AppLovin Corporation

(NASDAQ Global Select)
Back to all articles
Bullish +75

Morgan Stanley spills beans on what's next for AppLovin stock

AI-generated analysis

📈 Morgan Stanley reiterated an "Overweight" rating and $720 price target on AppLovin stock after the company delivered a strong Q1 quarter.

💰 The bank's price target implies approximately 54% upside from the recent closing price of $468.83, with a market cap of roughly $158.8 billion.

🚀 AppLovin's e-commerce advertising business is accelerating faster than expected, contributing an estimated $350 million in Q1 revenue.

📊 Web and ad revenue grew 11% quarter-over-quarter in Q1, exceeding the company's own target of 6% growth.

📈 Gaming ad revenue has grown 44% year-over-year and now shows 13 consecutive quarters of sequential growth above 5%.

🔮 Morgan Stanley forecasts non-gaming ad revenue to grow from approximately $1.8 billion in 2026 to over $3 billion by 2028.

⚡ Management noted that April set a record month for web revenue, indicating strong momentum entering the next quarter.

🛠 The bank highlighted two near-term catalysts: a self-serve advertising platform launch in June and expansion into new games for monetization.

💻 Improved model performance is driving higher return on ad spend, which has prompted advertisers to increase their budgets significantly.

📉 Gaming ad conversion rates currently stand at 1.3%, leaving room for value extraction despite a high ad load environment.

🎯 Q2 guidance calls for $1.93 billion in revenue and $1.63 billion in EBITDA, representing an 84% EBITDA margin at the midpoint.

💎 Morgan Stanley views AppLovin as a "blue chip" mobile ad tech name with large multi-vertical market opportunities ahead.

📉 The base case valuation uses a 27x EV/2027 EBITDA multiple, while the bull case projects accelerated growth and a higher 29x multiple.

🏆 Wall Street consensus shows 91% overweight ratings on AppLovin with a mean price target of $648.19 compared to Morgan Stanley's higher target.

🤖 The bank believes AppLovin will outperform peers even as broader sentiment around gaming and mobile advertising remains under pressure.

🔍 Revenue and EBITDA in Q1 came in 4% and 6% ahead, respectively, of Morgan Stanley's prior estimates provided before the quarter closed.

Bullish Signals
  • AppLovin delivered another strong quarter with Q1 results reinforcing Morgan Stanley's long-term growth thesis.
  • Ad revenue grew 11% quarter over quarter, surpassing both analyst estimates and the company's own internal guidance of 6%.
  • The e-commerce advertising business is accelerating faster than expected, contributing approximately $350 million in revenue during Q1 alone.
  • April set a record month for web revenue, indicating robust momentum heading into the second quarter.
  • Gaming ad revenue grew 44% year over year and approximately 97% on a two-year stacked basis, demonstrating durable performance.
  • AppLovin has achieved more than 5% sequential growth in gaming ads for 13 consecutive quarters, highlighting technological breakthroughs driving consistent, seasonality-independent growth.
  • Gaming ad conversion rates currently sit at approximately 1.3%, presenting meaningful upside potential to extract more value from existing traffic before the high ad load limits efficiency.
  • Morgan Stanley reiterated an Overweight rating with a $720 price target on May 7, implying roughly 54% upside potential from the closing stock price of $468.83.
  • The planned self-serve advertising launch in June is expected to be a major catalyst, significantly expanding advertiser adoption by simplifying campaign management for brands.
  • Inventory expansion into new games utilizing non-endemic ads will broaden the supply side of the marketplace, further fueling growth.
  • Q2 guidance midpoint of $1.93 billion revenue and $1.63 billion EBITDA at an 84% margin represents both 3% and 5% upside to prior estimates, respectively.
  • Analysts believe AppLovin is the 'blue chip' ad tech name most likely to outperform peers even as broader market sentiment remains under pressure.
  • The bank values AppLovin at a premium 27x EV/2027 EBITDA multiple, justified by its large multi-vertical opportunity and rapid pace of innovation.
Risk Factors
  • Morgan Stanley's valuation uses a 27x EV/2027 EBITDA multiple which is acknowledged as sitting above the peer regression average, implying a rich valuation that may be vulnerable if growth slows.
  • The bear case scenarios assume a severe multiple compression to 12x, suggesting investors could still price for significant downside even with strong fundamentals.
  • AppLovin operates in a market where broader sentiment around gaming and mobile advertising remains under pressure, creating an external headwind against its growth thesis.
  • While non-gaming ad revenue estimates show expansion from $1.8 billion in 2026 to over $3 billion by 2028, this represents a near-doubling of the business with inherent execution and market adoption risks.
  • The self-serve advertising launch in June is positioned as a key catalyst, but its success depends on expanding advertiser adoption which could face resistance or slower-than-expected uptake.
Full Analysis
Morgan Stanley analysts led by Matthew Cost and Brian Nowak have reiterated their overweight rating on AppLovin stock with a price target of $720 following the company's strong first-quarter performance, suggesting the investment opportunity remains compelling despite recent market volatility. The firm believes the best part of AppLovin's story is yet to come, viewing the current phase as just the beginning of a multi-year growth cycle driven by innovations in both gaming and e-commerce advertising sectors. As of May 7, with the stock trading at $468.83, the analyst price target implies roughly 54% upside, cementing AppLovin's status as the firm's top-rated name in mobile ad technology with a high probability of outperforming peers even as broader sentiment in the gaming and mobile advertising sectors remains under pressure. The bank highlighted that AppLovin's Q1 results significantly beat their own prior estimates, with revenue and EBITDA coming in 4% and 6% ahead, respectively. Ad revenue for the quarter grew by 11% quarter over quarter, surpassing the company's internal guidance of 6%, driven largely by meaningful model improvements that enhanced return on ad spend for advertisers and prompted budget increases. A standout development was the accelerating momentum in AppLovin's web and e-commerce advertising business, which Morgan Stanley estimated contributed approximately $350 million in Q1 revenue, with April setting a new record month to indicate strong exit rate momentum that is expected to continue. Looking ahead to future catalysts, Morgan Stanley points to two key near-term drivers poised to extend AppLovin's growth runway: the planned launch of a self-serve advertising platform in June and inventory expansion into non-endemic games seeking monetization opportunities. While e-commerce represents the new high-growth engine, the bank remains emphatic about the durability of the core gaming advertising business, which has delivered over 5% quarter-over-quarter growth for 13 consecutive quarters and grew 44% year over year in Q1 alone. Additionally, AppLovin provided robust guidance for Q2 with midpoint revenue projections of $1.93 billion and EBITDA of $1.63 billion, achieving an impressive 84% margin, figures that also surpassed the analyst firm's prior estimates by 3% and 5%, respectively. The valuation rationale from Morgan Stanley supports a 27x EV/2027 EBITDA multiple for the company, acknowledging the premium above peer averages is justified by AppLovin's large multi-vertical market opportunity and rapid pace of innovation. Under their base case, the $720 price target corresponds to an anticipated 2027 EBITDA of approximately $8.78 billion, while a bull case scenario targeting $1,100 assumes more aggressive growth accelerating share gains and e-commerce scaling faster than expected. Conversely, the bear case suggests a significant downside risk to $200 if the multiple contracts to 12x on lower EBITDA, but the firm's overall conclusion is that AppLovin has evolved into a blue chip ad tech name with diversified growth engines in both gaming and e-commerce ensuring long-term value creation.