AppLovin Corp (NASDAQ: APP) — a company providing a full suite of solutions for mobile app developers, including marketing, monetization, and analytics — recently posted strong quarterly results. The company reported earnings of $1.73 per share on revenue of $1.37 billion for Q4, surpassing analyst expectations of $1.24 per share on $1.26 billion in revenue. Additionally, its optimistic outlook drove the stock up nearly 30% in after-hours trading.
With an astonishing 854% return since the start of 2024, APP stock has far outperformed the S&P 500, which gained 28% over the same period. AppLovin has consistently exceeded expectations in recent quarters, largely due to the success of its AI-driven ad search engine, which has fueled its stock rally. For investors looking for strong returns with lower volatility than individual stocks, consider the High-Quality Portfolio, which has outperformed the S&P with returns of over 91% since inception.
AppLovin’s Q4 revenue of $1.37 billion represented a substantial 44% year-over-year increase. Breaking this down further, advertising revenue surged 73% to $999 million, while revenue from apps declined by 1% to $373 million. The company’s advertising revenue growth has been fueled by its AI-powered search engine, AXON, which enhances and automates advertisers’ operations, spanning from marketing to user engagement and revenue optimization.
The company also experienced a significant improvement in its adjusted EBITDA margin, which rose to 62% in Q4’24, up from 50% in the prior year. This combination of higher revenue and margin expansion led to earnings per share of $1.73, marking a 3.5x year-over-year increase. Looking ahead, AppLovin anticipates Q1’25 revenue to reach approximately $1.37 billion, with an EBITDA margin expanding to 63.5% at the midpoint of its projected range, surpassing the market consensus of $1.32 billion.
APP stock has experienced an impressive surge, but this also brings increased volatility. Its performance in past years has been highly variable, with annual returns of 45% in 2021, a steep decline of -89% in 2022, followed by a rebound of 278% in 2023, and an extraordinary 713% gain in 2024.
In contrast, the Trefis High-Quality Portfolio, consisting of 30 stocks, has demonstrated far less volatility while delivering consistent returns. What makes it different? These stocks tend to offer superior returns with reduced risk compared to the benchmark index, creating a more stable investment journey, as highlighted in the HQ Portfolio performance metrics.
Given ongoing macroeconomic uncertainties such as interest rate fluctuations and trade tensions, will APP follow a pattern similar to 2022 and lag behind the S&P in the next 12 months? Or will it continue its strong performance? After its recent rally, APP stock now trades at premium valuations. At its current price of $490, it has a price-to-sales (P/S) ratio of 36x, significantly above its four-year average of 10x.
While its valuation may seem steep, AppLovin’s exceptional growth in both revenue and profitability justifies a higher multiple. The company has demonstrated strong revenue expansion, and with a projected CAGR exceeding 20% in the coming years, it remains a compelling growth story. Even if its P/S ratio eventually normalizes, the stock’s increasing earnings potential—outpacing even its impressive sales growth—suggests further upside driven by strong business fundamentals rather than mere multiple expansion.
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