AppLovin's 11% Surge: A Turning Point or a False Dawn?
58min read AppLovin (NASDAQ: APP) shares surged 11% over a week in late April/early May 2025, defying broader market weakness and signaling renewed investor optimism. But behind this rally lies a complex narrative of strategic pivots, regulatory battles, and high-stakes financial expectations. Let’s dissect what’s driving the momentum—and whether it can last.
The Earnings Catalyst: Can AppLovin Prove the Skeptics Wrong?
The stock’s climb coincided with anticipation of its Q1 2025 earnings report, due on May 7. Analysts at Zacks expect earnings per share (EPS) to jump 116% year-over-year to $1.45, with revenue hitting $1.4 billion—slightly above consensus estimates. If AppLovin delivers, it could silence short sellers who have accused the company of inflating growth through dubious practices like privacy violations and non-incremental e-commerce sales.
But the path to validation is fraught. Short sellers like Muddy Waters and Culper Research have claimed AppLovin’s ad-tech platform, AXON 2.0, generates sales that merely retarget existing customers rather than attract new ones. A securities class action lawsuit, Quiero v. AppLovin, further complicates matters, alleging misleading statements about AXON’s capabilities. Investors are now betting that Q1 results will either confirm or debunk these claims.
Strategic Shifts: Betting Big on E-Commerce and CTV
AppLovin’s pivot to ad-tech—bolstered by its $900 million sale of its mobile gaming unit to Tripledot Studios—is central to its growth story. The company is now focusing on high-margin segments like e-commerce and connected TV (CTV) advertising.
By late February 2025, e-commerce advertisers were already spending at an annualized rate of $1 billion on AppLovin’s platform, a significant jump from its core mobile gaming revenue. Meanwhile, CTV expansion—targeting a market expected to hit $45 billion by 2026—offers another growth lever.
Management has also emphasized AXON 2.0’s AI-driven approach, which ties ad pricing to client success metrics rather than impressions. While critics question its efficacy, the platform’s ability to secure major e-commerce partnerships (e.g., Walmart, Amazon) suggests demand exists.
The Numbers: Growth, Valuation, and Risks
AppLovin’s 2024 revenue hit $4.7 billion, with its ad segment growing 75% year-over-year to $3.2 billion. Q4 2024 results highlighted a 78% EBITDA margin expansion and a 248% surge in net income, underscoring operational improvements.
However, valuation remains a concern. At a $100 billion market cap (20x sales), AppLovin trades at a premium compared to peers like Alphabet (GOOGL) or Meta (META), which trade at 5x–7x sales. While its P/E has fallen to 50 from over 100, skeptics argue this still overvalues a company facing regulatory and reputational risks.
Bulls vs. Bears: Where Does the Stock Go From Here?
Bull Case:
- Strong Q1 results could validate the ad-tech strategy, easing fears over short-seller allegations.
- E-commerce and CTV growth could sustain revenue at $1.4 billion+ quarterly levels, supporting a Zacks “Strong Buy” rating (51.7% 2025 EPS growth projected).
- Maynard Webb’s board appointment signals governance improvements, while unconfirmed TikTok ad assets bids hint at potential acquisitions to boost scale.
Bear Case:
- Legal risks remain unresolved, with the class action lawsuit and regulatory probes into privacy policies posing fines or operational restrictions.
- A broader economic slowdown or ad spending contraction (e.g., due to trade wars) could pressure margins.
Conclusion: A High-Reward, High-Risk Gamble
AppLovin’s 11% rally reflects investor hope that its strategic shifts and Q1 results can overcome skepticism. With a Zacks consensus of $1.45 EPS for Q1 (vs. $0.67 in 2024) and $1.4B revenue, the bar is set high. If AppLovin delivers, the stock could rally further, leveraging its $100B market cap’s growth potential.
However, the risks are glaring. At 20x sales and with unresolved legal issues, even a modest miss could trigger a sharp selloff. Investors must weigh the promise of AI-driven ad innovation against the very real possibility of regulatory blowback. For now, the stock’s fate hinges on May 7—and whether AppLovin can prove its growth is as sustainable as its narrative.
