The Unstoppable Rise of AppLovin: A Digital Advertising Powerhouse
Beating the Tech Giants
In the world of technology, Nvidia’s impressive surge has dominated the headlines, but another company has quietly outperformed it: AppLovin, a digital advertising specialist with a focus on gaming. With a staggering 310% growth in 2024, AppLovin has left every U.S. tech company with a market cap of at least $5 billion in its dust, according to FactSet data. Nvidia, the artificial intelligence leader, has seen a respectable 173% increase this year, but AppLovin’s performance is truly remarkable.
From Humble Beginnings to Market Leader
Founded 12 years ago, AppLovin went public in 2021, riding the wave of excitement in online games during the Covid era. While its games unit has seen relatively slow growth, its online ad business has exploded, thanks to advancements in AI that have improved ad targeting. The company’s AI advertising engine, AXON, has been instrumental in driving this growth, particularly since the release of its updated 2.0 version last year.
Impressive Earnings Expectations
As AppLovin prepares to release its earnings report on Wednesday, investors are eagerly anticipating proof that the rally is warranted. Analysts expect revenue growth of 31% to $1.13 billion, according to LSEG, following two straight quarters of growth above 40%. Moreover, AppLovin is expected to more than triple its EPS to 92 cents, with operating income more than doubling to $424.2 million, according to FactSet.
A Bright Future Ahead
Analysts have become increasingly bullish on AppLovin’s prospects, with Wells Fargo initiating coverage with a buy rating and BTIG lifting its price target to $202, the highest among firms tracked by FactSet. According to Wedbush analysts, the ad opportunity in the mobile gaming industry is set to grow from $10 billion today to $50 billion over the next decade. With its strong position in digital advertising, AppLovin is well-positioned to capitalize on this trend.
Competition and Challenges
However, AppLovin faces potential competition from well-capitalized companies like Google, Amazon, and Facebook, which could pose a threat to its dominance. Additionally, the company relies on a small set of mobile platforms, primarily from Apple and Google, for distribution. Despite these challenges, AppLovin’s founder and CEO, Adam Foroughi, has seen his stake soar to about $5 billion in value, making him one of the biggest financial beneficiaries of the company’s historic rally.
A Near-Miss and a Missed Opportunity
Interestingly, AppLovin’s fortunes could have taken a very different turn. In 2016, Foroughi agreed to sell a majority stake in the company to Chinese investment firm Orient Hontai Capital in a deal valued at $1.4 billion, but the transaction never materialized due to U.S. government restrictions on Chinese involvement in the domestic tech sector. More recently, AppLovin attempted to acquire gaming software developer Unity Software for $20 billion, but the deal was rejected by Unity shareholders. Since then, Unity has struggled, losing more than half its value, while AppLovin’s market cap has ballooned by almost sixfold.
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