U.S. equity markets will remain closed on Monday in observance of Presidents Day, with regular trading set to resume on Tuesday. This pause follows a session where shares of AppLovin Corporation posted a notable advance, reflecting a tentative recovery for certain segments of the software and advertising technology sector.
Friday's Market Performance
AppLovin concluded Friday's trading at $390.55, marking a solid gain of 6.4%. This uptick provided some relief after a period of volatility for software stocks, many of which have faced selling pressure amid concerns over competitive disruption from artificial intelligence technologies. The broader market also found firmer footing, contributing to the positive move.
Analyst Actions and Sentiment Shift
Over the weekend, Barron's highlighted a significant shift in coverage. CapitalWatch, a publication known for its critical stance on AppLovin, has withdrawn its previous allegations and will no longer cover the company. Concurrently, major financial institutions issued updated research notes. Morgan Stanley reaffirmed its Overweight rating on the stock, though it reduced its price target to $720. Similarly, Bank of America maintained its Buy rating but lowered its price objective to $705.
These adjustments come as investors assess the company's latest financial disclosures and its positioning within the evolving digital advertising landscape.
Fourth-Quarter and First-Quarter Outlook
AppLovin's recent earnings report remains a focal point. The company announced fourth-quarter revenue of $1.66 billion. More notably, its guidance for the current quarter projects sales between $1.75 billion and $1.78 billion, surpassing consensus analyst estimates. However, analysts from Jefferies, cited by Reuters, pointed to intensifying competition in the ad market, specifically noting the risk that Meta Platforms could increase its bidding for advertising traffic on Apple's iOS platform.
Cash Flow and Capital Allocation
The company demonstrated robust financial health, generating $1.31 billion in operating cash flow during the quarter. In terms of capital return, AppLovin repurchased and withheld 0.8 million shares at a cost of $481.7 million. For the full year, these activities totaled 6.4 million shares at a cost of $2.58 billion. Looking forward, management is targeting an adjusted EBITDA margin of approximately 84% for the first quarter. The company defines adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, and other specified non-cash expenses.
Management Commentary and Lingering Risks
On the post-earnings conference call, CEO Adam Foroughi noted that advertisers continue to report strong performance on the company's platform. CFO Matt Stumpf expressed confidence in the current margin structure. Jefferies analyst James Heaney maintained a Buy rating, characterizing recent stock weakness as an overreaction.
Despite the positive developments, significant risks persist. As reported by Reuters in October, the U.S. Securities and Exchange Commission is conducting an investigation into AppLovin's data-collection practices. Furthermore, the company remains a popular target for short-sellers, a combination that can precipitate sudden volatility in its share price.
Market Context for the Coming Week
When trading resumes on Tuesday, investors will be watching to see if Friday's momentum can be sustained and whether additional analyst commentary emerges following the holiday. Broader macroeconomic events may soon command attention. The Federal Reserve will release the minutes from its January policy meeting on Wednesday, February 18. Later in the week, on Friday, February 20, the Personal Consumption Expenditures (PCE) price index will be published, offering a crucial update on inflation trends that the Fed closely monitors.
