AppLovin (APP) shares surged dramatically on Thursday following a strong fourth-quarter earnings report that surpassed Wall Street expectations. The stock shot up 38% during morning trading, reaching an all-time high of 525.04. This marked a key moment as it entered the 20%-25% profit-taking zone from a breakout at 417.63, based on IBD MarketSurge charts. However, according to IBD’s trading guidelines, investors should consider holding their positions for now under the “eight-week hold rule.”
The rule suggests that if a stock breaks out from a valid base and rises by 20% or more within the first three weeks, investors should hold for at least eight weeks to capture further gains.
Despite the early rally, AppLovin’s stock pulled back from its peak throughout the day, ultimately closing up 24% at 471.67.
Record-Breaking Earnings and Upbeat Guidance
AppLovin reported impressive earnings late Wednesday, posting a 253% year-over-year surge in earnings per share to $1.73. Revenue for the December quarter climbed 44%, reaching $1.37 billion, far surpassing analysts’ estimates of $1.25 per share on $1.26 billion in sales.
Looking ahead, AppLovin issued a positive revenue forecast for the March quarter, projecting $1.37 billion, a 29% year-over-year increase, which also exceeded analysts’ expectations of $1.32 billion.
Strategic Shift: Divesting Mobile Games Business
In a strategic move, AppLovin announced plans to sell its mobile games business, valued at $900 million. The transaction will net the company $500 million in cash, with the remaining portion as a minority equity stake in the new entity. This deal, set to close in the second quarter, marks a significant pivot for AppLovin as it transitions to focusing solely on its advertising platform business. CEO Adam Foroughi outlined that the company aims to strengthen its position as a leader in app marketing.
Wall Street Responds with Price-Target Hikes
Following the strong earnings report, at least nine Wall Street firms raised their price targets for AppLovin stock. Wedbush Securities analyst Michael Pachter, who maintains an outperform rating on the stock, upped his price target to 620 from 545. He highlighted that AppLovin is poised to capture a larger share of marketing spending from mobile game developers. Additionally, the company is expanding its advertising technology to help e-commerce businesses target potential buyers more effectively.
What Should Investors Do?
After such a sharp rise, investors are likely wondering whether they should take profits or hold on for potential further gains. While the stock is within its profit-taking zone based on IBD’s guidelines, the company’s robust earnings, strong growth forecast, and strategic shift toward advertising make it a compelling stock to hold, especially under the “eight-week hold rule.” As analysts revise their price targets upward, those holding AppLovin stock should stay tuned for more updates and keep an eye on the broader market sentiment.
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