushing full-year profits to $4.06 per share. This kind of acceleration isn’t just a flash in the pan—it’s a sign of a company firing on all cylinders.

The stock has been on a relentless upward climb, resetting its base count in mid-2023 before breaking into a second-stage cup pattern. These base resets often signal renewed momentum, and with institutional investors pouring in over $1.11 billion into AppLovin shares in January alone, the conviction behind this stock is undeniable. When mutual funds and hedge funds are betting big, it’s usually a sign individual investors should pay attention.

The Power of AI and Market Dominance

AppLovin’s dominance comes from its ability to connect businesses with audiences through AI-powered ad technology. The company’s software optimizes ad placements and revenue generation for mobile apps, streaming platforms, and digital advertisers. In a world where consumer attention is fragmented across multiple screens, AppLovin’s technology provides a seamless and highly effective way for businesses to reach their target audiences.

Its proprietary AXON 2.0 technology has been a game-changer, allowing the company to scale its operations efficiently and improve ad performance for customers. This AI-powered optimization engine processes vast amounts of data in real time to ensure maximum monetization for developers and advertisers alike. With digital ad spending expected to grow at a compound annual growth rate (CAGR) of 9% through 2027, AppLovin is well-positioned to capitalize on an expanding market.

Earnings Momentum and Institutional Confidence

As earnings season approaches, all eyes are on AppLovin’s upcoming Q4 report. Analysts predict earnings per share of $1.28—a 161.2% jump from the previous year. Revenue is expected to hit $1.26 billion, up 32.3% year over year. With two recent upward earnings revisions and a track record of surpassing expectations, an earnings beat looks highly likely.

The company’s software segment, expected to generate $892.7 million in revenue (a 54.8% year-over-year increase), remains its strongest growth driver. This platform has become the backbone of AppLovin’s business, driving higher margins and operational efficiencies. Meanwhile, its apps division is expected to see more modest growth at 1.8% year over year, reflecting a broader industry trend toward software-based revenue models.

In Q3 2024 alone, AppLovin reported a 39% year-over-year revenue increase, with adjusted EBITDA surging 72%. The company's net income saw an exceptional 300% increase compared to Q3 2023, demonstrating its ability to convert top-line growth into substantial profitability. The growing adoption of its AI-powered software solutions is translating into improved margins and a stronger bottom line.

How AppLovin Stacks Up Against the Competition

Despite a 466.5% rally in the past six months, AppLovin remains undervalued compared to its peers. While the industry’s average EV-to-EBITDA ratio stands at 96.27X, APP is trading at just 66.21X, suggesting there’s still significant upside potential.

The stock’s strength is evident when compared to major players like Alphabet (GOOGL) and Meta (META), which have seen gains of 20.5% and 45.6%, respectively, over the same period. Unlike these tech giants, which rely on diversified revenue streams, AppLovin has a laser focus on AI-driven ad monetization—a sector poised for exponential growth.

AppLovin’s institutional ownership also highlights its strong market standing. The company has attracted seven consecutive quarters of rising fund ownership, signaling that institutional investors have confidence in its long-term prospects. The latest list of major mutual fund purchases showed a significant increase in holdings, reinforcing its status as a top-performing stock in the sector.

The Risks and Rewards of Investing in AppLovin

While the numbers paint a bullish picture, no investment is without risk. AppLovin’s growth hinges on continued expansion in the mobile advertising sector, a space that is constantly evolving. Changes in privacy regulations, competition from emerging ad-tech firms, and fluctuations in consumer engagement all pose potential threats.

Additionally, the company’s push beyond gaming into broader digital advertising markets introduces both opportunity and uncertainty. While AppLovin’s AI-powered platform has been a major differentiator, its ability to maintain leadership in an increasingly competitive market remains a critical factor for long-term success.

One of the biggest risks facing AppLovin is the potential for regulatory changes that could impact targeted advertising. Privacy-focused updates from Apple (AAPL) and Google regarding third-party data tracking could pose challenges for ad-tech companies that rely on user data for personalized ad placements. However, AppLovin’s AI-driven approach could mitigate these risks by leveraging first-party data and machine learning to improve ad performance without relying heavily on third-party cookies.

The Smart Investor’s Takeaway

So, is AppLovin a buy before its Q4 earnings report? All signs point to yes.

With record-breaking earnings growth, a strong institutional backing, and a dominant AI-driven platform, AppLovin represents a compelling investment opportunity. The stock’s recent pullback offers a potential entry point, and its undervalued position compared to industry peers suggests further upside.

For investors who prioritize companies with strong fundamentals, high earnings momentum, and AI-driven scalability, AppLovin is a stock worth watching. The market rewards those who recognize transformative businesses early, and AppLovin’s trajectory suggests it’s far from done growing. As AI continues to reshape the digital advertising landscape, the smartest investors are already making their moves—and they’re betting big on AppLovin.

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