Why Applovin Rallied Today
Key Points
AppLovin was reiterated at Outperform and given a $720 price target by Morgan Stanley.
The Wall Street analyst thinks skeptics may be underestimating AppLovin's growth potential.
Even small AI-powered improvements in conversion can lead to a big beat to 2030 estimates.
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Shares of AppLovin (NASDAQ: APP) rallied 10.4% on the day.
AppLovin didn't report any financial news today, as its first-quarter earnings report came on May 11. However, one Wall Street analyst gave the stock a thumbs-up on Wednesday, noting that AppLovin's growth potential may still be underestimated.
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Morgan Stanley thinks AppLovin can outgrow estimates
In an analyst note today, Morgan Stanley analyst Matthew Cost kept an Overweight rating and a $720 price target on the stock. That compares with a $514 stock price at the start of the day.
Cost believes Applovin can continue to outgrow analysts' and skeptics' expectations, noting that while AppLovin's growth runway is "mature" in a certain sense, there is still room for more growth over the next few years than people think.
Cost points out that skeptics cite AppLovin's average 60% growth rate between 2023 and 2025, which far outpaced mobile game spending of 5%. Moreover, skeptics point out that AppLovin's ad load -- or the number of ads it shows -- already looks "full," at roughly 20 per hour.
However, Cost also notes that roughly 99% of AppLovin's ads don't convert into purchases. There, Cost sees opportunity for AppLovin to flex its data advantages over the next few years, improving on that figure. Cost estimates that if AppLovin can just improve conversion by 20 basis points per year, it could beat 2030 consensus estimates by a whopping 50%.
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AppLovin is a controversial growth stock
AppLovin survived numerous short-seller attacks over the past two years and hit an all-time high at the end of 2025. However, this digital ad technology stock is currently well off those highs following this year's "SaaS-pocalypse," in which software stocks have sold off amid AI disruption fears.
To be fair, the stock doesn't look "cheap" in the conventional sense, at nearly 50 times earnings. However, for a company that grew nearly 60% last quarter, that's not too high a price, provided its growth runway doesn't run into a wall. At least one Wall Street analyst doesn't think that will happen, as outlined in Cost's note today.
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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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