Up Over 900% in the Last Year, Investors Continue to Love AppLovin's Strong Growth. Is It Too Late to Buy the Stock?

AppLovin (NASDAQ: APP) continues to be one of the hottest stocks around, with its shares surging following its fourth-quarter earnings report. The stock is up more than 900% over the past year, as of this writing.

AppLovin's main business is an adtech platform that mobile app developers use to attract users and better monetize their apps. It also owns a legacy portfolio of its own apps. The company has seen explosive growth since the launch of its Axon 2 AI-based advertising technology solution in the second quarter of 2023.

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Let's take a closer look at this top-performing artificial intelligence (AI) stock's most recent results, and see whether it's too late to buy the stock.

Revenue continues to soar

Axon 2 continues to drive AppLovin's growth, with advertising (previously called software platform) segment revenue surging 73% to $999.5 million. Its Apps portfolio revenue, meanwhile, fell 1% to $373.3 million. Overall revenue jumped 44% to $1.37 billion, surpassing the $1.26 billion consensus as compiled by LSEG.

The company continues to see solid gross margin improvement, with it rising to 76.7% from 71.3% a year ago. AppLovin was able to reduce its sales and marketing spend by 4%. This is helping profitability metrics grow even faster than revenue.

Earnings per share (EPS) soared from $0.49 a year ago to $1.73, crushing the $1.24 consensus. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), meanwhile, surged 78% to $848 million. Advertising adjusted EBITDA skyrocketed 85% to $777 million, while its apps business grew adjusted EBITDA by 27% to $71.3 million as the company continues to focus on the cost side of this business.

AppLovin generated $701 million in operating cash flow and $695 million in free cash flow. It ended the year with $2.8 billion in net debt.

Looking ahead, AppLovin forecast first-quarter revenue to be between $1.355 billion to $1.385 billion, representing growth of between 28% and 31%. It guided for Q1 adjusted EBITDA to range between $855 million and $885 million, up from $549 million a year ago.

Meanwhile, the company announced that it will sell its App business for total considerations of around $900 million, including $500 million in cash. The deal is expected to close in Q2. The transaction will allow the company to be a pure-play adtech company.

One of the company's big focuses for 2025 will be development of self-service capabilities for advertisers. This will allow it to drive revenue growth without having to hire more employees.

AppLovin said it has seen early success in the e-commerce vertical, and not only with direct-to-consumer brands. However, while the company is confident that e-commerce will be a material contributor in 2025, it is unsure of the exact timing. AppLovin also noted that it is not looking to compete for the same ad dollars as traditional social media companies, but to instead expand the category.

Image source: Getty Images.

Is it too late to buy the stock?

I've written positive articles about AppLovin since last April, when the stock was trading in the low to mid $70s. At that time, the stock only had a forward price-to-earnings (P/E) of about 17 times 2024 analyst estimates.

Today, with the stock trading around $500 as of this writing, its valuation has -- surprisingly -- not increased a lot. Today, the stock trades at a forward P/E of over 65 times 2025 analyst estimates calling for EPS of $7.65.

APP PE Ratio (Forward) data by YCharts.

If the company can successfully move beyond the gaming vertical, I think the stock should continue to have solid upside. It has talked about long-term revenue growth of between 20% to 30% just from the gaming vertical, stemming from both industry growth and improvements in its algorithm. If e-commerce and other verticals can fuel even more revenue growth, then the stock's valuation doesn't look too frothy. The move to self-service should help boost revenue growth as well.

Meanwhile, I like that it is selling its app portfolio, which will only shine an even greater spotlight on its adtech business. That can help the company reduce its debt and show stronger overall revenue growth.

That said, after the huge gains, I think investors should at the very least take some partial profits in the stock. The stock has been on a great run, but it is no longer the high-growth bargain it was in the past. As such, I would not chase the stock here.

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Geoffrey Seiler 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.