The Zhitong Finance App learned that AppLovin (APP.US) used a record three-quarter report to overcome the question of “stalled growth.” Morgan Stanley maintained an “gain” rating in the November 5 research report and raised the target price from $400 to $450 — the core argument is not a single season figure, but a major model upgrade and e-commerce volume for game ads.
On the night before the report was released, AppLovin shares rose about 23% in after-market trading; the official trading closed up 31.04% to $356.10 on November 5, but still about 47% lower than at the beginning of the year, with a 52-week range of $225.19—$738.01.
Where did they win this season
According to the company's three-quarter report press release, AppLovin's third-quarter revenue (ending September 30) was US$2.85 billion, up 55% year over year; net profit of US$1,439 million, up 72% year over year, diluted earnings per share of US$4.30; adjusted EBITDA of US$1,842 million, up 59% year over year, profit margin 84%; operating cash flow and free cash flow were both US$1.4 billion. Revenue, net profit, and adjusted EBITDA all hit record highs in a single quarter and completely exceeded expectations — according to Gelon's summary, the previous revenue consensus was about US$2.07 billion, net profit consensus of about US$1.36 billion, and EPS consensus of US$4.04.
What is more critical is the gap with the guidelines: the company's previous three-quarter guidance was 7% to 8% month-on-month growth, and actual delivery was about 14%, which was about 6 percentage points higher than the upper limit of the guideline; Morgan Stanley's own forecast was also exceeded by 5% (revenue) and 6% (EBITDA). The fourth quarter guidance was also higher than the consensus — revenue of $2,365 million to $2,395 million (about +8% — 10% month-on-month, Wall Street consensus of about $2.25 billion), adjusted EBITDA of $1.95-$2,025 million, and profit margin of 84% — 85%.
Capital returns increased simultaneously: repurchases and withholdings of 4.1 million shares in the third quarter cost about $1.4 billion, and the board of directors increased repurchase authorizations by $3.2 billion to a total of $3.6 billion. According to Gulf News, CFO Matt Stumpf attributed the buyback pace to “the gap between share price and intrinsic value”; the program has accumulated repurchases of 104 million shares, costing $9.4 billion, and an average price of about $90 million since inception.
Damo's core judgment: model upgrade overturns the “stall theory”
Morgan Stanley analysts Matthew Cost and Brian Nowak wrote in the report that strong third-quarter results “directly challenged” market concerns about AppLovin's rapid deceleration due to insufficient innovation and competitive pressure. The increase mainly comes from games: a major model improvement drove game advertising revenue to increase by about 50% year over year; e-commerce advertising revenue increased by more than 100% year over year. Management compared the technical significance of the new model architecture to “AXON 2.0,” and emphasized that promotion is still partial, and the benefits are particularly significant for newer advertisers and categories with less data. According to Damo, this proves that AppLovin can continue to innovate and gain share in terms of impressive volume.
The report also paraphrased two statements from management: guiding about 8% month-on-month growth in the fourth quarter and reaffirming confidence in long-term growth opportunities of about 30%. Mergers and acquisitions are upward, and the company focuses on targets that can supplement data relationships with advertisers; Damo judged that it has limited interest in consumer (such as social) assets.
Channel research failure
The third quarter also revealed the limitations of third-party channel research. According to the report, some research previously suggested that AppLovin might barely hit or even fall short of the guidelines, and the company eventually delivered 14% month-on-month growth — in a highly fragmented market, small samples may generate misleading signals, and management reinforced this during the performance conference. According to reports, management mentioned at the meeting that the growth rate of the largest digital advertising platforms during the same period was roughly 10% to 25% — measured by this, AppLovin's growth rate is still significantly higher than the market.
Conversion rate is still the number one argument for bulls
Damo's focus is not on a single season, but it's still far from the ceiling: AppLovin's current conversion rate of about 1.3% is still low, leaving room for continuous improvement in targeted efficiency and actual monetization rate. The report estimates that if a conversion rate improvement of around 20 basis points is maintained each year, net revenue by 2030 could be about 15% higher than the consensus. The report also emphasizes that the success of AppLovin and Unity is “not mutually exclusive” — in a fragmented market, both networks can gain share while increasing advertisers' returns; e-commerce is seen as an expander of the Accessible Market (TAM) rather than a headwind for games, and new advertisers are improving the monetization of low-value placements. Damo estimates that non-game advertising EBITDA will be around $2 billion by 2028, and game EBITDA will be around $9 billion in the same year.
Valuation, scenarios and risks
Damo's earnings forecast increased simultaneously: adjusted EBITDA for 2026/2027 increased by 3%/4% (to 7.02 billion/8.76 billion US dollars), revenue increased 3%/4% (to 8.34 billion/10.36 billion US dollars), and GAAP diluted EPS increased 4%/5% (to 15.61/19.96 US dollars). The target price of $450 is based on approximately 14 times 2028E EV/EBITDA (EBITDA forecast $10.507 million) plus approximately $7.986 billion in net cash divided by 335 million shares. According to the report, in terms of after-market prices, AppLovin's response to 14 times 2028E GAAP EPS (forecast $23.96) is “extremely attractive”. Continued profit improvements and evidence of higher than market growth are potential catalysts for valuation repairs.
The three-tier scenario: bear market of 175 dollars (8 times 2028E EBITDA of 6.117 billion US dollars; annual compound revenue growth rate of about 15%, EBITDA profit margin lower than 77% in 2028); benchmark 450 dollars (compound growth rate of about 29%, profit margin over 80%); bull market of 650 dollars (compound growth rate of over 33%, profit margin of about 91%). It is worth noting the implied probability of options quoted in the report (November 4 data): the probability of falling below $175 in market pricing is about 32.9%, and the probability of breaking through $450 is only about 4.5% — the single-quarter earnings report did not eliminate tail risk. The downside risks listed in the report include: macroeconomic pressure is more severe or long-lasting than expected, ad network competition intensifies compression on monetization rates, loss of access to key data that drives ad performance, and mobile platforms imposing harmful restrictions on the advertising business.
Sellers don't just have one voice
After the financial report, many institutions adjusted target prices. The direction was the same, and the magnitude and position were different. RBC raised from 500 to $520 (outperforming the market) and attributed some of the improvements to a model update that was delayed from Q2; BTIG raised from 396 to $450 (buy); Wedbush raised from 560 to $600 (outperformed the market); Evercore ISI raised from 510 to $540 (outperformed the market); Needham maintained $475 (buy); Goldman Sachs raised to $445 but remained neutral; Scotiabank ( (Scotiabank) analyst Nat Schindler, on the other hand, lowered the target price from 515 to $450 to maintain the market's performance — he believes the focus of the debate has shifted from “whether AXON works” to “whether it can replicate recent results,” a shift that is more beneficial to AppLovin. According to Refinitiv data, about 79% of the institutions covering this stock gave it an increase rating, 21% remained flat, and no one reduced their holdings.
Unresolved questions remain. According to reports, the August second quarterly report caused a sharp drop of 28% after the market due to revenue growth and guidance falling short of expectations. The subsequent securities class action lawsuit accuses management of exaggerating technical continuity. The lead plaintiff's determination date was in mid-November; the market's consensus growth forecast for 2027 has dropped to about 25%.