Why AppLovin Stock Is Sinking Today

The stock of AppLovin (NASDAQ: APP) is getting hit with big sell-offs in Wednesday's trading. The ad tech company's share price was down 5.9% as of 1:15 p.m. ET today. The S&P 500 and Nasdaq Composite were down 0.9% and 1.7%, respectively. AppLovin stock had been down as much as 14.8% earlier in the session.

AppLovin is losing ground today amid a sell-off for the broader market driven by the latest data on U.S. gross domestic product (GDP). The stock is also being hurt by bearish coverage that was published by an analyst this morning.

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Stocks pull back on GDP and consumer spending data

The U.S. Commerce Department released GDP data for the first quarter today that showed an unexpected contraction. GDP shrank 0.3% year over year in the quarter, falling short of economists' target for growth of 0.3%. The shortfall was driven by a steep rise in imports as purchasers moved to buy foreign goods before new tariffs were put in place at the beginning of this month.

Imports are subtracted from GDP, and the purchasing surge was larger than anticipated. While the first quarter's import-driven GDP decline doesn't necessarily suggest any structural weakness in the U.S. economy, investors are concerned because consumer spending increased just 1.8% compared to 4% in last year's quarter.

Edgewater Research thinks AppLovin's growth will decelerate a lot this year

Before the market opened this morning, Edgewater Research updated its sales targets for AppLovin and highlighted challenges it sees facing the business. While Edgewater stuck with its forecast for first-quarter revenue to increase approximately 55% year over year and reach $1.08 billion in the first quarter, it expects that growth will decelerate substantially as the year progresses.

Setting a sales target of $5.7 billion for 2025, Edgewater is now guiding for revenue to increase just 18% annually. It sees signs that growth for the mobile gaming market is losing steam, and it expects that increased competition from Meta Platforms and Alphabet could further curb AppLovin's growth potential.

Even with today's pullback, AppLovin is valued at more than 16 times the average analyst sales target for this year. The company has been posting impressive performance and managed to grow sales 43% annually last year, but shares could continue to move lower if it turns out that Edgewater's growth forecast is correct.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AppLovin. The Motley Fool has a disclosure policy.