AppLovin stock rocketed to a record high on Thursday after the mobile app marketing platform delivered a heady beat-and-raise report. The rally raised the question of whether the stock has reached a "climax top."
The Palo Alto, Calif.-based company late Wednesday said it earned $1.25 a share on sales of $1.2 billion in the third quarter. Analysts polled by FactSet had expected earnings of 92 cents a share on sales of $1.13 billion. On a year-over-year basis, AppLovin earnings rose 317% in the September quarter while sales increased 39%.
For the current quarter, the company forecast revenue of $1.25 billion, based on the midpoint of its outlook. Analysts had been looking for $1.18 billion in the fourth quarter. In the year-earlier quarter, AppLovin posted revenue of $953 million.
At least six Wall Street analysts raised their price targets on AppLovin stock on the news.
On the stock market today, AppLovin stock jumped 46.3% to close at 246.53. Earlier in the session, it notched an all-time high of 257.43.
AppLovin's software platform enables app developers to market, monetize and analyze their apps. The company also makes mobile games such as "Wordscapes," "Matchington Mansion" and "Game of War."
Last month, Wells Fargo analyst Alec Brondolo favorably compared AppLovin to Alphabet's Google. In a client note, he said AppLovin's dominance in mobile-game user acquisition was like Google's strength in programmatic ads.
AppLovin Stock Driver: E-Commerce Opportunity
Wedbush Securities analyst Michael Pachter maintained his outperform rating on AppLovin stock and upped his price target to 270 from 170.
"AppLovin continues to impress with outsized revenue growth and incredible EBITDA (earnings before interest, taxes, depreciation and amortization) conversion," Pachter said in a client note.
Further, AppLovin looks to add a new revenue stream from e-commerce.
"Management made clear that virtually all of its Software Platform business is derived from delivering mobile gaming ads to mobile gaming players," Pachter said. "The company has recently begun beta testing an e-commerce solution as part of its platform that allows national and local businesses to acquire customers who play mobile games by delivering ads on the Axon 2.0 platform."
With the e-commerce tool, local businesses can acquire customers who are playing mobile games near their location. For instance, a pizza parlor could offer a coupon for a pizza to a nearby gamer, Pachter said.
The e-commerce solution also could be used by national advertisers to drive brand awareness, he said.
APP Stock Analysis: Is This A Climax Top?
The gap higher in AppLovin stock raises concerns about whether it has reached a "climax top."
While it is a "climax action," the jump is not technically a climax top, based on IBD trading guidelines.
The surge in share price is 12 weeks out from its breakout from a first-stage base, according to IBD MarketSurge charts. It would need to be 18 weeks or more out from a breakout to qualify as a climax top.
While AppLovin stock is too extended to buy at these levels, investors who got in early should give it a chance to run higher. If the stock pulls back, a 50% retracement from its intraday high today to its closing price Wednesday would be a level to gauge its health. Such a 50% pullback would be to at 213.
AppLovin stock is the leading stock in the current market rally. It led the charge higher when stocks broadly advanced on Sept. 11.
AppLovin stock is on the IBD Tech Leaders list.
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