AppLovin’s Nasdaq-Topping 700% Rally Sets Up Challenging 2025

(Bloomberg) — After a blistering rally at the end of last year, shares in AppLovin Corp. may be running out of steam.

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The stock fell 7% on Tuesday after Bank of America analysts said fourth-quarter revenue for the company’s apps business may miss Wall Street expectations. The drop marks the start of what’s set to be a tougher year for the stock, which was the best performer on the Nasdaq 100 Index in 2024, with a more than 700% jump that beat out Nvidia Corp. and Broadcom Inc.

AppLovin, which provides marketing services to mobile app developers, now needs to live up to the frenzy that’s made it one of the most expensive stocks in the tech gauge.

“So much positive momentum got built in based on the possibility of where this stock could actually go,” said Brian Mulberry, client portfolio manager at Zacks Investment Management Inc., which holds shares in AppLovin. “We don’t think that this is a moment where we would question their success, but we do want to see them back it up with more real results,” Mulberry said, adding that the shares are unlikely to repeat their 2024 performance.

Shares of AppLovin rose as much as 3.2% in early trading on Wednesday.

Last year’s gains were concentrated in the last two months, after estimate-beating results and amid excitement about the company’s AI-powered advertising engine. News that AppLovin would join the Nasdaq 100, replacing Dollar Tree Inc., also helped, while the shares got an additional lift from a year-end rotation out of semiconductor stocks and into AI-linked software companies.

The shares jumped nearly 150% in five weeks to hit a record of about $401 in early December, before paring some of those gains by the end of the month.

This trading pattern has become common for artificial intelligence-linked companies — big gains amid initial excitement about the new technology, often followed by a pullback as investors await tangible results. While many in the market agree that AI’s potential is still in the early stages, heavy spending from big technology companies without clear results has given some pause.

The year-end surge has left AppLovin in expensive territory. Before the rally kicked off in November, the shares traded at about 35 times forward earnings, on par with other leading AI stocks such as Nvidia. Now, AppLovin trades at more than 55 times estimated earnings, making it much more expensive than the overall Nasdaq 100.

“It’s a super-rich valuation,” Mulberry said. “If you’ve owned it, there’s probably more of a reason to hold it” than add to a position right now, he said.

The next catalyst for AppLovin is fourth-quarter earnings results, due in mid-February. Analysts expect the company to report GAAP earnings per share of $1.25, up about 155% from the prior year. That would round out more than 300% earnings growth for the full year.

Bank of America said in its report on Tuesday that while weakness in the app business isn’t a big concern, given its much smaller contribution than the software unit, it “introduces a nuance” to the upcoming results, while the bar for software is likely higher for AppLovin to deliver a beat.

“We really need to hear their Q4 earnings of last year and get a strong guide again to justify it up here,” said Ken Mahoney, president and CEO of Mahoney Asset Management, which does not hold AppLovin shares.

To be sure, the stock is still well-liked on Wall Street. Jefferies analysts led by James Heaney named AppLovin a top pick for 2025 in a note on Tuesday, while 21 of 27 analysts tracked by Bloomberg have a buy or equivalent rating. No firms recommend selling the shares.

But despite analysts’ positive stance, the average price target in data compiled by Bloomberg suggests just 5% more upside over the next 12 months.

Mahoney expects the stock to remain range-bound for now but would consider buying it after the earnings report if AppLovin reconfirms strong growth.

“Long term, you are not late if the company is still growing and will into the distant future, and as we’ve seen last year, new highs tend to continue to breed new highs,” he said.