AppLovin stock price has boomed in the past few years, making it one of the best-performing companies in Wall Street. APP surged by over 3,500% from its lowest level in 2023, transforming it into a $121 billion behemoth. It was also among the top-performing S&P 500 index companies in 2024. So, will the APP stock surge intensify this year?
APP stock soared as its growth intensified
AppLovin stock has soared as its revenue has surged in the past few years. Its annual revenue rose from $994 million in 2019 to $4.28 billion in the trailing twelve months. It has also moved from a net loss of over $350 million in 2022 to a $1.1 billion profit in the TTM.
AppLovin’s growth trajectory accelerated in the third quarter as its revenue rose by 39% to $1.2 billion. The revenue figure was substantially higher than what most analysts were expecting, and was a sign that its AXON models were making an impact on its customers.
Most of this revenue, or $835 million, came from its software platform, while the apps update division made over $363 million.
Analysts expect that the AppLovin business did well in 2024, with its annual revenue growing by 40% to over $4.6 billion. A 40% annual growth, most of which is organic, is a good figure for a company that was established in 2012.
It is also notable because the company is in the television industry, which has had substantial headwinds in the past few years.
Read more: Is Applovin still a buy after the 40% surge following Q3 earnings?
Is AppLovin overvalued?
AppLovin’s revenue is then expected to grow from $4.6 billion in 2024 to $5.67 billion. If this trend continues, it means that it will easily hit the $10 billion revenue milestone by 2030.
The company also has high margins, which will continue to grow as it scales. Its gross margins were about 74%, while the net income margin was 26%. Therefore, the company’s net margins could reach at least 30% in the next few years.
The challenge for AppLovin is that the company has become highly overvalued on most metrics. This is a company with a market cap of over $121 billion that has yet to cross the $10 billion metric.
It trades at a forward price-to-earnings ratio of 83, much higher than other well-known companies like Microsoft, Google, and NVIDIA. NVIDIA has a forward P/E ratio of 48 even though it is growing at a faster rate and is in large industries. Microsoft and Google have forward multiples of 32 and 24, respectively.
However, AppLovin’s valuation is supported by the Rule of 40 figure. This is a common way for valuing companies in the SaaS industry by looking at the revenue growth and profit margins. Its revenue growth of 41% and its net income margin of 26% gives it a rule of 40 metric of 61%, one of the best in the industry.
AppLovin stock price analysis
The Wyckoff Method, which examines how stocks and other assets trade over time, is the basis for AppLovin stock’s biggest risk. This approach identifies stages like accumulation, markup, distribution, and markdown.
AppLovin share price remained in the accumulation phase between 2012 and 2023 and then moved to the markup phase in 2024. The markup phase is usually characterized by the fear of missing out among investors.
After that, the distribution part sees some smart money investors start to sell their stake. The next stage is where it moves to the markdown phase, and will likely happen this year as its revenue growth slows. The markdown phase is made up of big declines as panic among some investors set in and mean reversion happens.
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