Where Will AppLovin Stock Be in 1 Year?

AppLovin (NASDAQ: APP) is one of the most talked-about stocks on Wall Street -- and for good reason. Its stock has been on an incredible ride over the last two years.

Yet, with the stock now down nearly 50% from its recent highs, investors want to know: Where is this stock going?

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Here's what I think.

Image source: Getty Images.

How AppLovin stock got here

First, let's recap how AppLovin has performed. To say that the stock enjoyed a good run is a massive understatement. As of this writing, AppLovin stock has surged by more than 293% over the last 12 months. That's despite its recent pullback, which has seen the stock drop nearly 50% in just a matter of weeks.

On a longer time horizon, the stock's performance is even more impressive. AppLovin stock has skyrocketed by more than 1,700% over the last two years, with its share price increasing from around $15/share to now over $270/share.

Clearly, AppLovin's stock price has gone parabolic -- but why?

It comes down to a few big trends:

• Digital advertising
• Streaming TV
• AI-powered tools

AppLovin hits the sweet spot on all three of these trends. Its business model revolves around helping developers, advertisers, and organizations connect to audiences through programmatic, AI-powered advertising.

It's a rapidly expanding field, as people increasingly spend their time watching streaming services, shopping online, or playing mobile apps on their phones. Consequently, advertisers are shifting their ad dollars from traditional media (particularly over-the-air, cable, and satellite TV) to platforms with greater reach and better return on investment.

AppLovin's platform helps advertisers place those ads and then analyze their success. As a result, the company's revenue surged from $2.8 billion to more than $4.7 billion over the last three years.

How AppLovin stock is likely to perform over the next year

Despite its success, the question for investors is how AppLovin will perform going forward.

According to consensus estimates compiled by Yahoo! Finance, analysts expect AppLovin to generate $5.7 billion of revenue in 2025, up 21% year over year. While still very impressive, that rate of growth would represent something of a step backward for the company, which has produced revenue growth of around 44% over the last year.

On top of that, several short-selling companies have alleged that AppLovin's software violates app stores' terms of service by improperly collecting information from online sites such as Reddit, Snap, Meta, and Alphabet's Google.

While AppLovin's CEO pushed back on the claims, they remain a factor that investors must consider, even though the short-sellers are obviously expecting AppLovin's stock to decrease in price.

Where will AppLovin stock be in a year?

I remain bullish on the overarching trends that AppLovin is a part of -- digital advertising, streaming TV, and AI-powered technology. Yet, the company's stock isn't for every investor.

Even aside from the short-seller claims, there are questions about whether AppLovin can produce the extremely high revenue growth that Wall Street has come to expect. For example, if the company were to deliver on the consensus estimates of 21% revenue growth this year, the stock could still drop, given the high expectations many of its investors hold.

For that reason, I think most investors would be wise to wait on the sidelines when it comes to AppLovin. However, long-term investors who are willing to ride out volatility -- and perhaps extreme volatility -- may still want to consider AppLovin, given its key role in the rapidly growing digital advertising industry.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jake Lerch has positions in Alphabet, Reddit, and Snap. The Motley Fool has positions in and recommends Alphabet, AppLovin, and Meta Platforms. The Motley Fool has a disclosure policy.