AppLovin Was the S&P 500’s Top Stock Last Quarter. Wall Street Expects More Gains.

Analysts at BofA Securities and Citi reiterated Buy ratings for the stock and raised their targets for the price. (Gabby Jones/Bloomberg)

Key Points

• AppLovin was the S&P 500’s top-performing stock for the quarter, climbing 105%.
• Analysts at BofA Securities and Citi reiterated Buy ratings and raised their price targets to $860 and $850, respectively.
• AppLovin’s growth hinges on its e-commerce advertising solution. Citi forecasts it will have 3,600 e-commerce customers by 2026.

AppLovin just had a third quarter for the ages. Not only did the mobile advertising platform join the S&P 500 in September, it was also the index’s top-performing stock for the quarter by a wide margin, climbing 105%.

Even after that rally, AppLovin may have more gains ahead. Analysts at BofA Securities and Citi reiterated Buy ratings for the stock and raised their price targets to $860 and $850, respectively, in separate research notes.

Shares were down 1% to $711.50 on Wednesday.

AppLovin’s business helping app developers monetize mobile videogames and acquire users remains its profit center, but the company’s continued growth hinges on this year’s launch of its advertising solution for e-commerce brands, Citi said. Rival platforms have successfully expanded to customers outside of videogames, and AppLovin should be able to do the same, it said.

Citi forecasts AppLovin will have 3,600 e-commerce customers by the end of 2026, which could mean almost $2 billion in additional nongaming revenue next fiscal year. The company is expected to post $5.5 billion in total ad revenue in fiscal 2025.

AppLovin is Citi’s preferred stock in the mobile-ad space—it ranks just ahead of competitor Unity Software , which the firm also rates a Buy—due to its mature technology and new e-commerce push.

“We expect the firm to continue to deliver strong top-line growth driven by the growth of the mobile gaming industry,” wrote Citi’s Jason B. Bazinet. “We see incremental growth potential if the company is able to successfully expand beyond mobile gaming by servicing e-commerce companies.”

BofA Securities, which visited around 400 direct-to-consumer e-commerce sites already using AppLovin, said it believes the platform will be not just a success but a “required channel” for this type of advertiser.

The firm estimated there are approximately 10,000 merchants with a gross merchandise value above $10 million in the categories that work best for AppLovin, such as apparel, health and wellness, and home and garden. And AppLovin’s new referral program should help attract these customers.

“[Direct-to-consumer] products fulfill niche consumer needs, and thus avoid intense direct competition, making them likely to refer one through AppLovin’s referral program,” wrote analyst Omar Dessouky.

Though AppLovin’s e-commerce business is still in its infancy, it represents around 35% of the company’s current valuation, according to BofA’s model. The firm expects the growing segment to account for 46% of its $860 price target in the next 12 months.

While BofA actually lowered its forecasts of revenue and earnings for the next three years, that $860 target is the highest number on Wall Street.

Write to Nate Wolf at nate.wolf@barrons.com