AppLovin stock price forecast: buy the dip or sell the rip?

AppLovin stock price has imploded in the past few months as concerns about its valuation continued. It also plunged after a short-seller report warned about its business practices and hinted that it may keep falling soon. It has crashed by over 55% from its highest point level this year, bringing its market cap to over $84 billion.

Official statements show that AppLovin is growing

AppLovin is a technology company that provides solutions to businesses in the US and other countries. Its AppDiscovery tool helps to match applications with the right users, increasing the number of downloads.

Further, the company has the MAX solution, which helps developers to maximize their advertising revenue by running real-time auctions for ad space. 

Most importantly, the company has moved more into the advertising business, where it connects advertisers to over 1.5 billion users across mobile apps and connected televisions. 

AppLovin’s business has grown rapidly in the past few years as more companies have moved into its ecosystem. Its annual revenue rose from $1.4 billion in 2020 to over $4.7 billion last year, representing a 213% annual growth rate. 

AppLovin’s management believes that the company has more room to grow in the coming years as more companies move into its platform. It also expects to accelerate the growth by making a long-shot bid for TikTok, the giant Chinese social media company. 

Analysts expect that AppLovin’s business will continue doing well this year. The average estimate is that its quarterly revenue will grow by 30% last quarter and 29.5% in the next quarter. 

The annual revenue is expected to come in at $5.67 billion, a 20% annual increase, followed by $6.9 billion next year.  Still, Muddy Waters Research warned that some of the official figures were a bit exaggerated. 

APP stock valuation concerns

Wall Street analysts are upbeat about the AppLovin stock price, which they believe that it has more upside going forward. The average estimate is that its stock will climb to $444, up sharply from the current $236. 

Some of the most bullish are from companies like Goldman Sachs, Piper Sandler, Morgan Stanley, and Wells Fargo. The main case for the company is that it has more room to grow because of its advanced artificial intelligence features. 

However, valuation concerns remain. The most recent data shows that the company has a forward price-to-earnings ratio of 42.3, much higher than other popular technology companies like Microsoft and Adobe. 

AppLovin has a hefty price-to-sales ratio of 17.4 and an enterprise value to EBITDA multiple of 35. Therefore, the company needs to continue growing its business significantly to justify this valuation. 

AppLovin stock price technical analysis

The daily chart shows that the APP share price has crashed sharply in the past few months. This decline is in line with our previous estimate, which you can see here, here, and here. Our argument in these articles was that the stock surged so fast, exposing it to a sharp pullback.

The daily chart shows that the AppLovin stock price has been in a strong downtrend in the past few months as it plunged from a high of $524 in March to the current $235. It has dropped below the 50-day and 100-day Exponential Moving Average (EMA), a sign that bears are gaining control.

Further declines from the current level will boost the odds of the stock forming a death cross, a risky pattern that happens when the two moving averages cross each other. 

Therefore, the path of the least resistance for the AppLovin share price is bearish, with the next point to watch being at $200, the lowest swing on April 7. A break below that level will signal more downside to $175.