Wells Fargo analyst Alec Brondolo reaffirmed his “Overweight” rating and set a $538 price target for AppLovin Corp (NASDAQ: APP) on Thursday, dismissing concerns raised by a recent short report. Despite trading at $261.53, the company has shown significant growth, with a 375% return over the past year. According to InvestingPro data, analyst price targets for APP range from $105 to $650, showing differing opinions on the stock’s future. Brondolo’s research, which included discussions with advertising agencies, painted a more positive picture of AppLovin’s role in e-commerce.
Brondolo’s findings revealed that 55-60% of AppLovin’s e-commerce clients were new to brands, countering claims from the short report that suggested more than half of AppLovin’s ad spend was for retargeting. Supporting this view, data from Liftlab, Knocommerce, and a LinkedIn post from Northbeam indicated an even higher rate of 85% for net new customers. This customer acquisition success has fueled AppLovin’s 43.44% revenue growth over the last year, with the company generating $4.7 billion in revenue.
The analyst also addressed the turnover of AppLovin’s customer base, noting that, as the company is new to the e-commerce space, some churn was expected. Advertisers typically allocate test budgets before committing to larger spending, which is common practice in digital advertising.
In addition, Brondolo highlighted the rapid growth of websites using AppLovin’s advertising pixel, as reported by BuiltWith. This suggests that despite customer churn, the adoption of AppLovin’s technology is still expanding.
Regarding concerns about potential violations of the App Store’s Terms of Service (TOS) related to fingerprinting, Brondolo suggested that the worries might be unfounded. He explained that the screenshots from the short report were taken from AppLovin’s browser pixel in a desktop setting, while the TOS violations mentioned in the report apply to mobile apps. Brondolo also questioned whether the App Store’s TOS would cover advertisers’ actions on a web page or if the data collected by AppLovin’s pixel was significantly different from other advertising pixels.
InvestingPro analysis shows that AppLovin remains financially healthy, with a strong 75.22% gross profit margin and solid liquidity, ensuring it can meet its short-term obligations. Investors can access deeper insights into the company’s financial performance and growth potential through the InvestingPro Research Report.
In related news, AppLovin has faced scrutiny from Muddy Waters Research, which has accused the company of possibly violating terms of service on platforms like Meta (NASDAQ:META) and Google (NASDAQ:GOOGL). The report suggests that AppLovin’s e-commerce conversions may be mainly retargeting rather than new sales, raising concerns about the company’s ad targeting practices and potential deplatforming risks. However, several analysts remain positive on AppLovin’s future. Citi has a “Buy” rating with a $600 price target, expecting revenue growth from strategic moves such as the sale of its game studios. Jefferies also maintains a favorable outlook, citing a 75% increase in advertising revenue in 2024 and emphasizing AppLovin’s competitive edge in data. Bank of America Securities has also kept a “Buy” rating and a $580 price target, noting AppLovin’s ability to capture a significant share of digital ad spending. Despite recent challenges, these endorsements reflect continued confidence in the company’s strategy and financial outlook.
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