Get to know the latest stocks in the Nasdaq-100. It’s up 3,250% since the start of last year and is still a buy heading into 2025 according to Wall Street.
The Nasdaq Composite is a broad, technology-focused index that tracks the performance of more than 3,000 publicly traded stocks. The Nasdaq-100 is a subset of that index and tracks the performance of approximately 100 of the largest non-financial companies on the Nasdaq stock exchange, spanning a variety of industries.
To be eligible for inclusion in the Nasdaq-100, a company must meet the following criteria:
Be exclusively listed on the Nasdaq stock exchange
Be very fluid
Must be listed on an eligible exchange for at least three full calendar months
At least 10% of the outstanding shares must be available for trading
No bankruptcy may have been filed
AppLovin(NASDAQ: APP) is the latest addition to the Nasdaq-100, joining the benchmark on November 18 and replacing the discount retailer Dollar tree. It is worth noting that its inclusion took place outside the annual rebalancing of the index, which takes place on the second Friday of December. Rules for the index allow selected additions to occur at any time.
Since the start of last year, the stock is up 3,250% (at the time of writing) as the company used artificial intelligence (AI) to inform its in-app gaming ads. Despite that impressive run-up, many on Wall Street think there’s still a long runway ahead. Below I discuss the secret to AppLovin’s success and what lies ahead.
Image source: Getty Images.
AppLovin went public in early 2021 with the mission to help app developers succeed. The company developed a comprehensive set of tools called AXON – powered by artificial intelligence – that allow companies to make their apps stand out in an otherwise crowded marketplace, while automating and optimizing the revenue-generating activities of those apps.
According to the company, most developers lack the “marketing, monetization and data analytics tools needed to stand out” in a sea of ​​millions of mobile apps – especially mobile games. Additionally, many app developers tend to take advantage of including ads in their apps, but most lack the expertise to do this effectively, so AppLovin does the heavy lifting. The company also helps advertisers reach their target market, which is also a win for developers.
AppLovin gets paid when users download an app, so if their customers succeed, AppLovin succeeds. The company’s track record is impressive. Since its inception, the platform has delivered more than 6 billion mobile app installs for developers.
The company’s success was evident in its third quarter results. Revenue of $1.2 billion rose 39% year over year, while diluted earnings per share (EPS) of $1.25 rose 317%. This illustrates that with the infrastructure in place, each new customer gradually contributes to AppLovin’s operating result.
The company also raised its outlook, calling for fourth-quarter revenue of $1.25 billion, which would represent year-over-year growth of 31%, although AppLovin has a long track record of exceeding company expectations management.
Management has expressed confidence that it can achieve 20% to 30% growth “in the near future” with mobile game advertising alone, which would be reason enough to be bullish on the stock. However, AppLovin is expanding into new verticals that could boost future growth.
For example, the company is currently piloting an e-commerce advertising solution, and the results are encouraging. During the earnings conference call, CEO Adam Foroughi said (emphasis mine):
The first data have exceeded our expectations, as the advertisers in the pilot also saw substantial returnswhich often surpass those of other media outlets, and in many cases experience a nearly 100% increase in our traffic. We are increasingly confident that this industry will scale significantly in 2025 and be a strong contributor for us in the coming year and beyond.
Given the strong growth within its core businesses and the potential to successfully expand into supporting markets, AppLovin clearly has a long road ahead.
Wall Street is known for its diverse opinions, so it’s worth noting that the majority of analysts following AppLovin believe the stock should rise even further. Of the 25 analysts who have weighed in (so far) in December, 76% have issued a buy or strong buy rating on the stock, with none recommending a sell.
The recent run has pushed the stock price above the average price target, so there are some concerns that the stock has gone too far, too fast. However, Wall Street is working to rectify this. AppLovin stock has seen 16 target price increases this month since reporting its blockbuster results.
Oppenheimer analyst Martin Yang is the company’s biggest cheerleader and recently raised his price target to $480, which represents a potential upside of 40% from Tuesday’s closing price. In addition to the beat-and-raise quarter, the recent foray into e-commerce advertising is paying off. The analyst estimates that AppLovin’s return on ad spend (ROAS) is comparable to that of industry leaders, including Metaplatformswhich puts the app specialist in rare company.
The only problem is the stock’s frothy valuation. AppLovin currently sells for 104 times earnings, but that doesn’t take into account the company’s rapid and accelerating growth. However, the price-to-earnings-growth ratio (PEG), which takes into account the growth rate, comes in at 0.10, while any number less than 1 is indicative of an undervalued stock.
Additionally, AppLovin has easily outperformed the broader market since its initial public offering in April 2021, with a gain of 426%, eight times the Nasdaq-100’s 53% return. Given the company’s execution, addressable market expansion, and long track record of growth, I’d say AppLovin is a buy.
Consider the following before purchasing shares in AppLovin:
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Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Meta Platforms. The Motley Fool holds and recommends positions in AppLovin and Meta Platforms. The Motley Fool has a disclosure policy.
Get to know the latest stocks in the Nasdaq-100. It’s up 3,250% since the start of last year and is still a buy heading into 2025 according to Wall Street. was originally published by The Motley Fool
