AppLovin Corp (NASDAQ: APP) – a company that offers a comprehensive suite of solutions for mobile app developers that covers marketing, monetization, and analytics – recently released solid quarterly performance. Its earnings of $1.73 per share on sales of $1.37 billion in Q4 exceeded street estimates of $1.24 per share earnings on $1.26 billion in revenues. Furthermore, the company’s outlook was upbeat, and the stock surged nearly 30% after market hours. Embed from Getty Images
APP stock, with spectacular 854% returns since the beginning of 2024, has significantly outperformed the S&P 500 index, up 28% over this period. AppLovin has exceeded market expectations over recent quarters thanks to its AI-powered ad-search engine which in turn has driven the rally in its stock. But, if you want an upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
AppLovin’s revenue of $1.37 billion in Q4 reflected a large 44% y-o-y jump. Looking at segments, advertising revenue was up 73% to $999 million, while apps revenue was down 1% to $373 million. The company’s advertising revenue growth is being driven by its AI-powered search engine AXON, which streamlines and automates advertisers’ core business functions from marketing campaigns to user engagement and revenue generation strategies.
AppLovin also saw its adjusted EBITDA margin expand to 62% in Q4’24, compared to 50% in the prior-year quarter. Higher revenues clubbed with margin expansion resulted in earnings of $1.73 per share, up 3.5x y-o-y. Looking forward, AppLovin expects its Q1’25 sales to be around $1.37 billion and its EBITDA margin to expand to 63.5% at the mid-point of the provided range. This is better than the market expectation of $1.32 billion.
Turning to APP stock, it has been on a tear lately, but that also means increased volatility. The increase in APP stock over the recent years has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 45% in 2021, -89% in 2022, 278% in 2023, and 713% in 2024.
In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last four-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment around rate cuts and ongoing trade wars, could APP face a similar situation as it did in 2022 and underperform the S&P over the next 12 months — or will it see a strong jump? After its recent rally, APP stock surely trades at expensive valuations. At its current levels of $490, APP stock is trading at 36x trailing revenues, much higher than the stock’s average P/S ratio of 10x over the last four years.
The company’s exceptional performance warrants a higher valuation multiple, as AppLovin has demonstrated remarkable growth in both revenue and profitability. With projected revenue growth maintaining a robust CAGR of over 20% in the coming years, AppLovin has established itself as a compelling growth story. While the price-to-sales ratio may normalize over time, the company’s expanding earnings potential – which is outpacing even its impressive sales growth – suggests the stock has room to appreciate further, driven by fundamental business expansion rather than multiple expansion.
| Returns | Feb 2025 MTD [1] |
Since start of 2024 [1] |
2017-25 Total [2] |
| APP Return | 3% | 854% | 303% |
| S&P 500 Return | 0% | 27% | 170% |
| Trefis Reinforced Value Portfolio | -1% | 22% | 726% |
[1] Returns as of 2/12/2025
[2] Cumulative total returns since the end of 2016
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
