What a time it’s been for AppLovin. In the past six months alone, the company’s stock price has increased by a massive 118%, reaching $621.36 per share. This run-up might have investors contemplating their next move.
Is now still a good time to buy APP? Or are investors being too optimistic? Find out in our full research report, it’s free for active Edge members.
Why Are We Positive On APP?
Sitting at the crossroads of the mobile advertising ecosystem with over 200 free-to-play games in its portfolio, AppLovin (NASDAQ: APP) provides software solutions that help mobile app developers market, monetize, and grow their apps through AI-powered advertising and analytics tools.
1. Skyrocketing Revenue Shows Strong Momentum
A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, AppLovin’s sales grew at an exceptional 37.1% compounded annual growth rate over the last five years. Its growth surpassed the average software company and shows its offerings resonate with customers.
2. Customer Acquisition Costs Are Recovered in Record Time
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
AppLovin is extremely efficient at acquiring new customers, and its CAC payback period checked in at 3.1 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give AppLovin more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
AppLovin has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 53.7% over the last year.
Final Judgment
These are just a few reasons why AppLovin ranks near the top of our list, and after the recent rally, the stock trades at 33× forward price-to-sales (or $621.36 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free for active Edge members.
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