Is Investing in AppLovin (APP) Stock a Smart Move Before Q1 Earnings Release?

• AppLovin Corporation (APP) is set to report its first-quarter 2024 results on May 8, with an impressive earnings surprise history.
• The stock has seen a significant increase of 82% year to date, outperforming its industry’s 8% rally.
• In 2023, APP’s total revenues surged 17% year over year, primarily driven by a 76% increase in revenue in the Software Platform business.

AppLovin Corporation is set to report its Q1 2024 results, with a history of surpassing earnings estimates. The stock has seen a significant increase this year, outperforming its industry.

Impressive Stock Performance & Valuation

APP has seen a massive 82% gain year to date, significantly outperforming the 8% rally of the industry it belongs to. It is currently trading at a forward sales multiple of 16.93X, above its median of 14.38X over the last five years and the industry’s 6.91X. On the basis of EV-to-EBITDA, APP is currently trading at 23.95X compared with the industry’s 59.74X. In terms of the Price/Earnings ratio, APP shares are trading at 27.08X forward earnings, well below the industry’s 42.88X.

Notable Sales and Margin Performance

In 2023, APP experienced significant success, with total revenues surging 17% year over year. This growth was primarily propelled by the company’s commitment to execution and innovation, resulting in a remarkable 76% increase in revenue in the Software Platform business. APP introduced its advanced AXON 2.0 technology, enhanced gaming studios and ventured into new initiatives aimed at fueling market expansion and long-term growth. The company achieved a 41% year-over-year increase in adjusted EBITDA with adjusted EBITDA margin expanding 800 basis points year over year in 2023.

Healthy Liquidity

APP’s current ratio (a measure of liquidity) was at 1.71 at the end of the fourth quarter of 2023, higher than the prior quarter’s 1.62. A current ratio of more than 1 often indicates that the company will be easily paying off its short-term obligations.

Promising Sales and EPS Growth Prospects

The Zacks Consensus Estimate for APP’s 2024 sales and EPS implies year-over-year growth of 24% and 157%, respectively. The estimate for EPS has moved north by 1.6% over the past 30 days.

Conclusion

APP trades at a discount relative to its industry based on EV-to-EBITDA and P/E. The company’s liquidity position based on the current ratio remains healthy. APP is expected to continue its top and bottom-line growth momentum thanks to its commitment to execution, and innovation and initiatives to fuel market expansion and long-term growth. However, since the stock has risen a whopping 82% year to date, it may undergo a correction soon. Hence, it may not be a bad idea to wait for this fundamentally strong stock to undergo some correction and offer a better entry point rather than rushing to purchase the stock before earnings.