The Nanalyze Verdict: Applovin Stock

Shares of AppLovven stock are down 50% year to date and everybody thinks this is a clear buy. 70% revenue growth last year and 50% revenue growth expected for this year. What's next? Operating margins of 70%. Well, they got that too. Everything screams buy here. And that's when you need to start looking at what nobody else is looking at right now. Reasons not to buy Apploven stock. Let's start with two charts that show two stocks that appear to be highly correlated. Well, they don't just appear to be highly correlated. They are actually highly correlated. Apploving and Tradeesk have recently been moving together, and there are some similarities between these two companies. Both are major USbased publicly traded adtech companies. Both enable programmatic digital advertising through AIdriven platforms. Both help advertisers buy inventory more efficiently. Both operate outside the biggest walled gardens, Google, Meta, Amazon to varying degrees, and both generate high margins via software platform models. Basically, both are pure play ad tech growth stocks that are exposed to shifts in digital ad spending. But just one of these is running into some clear growth problems. Tradeesk is having marie rate in the wrong direction. It's down more than 75% over the past year. And when you look at this chart, it's just remarkable to see this slow deceleration in revenue over nearly a decade. Talk about slowly then suddenly. Now, where they differ is that app loving is primarily focused on a mobile app ecosystem, mainly gaming. They generate revenue primarily from performance advertising. So, they look at things like conversions or return on ad spend or rorowass. While they've been historically gaming heavy, they are now expanding into e-commerce. After divesting their own game studio in 2025, it's now a pure play advertising software business. Now, some stated risks for this company. They talk about concentration risk specifically around mobile gaming. Their mobile app ecosystem relies heavily on a small number of third-party distribution platforms, some of which are direct competitors, and that's never a good situation to be in. Now, they do have a relatively small number of advertisers concentrated in the mobile gaming industry, though no single customer makes up more than 10% of revenues. But they need to further diversify their business into e-commerce for any number of reasons. One being that the metrics for gaming downloads and revenue aren't looking so good since co. So, in order to keep up their spectacular growth, they need to start doing something different. They're already a leader in what they're doing. And some can say well that's starting to look a bit saturated. So the fundamental strength of the business is apparent in their fundamentals. So we need to think about what could derail this growth train. So we need to look for red flags or reasons not to invest in the business. Now imagine pulling together a team of people who are financially motivated to find out everything possibly wrong with a company looking in from outside. That's basically what a short report is. And these are blessings in disguise. People who think the only reason that stocks don't go up is because of the shorts are basically morons. It's not some battle between good and evil. Now, short reports are most useful when they target companies we hold or are looking to hold. Someone's done all the work for you. And this is rather remarkable. I don't think I've seen this before. Basically, eight different short reports in the period of about one year and a half coming from about seven different firms or individuals. Now, what's good to see is the response from AppL. We always want to see companies take these head-on and App Leven, I think, did a great job of doing that for the most part. Now, the main points of contention, summarized those here, they talk about aggressive or questionable data and tracking practices, looking at the business model, things like backdoor app installs, lowquality or deceptive advertising, which is pretty much just advertising anyway, right? And this here platform regulatory and reputational risks a regulatory part is key because that's a risk that apploven acknowledges and they can't control and they question the true source of their competitive advantage. So, how effective really is their AI platform? And there's some other bits about moneyaundering and the CCP though those particular components came from this company called Capital Watch and Apploven went after them and I can't wasn't able to find that short report even though Capital Watch said, "Yeah, you know, we stand behind everything except these particular comments around money laundering and the CCP." Well, reports nowhere to be found. So, that tells you something, right? So, the basic thesis is simply this. any possible red flag that exists, it's going to be in one of these eight reports, right? So, what often happens is that when there's smoke, there's fire, you may have some legitimate bits mixed in there that the company sees and say, "Wow, we need to rectify." And of course, there was some regulatory scrutiny around the company. The SEC got involved. So, you can be absolutely sure that Apploven tied up any sort of loose ends they might have had. So if there were problematic issues that were tied up and they were going to reflect themselves in the fundamentals, in other words, if these accusations were correct, any of them, you should start to see that reflected eventually in their revenue growth. So let me give you an example of something the company appears to have tied up. So there was this array product that the short reports were accusing AppLin of using improperly. And when you go back and look in the past, Apploven called this product a driver for growth as far back as the fourth quarter of 2023 and their head of product for this array product said, "Well, it's one of the company's top revenue growth drivers." Well, shortly after the short report accusations, they asked this product and said, "Ah, it wasn't economically viable." The timing there is objectively suspicious. It really is. However, ultimately proof is going to be in the growth pudding. Now, it's been 1.5 years since that short report was published and as of this last quarter, the CEO said that the SEC investigation has been concluded. So, they didn't find any problems. Great. As you can understand, any deterioration in fundamentals right now is going to be looked at extremely unfavorable, right? Because it validates all these accusations that were made. So when you look at quarterly revenue growth, you really want to pay very close attention to that. And perhaps the real reason Apploven stock took a dump is because revenues came in under consensus by less than 1%. So basically a rounding error, but this is the first guidance midpoint miss since their 2021 IPO. Now, the CEO noted that model improvements were lighter than normal during the quarter and the