Goldman Sachs has raised its target price for shares of AppLovin, a digital advertising company - it expects a 14% growth in its quotations. The day before, the company published its quarterly report, which beat revenue and profit forecasts. Last year, AppLovin was the best-performing stock in terms of returns among large-cap companies. Its growth has slowed this year, but most analysts remain optimistic.  

Details

Goldman Sachs raised its target price on AppLovin shares by 6% following the publication of its report, writes Investing.com. Analysts at the bank expect the company's stock to reach $445 on a 12-month horizon - nearly 14% above its current value. Meanwhile, Goldman Sachs maintained a neutral rating on AppLovin, which is equivalent to a hold recommendation on the stock. 

Goldman Sachs praised AppLovin's second-quarter results, citing strong momentum in its advertising business after the company's full exit from the gaming segment. The analysts also praised AppLovin for its focus on developing tools for advertisers, including self-serve solutions and measurement/attribution systems that can accelerate growth of its customer base.

Goldman Sachs estimates that the company's adjusted EBITDA could see average annual growth of around 40% between 2024 and 2027, thanks to high marginal margins (over 90% in the second quarter).

As reported by AppLovin

AppLovin's second quarter revenue increased 77% year over year to $1.26 billion, exceeding analysts' expectations. According to FactSet data reported by Investor's Business Daily, analysts had expected revenue of $1.22 billion.

Earnings per share (GAAP) came in at $2.39, compared to analysts' estimates of $1.96. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to $1.02 billion, also exceeding the forecast. However, free cash flow came in below expectations at $768 million, noted Barron's.  

For the third quarter, AppLovin expects revenue of $1.33 billion, with an allowable variance of $10 million. Expected adjusted EBITDA is $1.08 billion.

What about the stock?

The market reaction to the report was mixed. At the extended trading on August 6 after the report release, investors staged a sell-off, which caused the shares to fall by almost 7%. But at the beginning of trading on August 7, the company's securities rose by 10%;

AppLovin shares have been gaining momentum ahead of the report's release - they've risen 10% in the past month. However, their overall momentum has slowed markedly this year: they are up 20% YTD, a stark contrast to last year's result, when they soared more than 700%, becoming the most profitable stock among large companies;

Only one analyst out of 31 covering analysts now recommends selling AppLovin stock. 25 are advising investors to buy AppLovin (Buy and Overweight ratings). 

This article was AI-translated and verified by a human editor

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