Deutsche Bank believes that AppLovin, an American developer of marketing software, will be able to maintain and even strengthen its leading position in mobile advertising. The investment bank started tracking the company's securities with a recommendation to buy them. In the third quarter, AppLovin shares entered the S&P 500 index and became the leader of growth, more than doubling in price. Deutsche analysts believe that they still have potential.
Details
Deutsche Bank analyst Benjamin Black began coverage of mobile game and app marketing software developer AppLovin with a buy recommendation and a target price of $705, CNBC reports. This target implies a potential upside of nearly 28% relative to the closing level of trading on October 21.
AppLovin shares have gained more than 70% since the beginning of the year and added another 1.4% in trading on Wednesday, October 22.
Why Deutsche Bank is optimistic
The Deutsche analyst pointed to AppLovin's dominance in the market for ads focused on driving users to mobile games as a key driver. He believes the company's competitive advantage continues to strengthen. The analyst estimated that AppLovin controls about 80% of the market on the supply side, i.e. among apps that provide ad slots, and more than 55% on the demand side, where advertisers who buy ad impressions are concentrated.
"Outside of closed ecosystems, no advertising platform can match AppLovin's reach of more than 1 billion daily active users. The company has built a best-in-class advertising technology whose effectiveness increases as it scales," Black wrote in a note cited by CNBC.
He also praised the expansion of AppLovin's business into the e-commerce advertising segment, where the total addressable market is several times larger than the in-game advertising market. This direction, according to the analyst, will increase the diversity of AppLovin's advertising inventory. Moreover, he did not rule out that in the future the company will be able to enter larger industries - such as financial services, media and entertainment, healthcare and any transactional online services.
In the short to medium term, Black expects AppLovin to generate revenue growth of 20-30% per year. In his view, the effectiveness of the company's advertising technology is evidenced by the fact that its revenue has grown by an average of 69% over the past three years at virtually zero incremental cost.
How's the company doing
AppLovin had a truly outstanding third quarter, Barron's wrote on Oct. 1. In September, it entered the S&P 500 index and simultaneously became its growth leader: its stock soared 105% in three months.
However, Bloomberg sources reported on October 5 that the U.S. Securities and Exchange Commission (SEC) is reviewing the company's practice of collecting users' personal data to better tailor mobile ad targeting. The SEC is investigating whether AppLovin violated the terms of its agreements with partner platforms to provide more aggressive ad personalization to end users, the agency's sources said. Neither the regulator nor AppLovin has confirmed this information. But even if proceedings are ongoing, that doesn't mean the SEC will impose any sanctions, the agency noted. In a worst-case scenario, the probe could end in fines for the company or its officials.
On October 19, the New York Post reported that the state attorneys general offices of Delaware, Oregon, and Connecticut are also conducting similar probes against AppLovin.
Last week, several analysts set the target on AppLovin shares above the current price. RBC Capital, according to Benzinga, began coverage with a $700 target price and a buy recommendation, while Wells Fargo raised its target from $491 to $633, reiterating a similar rating. In total, the company has 24 such recommendations, according to MarketWatch. Another five analysts advise holding AppLovin stock in their portfolios, while two suggest selling it. The Wall Street consensus price target is $657.6, up 19% from Tuesday's close.
This article was AI-translated and verified by a human editor
