Down 30% From Highs, Is Applovin (APP) the Best Growth Stock to Buy Now?
Key Takeaways
-
Gainseekers Score:
5
- Explosive Growth: Delivering staggering top and bottom-line growth, with revenue up 40% and net income surging 144% year-over-year.
- AI-Powered Moat: Its core advantage lies in its AI advertising engine, Axon 2.0, creating a powerful network effect.
- Compelling Entry Point: Trading about 30% below its 52-week high, offering a potential opportunity.
- Strategic Focus: Selling its apps business to double down on its profitable advertising software platform.
Introduction: The Investment Thesis
In the hunt for the next great growth stock, investors are often faced with a dilemma: pay a premium for a fast-growing company or wait for a pullback that may never come. Applovin (NASDAQ: APP), a dominant force in the mobile advertising technology space, presents a fascinating case. After a spectacular run, the stock has recently pulled back 30% from its 52-week high, creating a potential opening for long-term investors.
Many still think of Applovin as a mobile game publisher, but that view is outdated. The company has transformed into a high-margin software powerhouse, driven by a sophisticated AI engine that helps businesses acquire and monetize users. This is the real engine of the Applovin growth story.
While the stock is by no means "cheap" by traditional metrics, its incredible growth, strengthening profitability, and the recent price correction make it a compelling candidate for one of the best stocks to buy now. For growth-focused investors, the current valuation may be a small price to pay for exposure to a leader in the secular growth trend of digital advertising.
The Business: What Makes Applovin Tick?
To understand the investment case, you must first understand Applovin's powerful business model. It's not just another free stock trading app; it's the technology infrastructure that powers the growth of thousands of other apps.
- How It Makes Money: Applovin's revenue is primarily generated from its Software Platform. This platform, powered by its AI engine Axon, provides a suite of tools for mobile app developers and other businesses to automate and optimize their marketing and monetization. Essentially, companies pay Applovin to help them find their most valuable customers and maximize their ad revenue. Recently, Applovin made the strategic decision to sell its portfolio of mobile games to focus entirely on this higher-margin, more scalable software business.
- Competitive Advantage (The "Moat"): Applovin's moat is built on data and artificial intelligence. Its Axon 2.0 platform processes vast amounts of data to predict which users are most likely to engage with an ad or make a purchase. The more clients use the platform, the more data it collects, making the AI smarter and more effective for everyone. This creates a powerful network effect that is difficult for smaller competitors to replicate.
The Financials: A Look at the Numbers
The numbers behind Applovin's story are nothing short of spectacular. The company is demonstrating the powerful operating leverage in its software model.
- Revenue & Earnings Growth: In the first quarter of 2025, Applovin reported total revenue of $1.48 billion (a 40% YoY increase) and net income of $576 million (a stunning 144% YoY increase). This demonstrates not just rapid growth, but accelerating profitability.
- Profitability: The company's focus on its software platform is leading to incredible margins. Adjusted EBITDA in Q1 2025 was over $1 billion, representing a margin of 68%.
- Balance Sheet Health: Applovin maintains a healthy liquidity position. With a current ratio well above 1.5, the company has more than enough short-term assets to cover its short-term liabilities.
Valuation: Is the Price Right?
This is the key question for any growth stock. After its massive run, is Applovin stock still a buy? Applovin trades at a premium to the broader market, but such high-growth companies rarely look cheap. When compared to peers in the ad-tech space like The Trade Desk (TTD), its valuation appears more reasonable, especially when factoring in its superior growth. The 30% pullback has taken some of the froth out of the stock, presenting a fair entry point for investors who believe in the long-term story.
Risks & Headwinds: What Could Go Wrong?
- Competition & Platform Risk: The ad-tech space is intensely competitive, with giants like Google and Meta. Applovin's business is also highly dependent on the policies of Apple's and Google's app stores.
- Valuation Risk: The stock is priced for strong execution. Any slowdown in growth or a broader market downturn could cause significant volatility.
- No Dividend: As a high-growth company, Applovin reinvests all its capital back into the business.
The Final Verdict: Guidance & Advice for Investors
Bringing it all together, Applovin represents a premier growth stock for the modern digital economy. The bull case is clear: a dominant AI-powered platform, explosive and highly profitable growth, and a business model with a strong competitive moat.
Our Recommendation: For investors with a long-term horizon (3-5+ years) who can tolerate volatility, Applovin stock is a compelling buy at its current price. The recent pullback offers a chance to own a piece of a market leader in the high-growth digital advertising industry. It is, in our analysis, one of the best stocks to buy now for a growth-oriented, diversified portfolio.
Disclosure: As of the date of writing, the author of this article has a long position in Applovin (APP) initiated on 3/30/25, which has returned approximately 51%. This article represents the opinion of the author and is for informational purposes only. It should not be considered investment advice. Please visit the official Applovin investor relations site and conduct your own research before making any investment decisions.