APP - AppLovin: Can Once Jilted Investors Now Find Happiness With A Recently Inflected Business?

2024-03-07 06:25:20 ET

Summary

• AppLovin's software business has inflected to much higher growth levels.
• The inflection is being driven by the company's use of AI as part of its Axon and the company's AppDiscovery offering.
• The company is likely gaining significant share from Unity, which is struggling with its software products as well as recent unforced business errors.
• In addition to revenue growth, APP has been able to create a very profitable business model with an adjusted EBITDA margin of 40% and rising free cash flow.
• While the shares have spiked notably, the company's valuation remains at a significant discount to average when considering both growth and free cash flow margin.

Trying to evaluate the APP turnaround-Chimera or sustainable

2022 was a year I would be happy to forget as an investor. Some pleasant personal milestones to be sure, but one of the worst years in my professional investing career. I still have scars and I am sure many subscribers share those unpleasant artifacts of a year in which Fed action compounded some poor operational performance of prominent IT vendors, leading to some huge losses. One of the worst experiences I endured in that annus horribilis , as the late Queen Elizabeth II put it once in referring to her experience of 1992, was owning AppLovin ( APP ) shares during part of 2022.

In the midst of the share price implosion and a year with very obvious operational problems, the CEO was persistently and jarringly upbeat about prospects. In the short term, his prognostications and strategy gambits proved to be misguided. He is still upbeat, but perhaps less strident, but in the course of this article, I will try to utilize a bit of Kentucky windage , not the kind used to adjust the aim of a rifle, but the kind used to adjust for some likely built in optimism in projections.

During the period since the start of 2022, AppLovin acquired the business of MoPub, Twitter’s erstwhile mobile ad platform. This was a significant transaction for APP and some comparisons as reported or shown in headlines can seem distorted because of the acquisition....

For further details see: