AppLovin (APP) has become one of the most talked-about tech stocks of 2024, with its shares surging by over 700% this year alone. The company, which offers a platform designed to help businesses monetize mobile games, has become a favorite among investors, who are betting on its strong growth potential. However, after such a massive price jump, many are asking whether AppLovin stock has already peaked or if there is more upside left for those looking to invest in the company today.
In this article, we’ll take a closer look at why AppLovin has been such a strong performer this year, evaluate whether its stock is too expensive at current prices, and discuss whether it remains a good investment for the future.
Why Has AppLovin Seen Explosive Growth This Year?
AppLovin’s stock price has skyrocketed in 2024, with shares up over 700%. This remarkable growth is largely driven by the company’s ability to capitalize on the booming mobile gaming industry. AppLovin’s platform is designed to help developers monetize their games while also providing tools for businesses to expand their audience and drive revenue growth.
For the third quarter of 2024, AppLovin posted $1.2 billion in revenue, a 39% year-over-year increase. What’s even more impressive is the company’s profitability, with earnings jumping from $108 million a year ago to $434 million this quarter. AppLovin’s net margin has also improved significantly, increasing from 13% to 36%, demonstrating its strong financial position and the effectiveness of its business model.
This combination of revenue growth, profitability, and improving margins has fueled investor optimism, leading to a surge in stock price. Additionally, the company’s expansion into e-commerce is creating excitement, with CEO Adam Foroughi highlighting the strong potential for e-commerce growth in the future.
Is AppLovin Stock Overpriced at Current Valuations?
While AppLovin has posted impressive growth, its valuation is now a point of concern for many investors. The company’s market capitalization has surpassed $100 billion, and its stock is trading at a 99 times multiple of its trailing earnings. Even looking ahead to next year, analysts project that the company will trade at a 47 times earnings multiple.
For a company with a high growth trajectory, such a high valuation can be a double-edged sword. While it reflects the market’s belief in AppLovin’s potential, it also means investors are already pricing in much of the future growth. If the company fails to meet these elevated expectations or faces external challenges, there could be a significant downturn in the stock price.
The company’s expansion into e-commerce is expected to contribute significantly to future growth, with Foroughi suggesting that the e-commerce market could have a financially impactful role for AppLovin in 2025 and beyond. However, with such a high valuation, investors may already be pricing in this future growth, which raises the question of whether AppLovin can live up to the expectations set for it.
Does AppLovin Justify Its High Premium?
With a premium price tag, AppLovin’s stock is now a high-risk, high-reward investment. Its potential for continued growth is clear, but much of this potential may already be reflected in the stock’s current price. If AppLovin’s expansion into e-commerce proves successful, the company could justify its premium. But if the company encounters difficulties or economic conditions take a turn for the worse, investors could face losses.
The challenge for investors is that AppLovin’s stock is now priced for success, and there is little room for error. If future earnings do not meet expectations, the stock could face a sharp correction. For some, the risk associated with this high valuation may be too much, making it safer to wait for more concrete evidence of AppLovin’s future growth.
Should Investors Buy AppLovin Stock Now?
AppLovin has certainly proven itself as one of the best-performing growth stocks of 2024, with impressive financial results and a promising future in mobile gaming and e-commerce. However, the question remains: Has the stock reached its peak?
While the company’s growth potential is exciting, its high valuation makes it a risky investment at current prices. AppLovin may be worth the premium for investors who believe in the company’s ability to execute its e-commerce strategy and sustain growth, but there is also the risk that it may face a correction if future earnings fall short.
For those willing to take on higher risk, AppLovin could still offer upside. But for more conservative investors, it might be worth waiting on the sidelines to see how the next few quarters unfold before committing to a purchase.