AppLovin: Black Box Ad Optimizer Aiming for Prime Time; FVE of $284, Narrow Moat

We launch coverage of AppLovin with a narrow moat rating based on intangible assets and a fair value estimate of $284, leaving the shares slightly undervalued in our view. AppLovin’s shares have been on a rollercoaster, increasing 800% in 2024 and falling sharply since mid-February when two short-seller reports were released. We believe that these reports misunderstand AppLovin’s performance-based revenue model, but we acknowledge that the firm’s long-term potential is highly uncertain. We view the current share price as appropriate for a firm that has shown clear promise but would look for a larger margin of safety before investing.