Key Takeaways
- AppLovin stock jumped 44% in two days after third-quarter revenue rose 55% and its fourth-quarter guide topped estimates.
- The slowdown this year’s selloff priced in hasn’t arrived, and the new ad models behind the beat are only partly rolled out.
- Unity’s ad growth shows no sign that Roblox’s weak user numbers have spread to game advertising.
- AppLovin still trades below its five-year average forward P/E, and its February report is the next test.
AppLovin (APP) stock is up 44% in two days, closing at $391.22 on Nov. 6. Its third-quarter report came out after the close on Nov. 4 and beat on revenue, earnings and guidance.
AppLovin hit a 52-week low on Oct. 30, the day after Roblox (RBLX) reported daily active users down 9% from a year earlier. Mobile game makers are AppLovin’s core advertisers, so it got caught in the selling, and it has since climbed 71% from that low close. Unity Software (U) competes for those advertisers. It reported the next morning and told a different story.
The slowdown never showed up
Revenue rose 55% to $2.18 billion, against the $2.07 billion analysts expected, and EPS of $4.30 beat the $4.03 estimate.
The guide mattered more. AppLovin expects fourth-quarter revenue of $2.37 billion to $2.40 billion, more than $100 million above the roughly $2.25 billion analysts were looking for. And CEO Adam Foroughi said on the call that the new models behind it aren’t fully out: “This was a partial rollout. The transition is still in front of us.”
Analysts’ EPS estimates held up while the stock slid:
Those mid-October estimates came before a guide this far above consensus, so they have room to rise.
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Unity is winning too
Foroughi said AppLovin’s gaming business grew nearly 50% from a year earlier and picked up speed as the new models rolled out. Unity said revenue from its Vector ad model more than doubled, up 126% from a year earlier, and it guides fourth-quarter strategic Grow revenue up 105% to 107%. Both of the big gaming ad platforms are growing fast, so Roblox’s slide in daily users looks like its own problem, not a sign that game makers are cutting ad budgets.
After its Nov. 5 report, Unity traded at about 26x forward earnings, roughly double AppLovin’s multiple going into its report. That price assumes Vector keeps growing even after AppLovin’s new models are fully rolled out.
Still cheap, if February delivers
AppLovin went into the week at about 13x forward earnings, half its five-year average of 25x:
Even after the jump, it’s still below that average.
The risk is timing: Foroughi warned that model gains “won’t land on a perfect quarterly schedule.” A securities class action over statements AppLovin made earlier this year about its model improvements is also pending, with a Nov. 16 lead-plaintiff deadline; the allegations are unproven.
Still, the stock looks undervalued if the rollout keeps delivering. The fourth-quarter report, expected in February, is next, and revenue near the $2.40 billion top of the guide would keep that case on track.
So what is AppLovin stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
