Applovin(US:APP)2024-11-21 07:35Investment Rating - The report maintains a "Buy" rating for AppLovin (APP.US) with a target price raised to $394, indicating a potential upside of 23% from the current price of $321.19 [1][21]. Core Views - AppLovin's stock has increased over 700% year-to-date, making it one of the highest-performing stocks in the U.S. market. The company is set to be included in the Nasdaq 100 index on November 18, 2024, which is expected to enhance its liquidity and visibility [1]. - The report highlights the company's strong Q3 2024 performance and the potential for a revaluation of its stock as its brand awareness increases, which could lower customer acquisition costs and support future business expansion [1]. - The report emphasizes AppLovin's leading position in the mobile gaming advertising sector, supported by a comprehensive product ecosystem that includes AppDiscovery, MAX, and Adjust, which create synergistic effects [1]. Summary by Sections Financial Performance - For FY24E, AppLovin is projected to achieve revenues of $2,817 million, with an adjusted EBITDA of $1,063 million, reflecting a significant growth trajectory [5][7]. - The adjusted EBITDA margin for Q3 2024 reached 78%, and the overall free cash flow to adjusted EBITDA ratio was 76%, indicating strong profitability and cash generation capabilities [1]. Business Growth Drivers - The introduction of the AI advertising engine AXON 2.0 has led to a 66% year-over-year growth in advertising revenue, with a 17% quarter-over-quarter acceleration [1]. - The company is expanding into the e-commerce sector, which is expected to significantly increase its market potential. Initial tests in this area have shown promising results, comparable to social customer acquisition channels [1]. Valuation Metrics - The report raises the valuation of AppLovin's advertising business to 45x 2025E EV/EBITDA, aligning it with the average valuation of large advertising platforms and AI concept stocks [1]. - The projected revenue growth rates for the next few years are robust, with expected increases of 39.7% in FY24E and 19.3% in FY25E [5][7].