Why AppLovin Stock Soared Another 30% Last Month

Shares of mobile-app monetization company AppLovin (NASDAQ: APP) soared 29.8% in October, according to data provided by S&P Global Market Intelligence. It's a big move, considering the company didn't report financial results or make any other announcements. Rather, the stock was moving higher thanks to Wall Street.

For context, AppLovin had a market capitalization of just $3 billion in early 2023. That's too small to garner much attention from the analyst community. However, strong financial results had AppLovin stock up 278% in 2023, and it's up more than 300% in 2024, so far. In short, it's a much larger company now, and analysts needed to start covering it on behalf of their clients.

In October, many analysts either started covering AppLovin for the first time or modified their price targets. And in many cases, those price targets were revised upward.

When prominent analysts do this, it brings greater attention and exposure to stocks like AppLovin. Once the bullish commentary from Wall Street landed on more radars, AppLovin stock continued its climb in October.

What does Wall Street like about AppLovin?

In 2023, AppLovin grew its revenue by nearly 17%, and its profits swung from a $193 million loss in 2022 to net income of $357 million in 2023. In the first half of 2024, these trends intensified. Its revenue is up another 46% year to date and it delivered net income of $546 million in the first half of the year.

AppLovin's high-margin software revenue, powered by artificial intelligence (AI), is driving both the growth and the profits. In short, the business is just performing too well to be ignored any longer. And many analysts believe it still has plenty of room for growth.

What's next for AppLovin?

AppLovin will report financial results for the third quarter of 2024 after the market closes on Nov. 6. At the midpoint of management's guidance, the company believes it will grow revenue by 30% year over year. Moreover, it expects adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $630 million to $650 million, which would be a quarterly record.

It should be noted that AppLovin just passed the one-year anniversary of its AI software update that fueled its current growth rate, so it won't have that catalyst anymore. Management believes it can grow 20% to 30% annually over the long term. But part of this assumes that it can diversify away from being primarily used to monetize gaming apps to helping monetize apps in other categories and on other platforms, such as connected TV.

I'm betting that AppLovin's Q3 numbers will look good and fourth-quarter guidance could impress, as well. But I'd listen intently to news regarding expanding beyond its core mobile gaming category because that will offer clues for its long-term growth potential.

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.