BofA Analyst Raises AppLovin Price Target, Stock Surges 13%

AppLovin (NASDAQ:APP) shares rose more than 13% intra-day today after BofA Securities analysts increased their price target for the company from $100 to $120, reaffirming a Buy rating on the stock.

After meeting with AppLovin's CEO and CFO in New York, BofA shared insights on why the company remains their top pick. The analysts believe the Software division has the potential to grow by over 20% annually through 2026, significantly outpacing the mobile gaming market’s expected 5% to 10% yearly growth. According to BofA estimates, despite capturing only about a third of the projected ad spend in 2024, AppLovin is well-positioned to generate a majority of new in-app purchase (IAP) revenue for advertisers.

The analysts highlighted that one of the key challenges in the mobile advertising space is effectively matching mobile gamers—an audience of over 3 billion worldwide—with the right games. Currently, mobile ad networks convert around three installs per 1,000 impressions, according to BofA estimates. Even a modest improvement, such as increasing the conversion rate to five installs per 1,000 impressions, could significantly boost industry growth.

Since the first quarter of 2023, AppLovin's AI Engine has proven its ability to enhance install rates, contributing to a 112% growth in the company’s quarterly run rate. The analysts noted that the company’s use of large language models (LLMs) for data collection, still in its early stages, presents further opportunities for long-term growth by continuing to improve matching efficiency.