Wedbush named a stock with 25% upside potential amid a boom in mobile gaming spending

A 25 percent rise in shares of AppLovin, which advertises in game apps, will be helped not only by its inclusion in the S&P 500 index but also by a boom in the gaming industry, Wedbush believes. The company will also benefit from Apple's partially lost lawsuit with Epic Games, which will allow game owners to redirect commissions they used to give to the App Store to advertise their apps.

Wedbush analyst Alicia Reese raised her target price on shares of advertising company AppLovin from $620 to $725 on September 12, expecting a 25% upside, Barron's reports. She also reiterated an Outperform recommendation, which is equivalent to a Buy rating.

Wedbush revised its targeting after AppLovin, which provides tools for marketing and monetizing mobile apps, was included in the S&P 500 index this month. The stock will enter the index before the opening of trading on Sept. 22.

In trading on Friday, AppLovin shares rose 1.9% to $582. The company's shares have risen nearly 80% since the beginning of the year.

Epic Games' legal battle with Apple, which ended in a partial victory for the game developer, could create an additional incentive for AppLovin as early as next year, Reese says. Since developers will no longer have to pay a 15-30% commission for some in-game purchases on the App Store, those funds could be used for other purposes - such as user engagement and marketing, the analyst explains. AppLovin CEO Adam Foroughi mentioned this possibility during the presentation of the quarterly report in August, noting that the effect of the court ruling will manifest itself later than many expect, Barron's writes.

Reese estimates that the company's revenue growth target of 20-30% is backed by supply and demand growth in the mobile gaming segment. At the same time, the analyst believes that AppLovin's competitive advantages remain, even though competitors will narrow the technological gap over time.

Reese also notes that the company's drive to enter e-commerce markets and expand its international presence, while maintaining margins of 80-85%, could raise questions. However, she says AppLovin has plans to cut costs, particularly in its commercial divisions.

Jefferies analyst James Heaney raised his target price on AppLovin shares to $615 from $560 on Sept. 4, maintaining a buy recommendation on the stock, Investing.com wrote. Jefferies sees increased spending from the company's current customers, an expanding international audience, and new advertisers. Heaney cites AppLovin's expansion outside of gaming, particularly in non-gaming apps and games with in-game purchases, as important sources of future growth. Despite the massive investment, Jefferies estimates that the company is able to maintain margins above 80%.

Goldman Sachs raised its target price on AppLovin shares by 6% on August 7 following the publication of its report. The bank's analysts expect the company's shares to reach $445 over a 12-month horizon. At the same time, Goldman Sachs maintained a neutral rating on AppLovin, which is equivalent to a recommendation to hold the stock.

Wall Street sentiment remains positive: according to FactSet, out of 29 analysts, 23 recommend buying AppLovin stock, four advise holding, and only two recommend selling. The consensus analyst price target is $514.1, down 11% from Friday's closing price. Wall Street, with the exception of Wedbush has yet to revise targeting after the ad company's stock was included in the S&P 500 index.

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