Why AppLovin Stock Is Plummeting Today

AppLovin (NASDAQ: APP) stock is sinking in Tuesday's trading. The company's share price was down 9.6% as of 12:45 p.m. ET, against the backdrop of a 0.8% decline for the S&P 500 (SNPINDEX: ^GSPC) and a 1.5% decline for the Nasdaq Composite (NASDAQINDEX: ^IXIC).

In addition to bearish momentum for the broader market, AppLovin is seeing a pullback in conjunction with new coverage from Bank of America. The investment giant's lead analyst on the stock suggested that revenue from gaming apps is likely to come in below expectations in the fourth quarter.

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AppLovin stock tumbles on gaming outlook

Before the market opened today, BofA analyst Omar Dessouky published new coverage on AppLovin stock. Using in-app-purchase (IAP) tracking of more than 500 mobile games from SensorTower, Dessouky estimates that the company's apps revenue will actually decline 4% on a sequential quarterly basis. Meanwhile, the average Wall Street estimate is calling for category sales to increase roughly 2% on a sequential basis. With this dynamic in mind, the analyst cautions that investors could get an unwanted surprise with AppLovin's fourth-quarter report.

What's next for AppLovin?

Gaming isn't AppLovin's only source of revenue, and Dessouky noted that some softness on that side of the product portfolio may not be a major headwind for overall performance. The analyst actually maintained a buy rating on the stock and reiterated a one-year price target of $375 per share. As of this writing, that price target implies additional upside of roughly 17%.

AppLovin has emerged as a surprisingly explosive artificial intelligence (AI) winner and been one of the market's hottest stocks recently. Even with today's pullback, the company's share price is up 748% over the last year.

AppLovin is now valued at roughly $108 billion. Based on that market cap, the company is trading at roughly 323 times this year's expected earnings and 19 times expected sales. The company has been serving up stellar growth and margin expansion, but massive share price gains suggest that performance will be under the microscope when the software specialist serves up its next quarterly report.

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Bank of America is an advertising partner of Motley Fool Money. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AppLovin and Bank of America. The Motley Fool has a disclosure policy.