AppLovin stock crashed after earnings: buy the dip or sell the rip?

AppLovin stock price retreated by over 6% in the extended hours after the technology giant published its financial results and maintained a positive outlook despite the rising fears of AI disruption. APP dropped to $429 after ending the day at $455.

AppLovin growth accelerated 

AppLovin, a top software in the advertising industry, has come under pressure in the past few months, moving from a record high of $744.60 to the current $429.

Its crash coincided with the ongoing sell-off of other software companies, including popular names like ServiceNow, Intuit, Adobe, and Microsoft. These companies have plunged as investors remained concerned about disruption by artificial intelligence (AI) tools.

However, analysts and many experts in the industry believe that the fears are overblown as these companies will always continue being used. For example, firms will continue using its advertising products, which are widely used by advertisers and brands. In a statement, Adam Foroughi, the CEO, said:

Additionally, the management believes that AO will ultimately lower the cost of content creation, a move that will boost the demand for content discovery, a business where it is involved in.

The most recent results showed that the company's revenue rose by 66% in the fourth quarter to over $1.6 billion, bringing its annual figure to over $5.4 billion.

AppLovin’s profits also continued soaring, with the net income hitting over $1.1 billion, up from $599 million in the same period in 2024.

Wall Street analysts believe that the company has more growth to go in the future. Analysts believe that the company's revenue will jump by 35% in the current quarter to over $1.72 billion, while its annual revenue will be $7.86 billion, up by 32% YoY. Its revenue growth will hit over $10.8 billion next year.

Is APP stock a bargain or highly overvalued?

A key concern among analysts is that the company has become highly overvalued, with the forward price-to-earnings (PE) stands at 45, higher than the sector median of 24. Its multiple is much higher than the five-year average of 33.

The forward EV to EBITDA multiple has also jumped to 35, higher than the sector median of 14. These figures make it one of the most overvalued companies in the industry.

However, on the positive side, the rule-of-40 metrics suggest that the company is a bargain. This is a popular metric that looks at a company's growth and its margins.

Data compiled by Seeking Alpha shows that it has a net income margin of 44% and a forward revenue growth rate of 33%, giving it a multiple of 77%.

AppLovin stock price technical analysis 

The daily timeframe chart shows that the APP stock price has retreated sharply in the past few months, moving from a high of $743 to the current $429.

This retreat happened after the stock formed a double-top pattern at $743 and a neckline at $490. It then made a break-and-retest pattern by moving back to $490. A break-and-retest is one of the most common bearish continuation sign in technical analysis.

The stock remains below the 50-day and 100-day Exponential Moving Averages (EMA) and the Supertrend indicator.

Therefore, the most likely scenario is where it continues falling, potentially to the year-to-date low of $357.