We came across a bullish thesis on AppLovin Corporation (APP) on Substack by Jimmy Investor. In this article, we will summarize the bulls’ thesis on APP. AppLovin Corporation (APP)’s share was trading at $257.76 as of March 11th. APP’s trailing and forward P/E were 56.86 and 37.31 respectively according to Yahoo Finance.
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AppLovin (APP) has established itself as a dominant player in the ad tech industry, leveraging AI-driven solutions to optimize ad monetization, user acquisition, and developer engagement. The rapid growth of digital advertising, now the largest segment in global ad spending, has created a massive opportunity for platforms that can efficiently match advertisers with high-intent users. In 2024, digital ad spend is projected to reach $740.3 billion, with continued expansion toward nearly $1 trillion by 2028. Mobile advertising, particularly in-app placements, is at the forefront of this growth, driven by increased smartphone usage, programmatic ad adoption, and AI-powered targeting. AppLovin has capitalized on these trends by developing a suite of high-margin software solutions centered around its AI-powered AXON platform, which processes vast datasets to enhance ad performance through real-time bidding and predictive analytics.
Founded in 2011, AppLovin initially focused on mobile app user acquisition before expanding into ad mediation, real-time auction systems, and AI-driven campaign optimization. The company’s software business, now its core revenue driver, is anchored by AppDiscovery, an AI-powered ad buying platform that accounts for 65% of software revenue. AppDiscovery optimizes ad spend based on return-on-ad-spend (ROAS) and lifetime value (LTV) modeling, ensuring that advertisers achieve maximum efficiency. Complementing this is MAX, AppLovin’s ad mediation platform, which enables app developers to maximize revenue by running competitive, transparent ad auctions across multiple networks. By focusing on automation, efficiency, and first-party data insights, AppLovin has built a capital-light, highly scalable business model with strong recurring revenue.
The company’s transformation into a pure-play ad tech firm was solidified in 2024 with the $900 million sale of its Apps business. This divestment allowed AppLovin to focus entirely on its high-margin advertising operations, further strengthening its financial profile. The shift has positioned the company to benefit from long-term industry tailwinds, such as increased in-app ad spending, the expansion of programmatic buying, and the ongoing shift away from traditional media channels. With its deep expertise in AI-driven ad targeting and mediation, AppLovin is well-positioned to capture a larger share of the rapidly growing digital ad market.
AppLovin operates in a highly competitive space alongside major players like Google, Meta, and Amazon, yet it has successfully differentiated itself through its developer-first approach and AI-powered infrastructure. Unlike the walled gardens of Google and Meta, which restrict external ad networks, AppLovin’s platform is designed to provide developers with full transparency and control over their ad monetization strategies. Its first-party data capabilities give it an edge in a privacy-conscious environment, allowing it to mitigate the impact of Apple’s App Tracking Transparency (ATT) and Google’s Privacy Sandbox initiatives. While these changes have disrupted traditional ad targeting methods, AppLovin has adapted by optimizing its models around privacy-compliant data sources, ensuring continued ad performance for its partners.
Despite these strengths, the company faces potential risks, including evolving privacy regulations and heightened competition. Apple’s ongoing privacy initiatives, such as its rumored first-party ad network, could alter the dynamics of mobile advertising. Google’s Privacy Sandbox could also shift advertiser spending toward its own ecosystem. However, AppLovin’s ability to leverage AI for predictive targeting and campaign optimization positions it well to navigate these challenges. Additionally, its AI-powered bidding system and access to high-quality first-party data provide resilience against further disruptions.
Financially, AppLovin has demonstrated exceptional growth, with a five-year revenue CAGR of nearly 40% and expanding profit margins. The company’s gross margin has consistently exceeded 60%, reaching 75% in 2024, while net income has surged to $1.5 billion, driven by improved operating efficiency and a focus on high-margin software revenue. The sale of its Apps business has further strengthened its balance sheet, reducing net debt to EBITDA from 6x in 2021 to a manageable 1.5x in 2024. This financial flexibility allows AppLovin to reinvest in AI development, pursue strategic acquisitions, and enhance shareholder returns.
Despite its strong fundamentals, AppLovin’s valuation remains a point of debate. The stock trades at a trailing P/E of 59x, which is expected to decline to 39x based on projected 2025 earnings. Its EV/Sales multiple of 20x reflects investor confidence in its high-growth, high-margin business model. However, with net revenue projected to grow at a 15% CAGR, primarily driven by software expansion and AI-powered monetization, the company’s long-term upside remains compelling. A discounted cash flow (DCF) analysis estimates a fair value of $238 per share by 2025, suggesting a moderate downside from its current price of $270. However, upside catalysts, including further AI-driven monetization improvements, potential M&A activity, and enhanced operating leverage, could push the valuation higher.
AppLovin presents a compelling investment case in the ad tech sector, benefiting from the structural shift toward AI-powered, privacy-compliant digital advertising. Its strong execution, scalable software business, and ability to navigate industry headwinds position it as a leader in mobile ad monetization. While privacy regulation and competitive pressures remain risks, AppLovin’s AI-driven approach, first-party data advantage, and strong financial profile provide a solid foundation for long-term growth. Investors evaluating AppLovin today see a company with a dominant market position, strong cash flow generation, and the potential for continued upside as digital ad spending continues to expand.
AppLovin Corporation (APP) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 95 hedge fund portfolios held APP at the end of the fourth quarter which was 51 in the previous quarter. While we acknowledge the risk and potential of APP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than APP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.