Palo Alto, Calif.-based mobile application technology company AppLovin Corporation (APP) had a disappointing stock market debut on April 15, 2021 and its shares closed down 18.5% on the day. However, the stock has gained 28.9% in price over the past month and 97.3% over the past three months to close Friday’s trading session at $112.36.

Also, its shares soared to hit their 52-week high of $116.09 on November 11, 2021, on the back of impressive third-quarter earnings and investors’ optimism surrounding its proposed acquisition of MoPub from Twitter, Inc. (TWTR).

However, the Schall Law Firm had announced in April 2021 that it is investigating APP on potential securities laws violations. Furthermore, the company faces intense competition from other players, such as Unity Software Inc. (U) and Playtika Holding Corp. (PLTK). So, the stock’s near-term prospects look uncertain.

Here is what could influence APP’s performance in the upcoming months:

Broad Portfolio of Products and Services

APP operates through an integrated suite of products—AppDiscovery, MAX, SparkLabs, and Adjust—to boost mobile apps. The company acquired Adjust in April 2021. Also, developers across more than 130 countries use its software solutions. In addition, an APP partner studio, Belka Games, created Bermuda Adventures on November 4.

Impressive Financials

For the third quarter, ended September 30, 2021, APP’s revenue surged 90.4% year-over-year to $726.95 million, driven primarily by the impressive scale and accelerating growth of its ML-based software platform. Its organic revenue increased 58% year-over-year. And its monthly active players (MAPs) came in at 2.90 million, representing a 93.3% year-over-year rise.

Also, APP’s income from operations in the quarter was $45.05 million, compared to a $75.46 million loss in the prior year’s quarter. Its net income came in at $178,000, versus a $89.69 million loss in the year-ago period.

Stretched Valuation

In terms of forward non-GAAP P/E, APP’s 74.31x is 192.8% higher than the 25.38x industry average. Likewise, the stock’s 1.91x forward non-GAAP PEG is 10.8% higher than the 1.72x industry average. Its 15.38x and 15.10x respective forward EV/S and P/S are higher than the industry averages of 4.31x and 4.28x.

POWR Ratings Reflect Uncertain Near-Term Prospects

APP has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. APP has a C grade for Value, which is consistent with its higher-than-industry valuation ratios.

The stock has a C grade for Quality, which is in sync with APP’s 4.08% trailing-12-month EBIT margin, which is 54.9% lower than the 9.04% industry average. Moreover, it has a D grade for Stability, which is consistent with its 1.10 beta.

APP is ranked #85 out of 162 stocks in the Software – Application industry. Also, click here to see the additional POWR Ratings for APP (Sentiment, Momentum, and Growth).

Click here to check out our Software Industry Report for 2021

Bottom Line

Impressive third-quarter earnings helped APP’s shares soar in price over the past few days, and it is currently trading 3.2% below its 52-week high. However, Wall Street analysts expect the stock to hit $108.80 in the near term, which indicates a potential 3.2% decline. Also, the company’s near-term prospects look uncertain until its MoPub acquisition goes through. So, we think it could be wise to wait before scooping up its shares.

How Does AppLovin (APP) Stack Up Against its Peers?

While APP has an overall POWR Rating of C, one might want to consider investing in Software - Application stocks with an A (Strong Buy) rating, such as Commvault Systems, Inc. (CVLT), Open Text Corporation (OTEX), and Oracle Corporation (ORCL).

APP shares rose $3.55 (+3.16%) in premarket trading Monday. Year-to-date, APP has gained 72.33%, versus a 26.20% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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