AppLovin earnings show resilience despite short reports: is APP stock on track for $400?

Wells Fargo analyst Alec Brondolo said he never believed allegations of questionable advertising practices, including violating user privacy against AppLovin Corp (NASDAQ: APP), put forth by Muddy Waters Research in March.

And the adtech behemoth’s Q1 earnings that it recorded last night now confirm that “short reports have indeed not impacted partner propensity to spend,” he told clients in a research note today.

Brondolo raised his price target on AppLovin stock this morning to $405, which indicates another 16% upside from current levels.

Why is Wells Fargo keeping bullish on AppLovin stock?

Wells Fargo continues to see significant further upside in APP shares as it has a “strong strategic position in the mobile game advertising market, with leading products in user acquisition and ad monetisation.”

Alec Brondolo raised his estimates for the company’s full-year revenue to well above consensus in a research note today, citing its ability to win an even bigger share of the $34 billion market opportunity moving forward.

The analyst remains positive on AppLovin stock even though its executives issued a consensus trailing guidance for the current quarter.

They see revenue falling between $1.2 billion and $1.22 billion in Q2, well below the analysts' at $1.38 billion.

However, part of that weakness may be related to the sale mobile gaming business that APP announced on Thursday.  

Why is the mobile games unit sale significant for APP?

The company’s apps business brought in $325 million in the first quarter, which translates to about a 14% decline on a year-over-year basis.

Unloading the mobile games unit will help AppLovin eliminate that overhang and focus more fiercely on its AI-enabled, fast-growing ads business that was up more than 70% on a year-over-year basis in Q1.

Wells Fargo analyst Alex Brondolo remains constructive on AppLovin shares also because it’s scheduled for a “global launch of self-service, which is likely to cause yet another inflection.”

Note that APP stock does not currently pay a dividend, though.

Is there any further upside left in APP shares?

Separately, in a blog post on Wednesday, Adam Foroughi, the chief executive of AppLovin, touted his company’s proposal for TikTok US as superior compared to other bids.

The adtech giant is interested in merging with the social media company, instead of buying its US operations, which makes it a “true partnership, leveraging our strengths to address security, data, and content challenges while unlocking massive potential,” he wrote.

Note that AppLovin shares are already up some 400% versus their low in August 2024.

Still, Wells Fargo is actually among some of the more cautious analysts on APP stock, given the consensus rating on the Nasdaq-listed firm currently sits at “overweight”, with a mean target of about $484 indicating potential upside of another 40% from current levels.