AppLovin (APP) is back in focus after a securities fraud lawsuit accused the business of overstating the strength and timing of its AI driven model and generative video tools, which sharply affected investor confidence.
Over the past year, AppLovin has swung from very strong multi year total shareholder returns, including a roughly 588% gain over three years, to a much weaker recent patch, with the share price down 55% over the last twelve months and about 55% year to date.
Compare how other AI focused advertisers and media platforms are priced and growing relative to AppLovin by running the hand picked 35 profitable AI stocks that aren't just burning cash as a reality check on this selloff.
After a 3 year run that created very large gains, followed by a collapse that erased more than half of AppLovin’s value, it now comes down to price. How much of the story is already in the stock, and how much is still up for grabs?
Most Popular Narrative: 45% Undervalued
Against a last close of $278.78, the most followed narrative on AppLovin argues that the underlying business supports a fair value of $507, which implies a large gap between market price and that thesis driven estimate.
AppLovin is one of the best operators in the market it already dominates, it just had its largest legal overhang removed, its most recent stumble was a release-schedule problem rather than a demand problem, and it is entering a market several times larger than the one it currently leads. The stock is at 25.3 times trailing earnings.
See why 29 investors see AppLovin as 45% undervalued.
According to RedCandleRx, that valuation story leans heavily on AppLovin’s reported last twelve month revenue of about $6.8b, net income of roughly $4.4b, and an adjusted EBITDA margin cited at 84% in the narrative. This is combined with the view that the SEC investigation overhang has cleared without findings of wrongdoing, while the business mix expands beyond mobile gaming into broader advertising use cases.
The same narrative points out that this earnings profile implies a trailing P/E in the mid 20s at the reference price used in the original work. The author’s own models anchor on third party EPS forecasts and a fair value of $507, which lines up directionally with the separate Simply Wall St view that AppLovin is trading at a very large discount to an internal estimate of future cash flow value of $611.43 per share based on the SWS DCF model.
For readers, the tension is clear. The market price sits well below the narrative fair value and also below the SWS future cash flow estimate. AppLovin’s annual revenue growth rate of 19.1% and earnings growth forecast of 19.5% point to a business that, based on the supplied data, is still expected to expand faster than both the wider US market and the broader media sector.
Result: Fair Value of $507 (UNDERVALUED)
Still, the AppLovin narrative could crack if regulators revisit its data practices or if non gaming advertisers fail to adopt the newer ad platform in a meaningful way.
Find out about the key risks to this AppLovin narrative.
Next Steps
If the mix of sharp gains, steep losses and strong reported profitability around AppLovin leaves you undecided, let the numbers push you to a clear stance. For a closer look at what investors view as potential upsides, review the 4 key rewards.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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