next step up landed right after the quarter ended. So this is just a temporary little blip. And you see B of analysts arguing that engineerled tuning of gaming models now appears to be the main driver of quarterly growth. So perhaps calling into question the effectiveness of their move into e-commerce. Though growth is growth, right? Who cares? Well, if they want to keep this growth up, they're going to need to solve the e-commerce problem, right? Company talks about, you know, 30% growth going into 2030. Well, in order to do that, they're going to need to solve the e-commerce problem. Is the company's AIdriven advertising engine, is this really a compounding flywheel? Well, the market's going to be extremely sensitive towards any hint of a problem. And now we know why. So, what we can then do is take revenue estimates and plug in the last quarter of this year. And here's what that looks like. So, they're going to need to hit these numbers for the remainder of this year. Don't be a FOMO, right? There's no rush to buy into this stock. No matter how cheap it is, shares can always get cheaper. But Joe, how much cheaper could AppLoving get? I assumed some of you were asking that, so I just figured I'd voice that in the video for you. You're welcome. To answer that, we need to look at how cheap AppLovven is today. So to do that, we always look at a valuation ratio. Here at Nanalyze, we use our simple valuation ratio. That's market cap divided by annualized sales. It's very similar to a price to sales ratio. Using our simple valuation ratio, we see app 11 trades at 13.8 which is higher than the average of our tech stock catalog which is around 8.2. But keep in mind that this is a very rare combination of growth and profitability that we don't often see in the tech world. App is growing like a weed as Joe mentioned and has very strong gross and net profit margins. So obviously it's going to command a higher valuation. What we can then do is look at AppL's historical valuation and see how that compares to today's valuation to see if there's some sort of bargain. Looking at the price to sales ratio history for AppL, we can see that shares today are really just trading back at like mid2024 levels. So sure, AppL shares are down 30% in the past year, but that doesn't necessarily make them cheap. They could have been trading at elevated levels and have been overvalued previously and now they're finding a new norm. Since they are profitable, we can look at their PE ratio, which is below the NASDAQ 100 average. So, you would think a highly profitable, strong growth company would be trading higher than the average. So, perhaps there's your opportunity that you might be looking for. We can also see that if you use 2026 earnings or 2027 earnings estimates from analysts, Appleven is trading at a forward PE of 19 for 2026 and 15 for 2027. So that's well below the NASDAQ forward PE average of somewhere around 21 to 24. So when you look at AppL's own history, Appleven is trading at a discount from where it was a year ago, but relatively in line with 2024. When you look at the broader NASDAQ, Appleven looks a little bit cheaper. There's one thing though that you need to keep in mind and that is Tin Stafle, which means there's no such thing as a free lunch. And that brings us to the short reports. So these short reports concluded that a meaningful portion of apploven's rapid revenue acceleration and industry-leading profitability may rest on practices that platforms, regulators or advertisers could restrict. Basically, these are the risk talking points that the company has acknowledged, right? This is a risky venture. There's no contracts associated with their customers. Nothing's locked in here. It's all based on the usefulness of their platform. right now. Appan of course has publicly rejected in a public forum, you know, blog post from the CEO and such rejected these claims and continued to post strong results for extended periods after these short reports came out. And of course, the SEC inquiry has closed without any enforcement, which is great to see, right? That's a big red flag. You would have wanted that one cleared before you invested period. Now, in one of those notes from the CEO, he says something interesting. And he talks about how the mechanics of their pixel, this is a mechanism they're using on their platform, key mechanism. He says their bog standard apploven's pixel is just another player in a crowded, welltrodden field. Exactly. There are lots of external risks here that go beyond apploven's control. Moving away from gaming into e-commerce. Well, that sounds great on paper, but this is a crowded and welltrodded field. If you want exposure to adte, why not just buy shares of Google? they probably have the best chance at thwarting the attack of AI on ads, right? There's some real systemic issues associated with identification and the ad business model. And if you're going to invest in app loving, how are you going to know when things are slowing down? You absolutely need to have an objective plan as to when you would exit if cracks start to show in the model. Company doesn't give investors very much in the way of KPIs. This is a $100 billion company that can't produce any granularity around revenue metrics aside from earnings call comments, says the CEO recently. We talked about the $1 billion run rate a year ago. It's much bigger now. What's much bigger? He's talking about the e-commerce run rate, like a really important metric, right? Much bigger. How about defining that? How about producing just some basic investor decks that show investors key performance metrics so they can understand how this black box works. When a company is a black box like this, it creates the very volatility and suspicions that you see today. This can easily be fixed by a hundred billion dollar company that has the resources to do so. I wanted to note one other interesting source of information and that would be S&P Global and the research notes they produce around apploven's debt which is really a conversation on its own company with this strong of cash flows you're not really concerned around debt but some of their comments are rather interesting so if you're an investor you ought to pull these up and keep an eye on these debt upgrades or downgrades because S&P is keeping a very close eye on that and some of the bits in these research notes can be useful but for investors ask yourself this? Why are you interested here? Did you scan the entire universe of disruptive tech opportunities and this is the one you landed on? Or is it because all the instant analysts on social media won't shut the up about it and you decided you wanted to jump on the bandwagon, too? If you only found this company to be attractive once it was 50% off, maybe you're not investing for the right reasons. Speaking of which, we need to talk about finance influencers. That's the name of this next piece. Give it a watch. Thanks so much for taking the time to watch this video today.