AppLovin has already become one of Wall Street’s more closely watched artificial-intelligence advertising stories.
The company’s growth has been fast enough to raise a different question for investors: How much more can it squeeze out of mobile ads after such a large run?
Morgan Stanley says the answer may come down to a hidden metric inside AppLovin’s (APP) advertising engine.
In a Morgan Stanley note given to TheStreet, analyst Matthew Cost and team reiterated an Overweight rating on AppLovin and a $720 price target. That target sits well above AppLovin’s May 22 closing price of $481.68. The firm also laid out a $1,100 bull case if one key operating metric keeps improving.
Morgan Stanley sees a bigger AppLovin runway
Morgan Stanley’s bull case centers on conversion rates, or how often an ad shown through AppLovin leads to an install or another desired consumer action.
The firm says about 99% of AppLovin’s ads still do not convert. That sounds like a weakness at first glance, but Morgan Stanley frames it as the central reason AppLovin may still have more room to grow.
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AppLovin’s business has already been expanding at a sharp pace. The company reported first-quarter revenue of $1.84 billion, up 59% from a year earlier. Net income rose to $1.21 billion, while adjusted EBITDA increased 66% to $1.56 billion.
The company also guided for second-quarter revenue of $1.915 billion to $1.945 billion and adjusted EBITDA margin of 84% to 85%.
That performance gives Morgan Stanley confidence that AppLovin’s ad technology is already working. The bigger issue is whether the company can keep improving the efficiency of that technology.
Morgan Stanley estimates AppLovin’s conversion rate has risen from 1.0% to 1.3% over the past 18 months. The firm said AppLovin still trails market leaders such as Meta by a wide margin on a comparable “true” conversion-rate basis.
Morgan Stanley analyst Matthew Cost and team reiterated an Overweight rating on AppLovin and a $720 price target.Cheng Xin…..
