The Ratings Game: AppLovin stock roars as analyst sees an edge from AI in struggling mobile-ad market

AppLovin Corp. shares rallied again Wednesday after a Wall Street analyst upgraded the stock and said the app-monetization company’s advancements in artificial intelligence puts it ahead of the competition.

AppLovin
APP,
+6.56%

shares rallied more than 9% to an intraday high of $25.01, and have more than doubled in 2023 — rising more than 133% year to date — after a rough 2022. In the six sessions since the company’s earnings report last week, AppLovin shares have increased nearly 42%, its second-best six-session run, behind a 44.5% jump in May of last year, according to Dow Jones Market Data.

AppLovin topped reduced expectations in that earnings report, though some analysts cautioned that a significant return to growth was not expected in the mobile-ad market until 2024. BofA Securities analyst Omar Dessouky, however, noted Wednesday that AppLovin could be ahead of that timeline because of AI efforts with machine learning.

The analyst said AppLovin’s 48% rise year-over-year in revenue per install, while similar metrics at peers implied a decline, was indicative of “a machine learning edge in locating high lifetime value users for app advertisers,” and “market share gains among higher paying advertisers,” said he expects year-over-year pricing momentum to carry on throughout the fiscal year.

Back in February, AppLovin co-founder and Chief Executive Adam Foroughi told analysts the company was investing to upgrade its proprietary Axon machine-learning recommendation engine with AI advances.

The BofA analyst, who upgraded AppLovin to a buy from neutral and hiked his price target to $27, said the staged rollout of AppLovin’s Axon 2.0 engine will accelerate revenue growth in 2023, and offer “clean beat-raise sequences as” the year unfolds.

Shares of rival Unity Software Inc.
U,
+6.86%

shares rallied as much as 6% to an intraday high of $29.94 Wednesday, and are up 4% year to date. In comparison, the S&P 500 index
SPX,
+1.19%

is up 8% for the year, and the tech-heavy Nasdaq Composite Index
COMP,
+1.28%

is up 19% this year.

Read: Will Take-Two announce ‘Grand Theft Auto 6’ for 2024 or save it for 2025?

Of the 23 analysts who cover AppLovin, 13 had buy ratings, nine had hold ratings, and one had a sell rating, along with an average target price of $24.38, up from a previous $23.09, according to FactSet data. Of the 24 who cover Unity, 11 had buy ratings, 10 had hold ratings and three had sell ratings, along with an average price target of $37.

After the close of markets, Take-Two Interactive Software Inc.
TTWO,
+0.78%

is scheduled to report its earnings, and while all eyes will be on the lookout for any mention of “Grand Theft Auto VI,” a surprisingly strong showing from the company’s Zynga mobile-gaming property would be considered a plus.

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