Why AppLovin Stock Is Skyrocketing Today

What happened 

Investors were eager to snatch up shares of AppLovin (APP 31.07%) after the company reported its fourth-quarter results. The company, which helps app developers monetize their apps with advertising, reported mixed results for the quarter, but investors reacted to the AppLovin’s better-than-expected revenue guidance of the first quarter. 

As a result, the stock was up by 31.3% as of 12:19 p.m. ET. 

So what

AppLovin’s fourth-quarter sales fell 11.5% to $702.3 million, but that was good enough to beat the consensus estimate of $689.9 million. AppLovin’s bottom line fared much worse, as the company reported a loss under generally accepted accounting principles (GAAP) of $0.21 in the quarter, down from earnings of $0.08 in the year-ago quarter and missing Wall Street’s average estimate of $0.05 per share. 

But investors mostly ignored the results from the quarter and instead focused their attention on AppLovin’s first-quarter sales guidance. Management said revenue will be in the range of $685 million to $705 million. That outlook is much better than analysts’ consensus estimate of $681.5 million.

Investors reacted strongly to revenue guidance because the digital advertising market has suffered lately as companies have pulled back spending among high inflation, job cuts, and on fears of a potential recession. 

AppLovin felt the pain of the ad spending cutbacks over the past year, and the company’s co-founder and CEO Adam Foroughi said on the earnings call, “As the economy became more difficult throughout the year, the dollars, and the density in the ad auction, which is monetized by many companies more than us, has decayed.” 

So when investors saw the company providing revenue guidance that was ahead of expectations, they viewed it as an indication that the ad market could be on the mend. 

Now what 

Despite today’s gains, the company’s share price is still down 76% over the past 12 months. 

Investors should keep a close eye on not just the next quarter, but the next few quarters to see if AppLovin’s sales stabilize throughout the year.

Foroughi said on the call, “we’ve seen a lot of stability in our business and continue to do so,” but investors shouldn’t take one quarter of revenue guidance as proof that the ad spending tide has turned just yet. 

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.