AppLovin Corporation APP has soared more than 700% in 2024, fueled by impressive earnings and revenue growth. However, the stock recently came under pressure after short-sellers targeted the company with two reports in late February, alleging misleading advertising practices. Despite the controversy, the CEO has firmly refuted these claims, and as the market digests this information, APP appears poised for a strong rebound.

With the stock declining more than 38% in a month, could this be a prime buy-the-dip opportunity? We believe so. The company remains fundamentally strong, and as skepticism surrounding the short-seller reports fades, APP could swiftly reclaim its previous highs.

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Competitors’ performance in the in-game mobile advertising space aligns with that of APP. Alphabet Inc. GOOGL has declined 11% and Meta Platforms META has lost 14% of its value in the past month.

Currently, APP trades at a forward 12-month P/E of 41.44, below the industry average of 44.81, suggesting potential undervaluation.

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APP’s Strategic Shift Toward a High-Margin Business Model

AppLovin is actively transforming into a pure-play advertising platform, sharpening its focus on high-growth, high-margin segments. A major milestone in this transition was the $900 million sale of its gaming unit to Tripledot Studios. This divestiture allows APP to concentrate on its ad technology, a move that aligns with its vision of serving the global digital advertising market, which includes over 10 million businesses. To capitalize on this vast market, the company is investing in automation, developing advanced tools to enhance customer efficiency and maximize ad performance.

Strong Financial Performance Underscores Growth Potential

AppLovin’s latest earnings report reinforces its strong financial health and growth trajectory. The company continues to benefit from its AXON 2.0 technology and strategic expansion within the gaming and in-app advertising sectors. In the fourth quarter of 2024, revenues surged 44% year over year and 14% sequentially, reflecting strong market demand. Adjusted EBITDA jumped 78% year-over-year and 17.5% sequentially, showcasing improved operational efficiency. Net income skyrocketed 248% from the prior year and 38% sequentially, demonstrating APP’s ability to translate revenue growth into significant profitability.

For the full-year 2024, revenues climbed 43% year over year, while adjusted EBITDA surged 81%, underscoring AppLovin’s ability to seize market opportunities while maintaining efficiency. Looking ahead, management has guided for $1.4 billion in the first quarter of 2025 sales, slightly above the Zacks Consensus Estimate of $1.37 billion. Historically, AppLovin has consistently beaten earnings expectations, increasing the likelihood of another outperformance.

Analysts Confident in APP’s Earnings Growth

Analysts are projecting robust earnings expansion. The Zacks Consensus Estimate for first-quarter 2025 earnings stands at $1.45 per share, marking an impressive 116.4% year-over-year increase. Earnings for 2025 and 2026 are expected to grow 51.7% and 37.1%, respectively, compared to prior-year figures.

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Over the past 60 days, five first-quarter 2025 earnings estimates have been revised upward, with just one downward revision. Seven estimates for 2025 earnings have been revised higher, with no downward adjustments. The Zacks Consensus Estimate for 2025 earnings has climbed 12.3%, while 2026 earnings projections have risen 21.7%. This overwhelmingly positive sentiment from analysts suggests strong confidence in AppLovin’s ability to deliver sustained growth and profitability.

Bottom Line

Despite short-seller attacks and recent stock weakness, AppLovin’s core fundamentals remain strong. The company’s strategic pivot, robust financial performance, and bullish analyst outlook suggest that APP’s current dip could be a compelling buying opportunity for long-term investors.

APP currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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