TLDR
- Morgan Stanley upgraded AppLovin to “Overweight” with a $350 price target, seeing 27% upside
- AppLovin has outperformed the in-app ad market and expanded its non-gaming ad business
- The stock has fallen 46% since Q4 earnings, creating a buying opportunity
- Short sellers have targeted the company with allegations about ad targeting strategies
- Despite economic uncertainty, analysts remain optimistic about AppLovin’s resilience
AppLovin Corporation (APP) received a vote of confidence from Morgan Stanley on Thursday as the investment bank upgraded the mobile technology company’s stock to “Overweight” from “Equal-weight.” This upgrade comes despite recent market volatility and several short seller reports targeting the company.
Morgan Stanley analyst Matthew Cost set a new price target of $350 for AppLovin, implying a potential 27% upside from current levels. While this represents a reduction from their previous target of $475, the bank views the recent 46% decline in the stock as a buying opportunity.
“APP has consistently gained share in gaming ads and has built scale in nongaming advertising far faster than we had previously expected,” Cost wrote in his research note.
The upgrade highlights AppLovin’s strong execution and expanding market share in the in-app advertising space. Since 2023, the company has outperformed the broader in-app ad market, gaining share in gaming while rapidly scaling its non-gaming ad business, particularly in e-commerce.
Growth Beyond Gaming
AppLovin’s diversification beyond its core gaming business has been impressive. The company’s non-gaming ad segment is now expected to contribute $750 million in revenue this year and become the primary driver of growth going forward.
This expansion has helped fuel strong financial results. AppLovin increased revenue by 43% to $4.71 billion in 2024 from the previous year, representing a 69% jump from 2021 when the company went public.
Despite these strong fundamentals, AppLovin stock has not been immune to broader market pressures. Shares have dropped 17% this year as the market reacted to President Donald Trump’s tariff announcements.
For investors, a key concern is that companies might reduce their ad spending due to economic uncertainty. This worry could intensify if the U.S. enters a recession.
Short Seller Challenges
AppLovin has also faced challenges from short sellers. On February 26, both Fuzzy Panda Research and Culper Research published reports alleging the company was replicating Meta Platform’s ad targeting strategy and potentially violating terms of Google and Apple app stores.
In March, Muddy Waters Research announced a short position, claiming AppLovin was “impermissibly extracting proprietary IDs” from various platforms to target ads without user consent.
AppLovin CEO Adam Foroughi defended the company against these allegations. In a blog post, he stated the reports “are littered with inaccuracies and false assertions” and encouraged investors to “dig deeper,” suggesting that “it’s easy to discredit a short report like this in minutes” using today’s AI tools.
Despite these challenges, Morgan Stanley remains bullish. The bank projects AppLovin’s ad revenue to grow at a 30% compound annual growth rate (CAGR) from 2024 to 2027.
Resilience in Advertising
Morgan Stanley describes AppLovin as “one of the most resilient names in our ad coverage,” pointing to its innovation, pricing power, and exposure to direct-response advertising, which tends to hold up better during economic downturns.
“Despite these strong results, the stock has fallen by 46% since 4Q earnings and we now see an opportunity to buy ad tech’s best executor ‘on sale’,” Cost noted in his research.
While acknowledging the risks in the current economic environment, Morgan Stanley sees a favorable risk-reward ratio of approximately 2:1. Their bull case suggests a potential valuation of $575 per share.
The bank did trim its 2025 and 2026 EBITDA estimates by 9% each due to a more conservative consumer outlook. However, they still see a clear path for AppLovin to deliver solid ad revenue growth across both gaming and non-gaming verticals.
As of Thursday trading, AppLovin shares were down 5.4% to $260.22, compared to a 4.7% drop in the S&P 500. Despite recent pullbacks, the stock has risen an impressive 241% over the past 12 months.
The current market volatility may present opportunities for investors looking at companies with strong fundamentals like AppLovin, which continues to show growth even as broader economic concerns persist.
