AppLovin (APP) shares surged nearly 30% in extended trading on Wednesday following the company’s positive fourth quarter earnings report, which exceeded Wall Street expectations. The artificial intelligence (AI)-powered advertising platform also provided an optimistic outlook for the current quarter.
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The company projected first-quarter revenue between $1.36 billion and $1.39 billion, surpassing the $1.32 billion analysts had anticipated. Executives indicated that approximately $1 billion of this revenue would originate from AppLovin’s advertising segment, noting that the company remains in the early stages of enhancing its AI capabilities.
As of Wednesday’s market close, AppLovin shares have risen 17% since the beginning of the year and have experienced a remarkable increase of over 700% over the past 12 months, driven by heightened demand for its AI-powered advertising services.
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Pennant pattern breakout and technical analysis
Since reaching an all-time high (ATH) in early December, AppLovin shares have consolidated within a pennant pattern, suggesting a continuation of the stock’s upward trajectory. The price is poised to open higher on Thursday, indicating a potential further increase.
The relative strength index (RSI) confirms bullish momentum with a reading above 70. However, moving into overbought territory may lead to potential profit-taking dips.
To forecast an upside price target, investors can apply the measured move technique to AppLovin’s chart. The calculation involves adding the distance of the preceding uptrend to the pennant’s upper trendline. In this case, the projected upside price target is $754, an area where investors might consider locking in profits.
Major support levels to monitor
Should the stock undergo pullbacks, an initial dip may occur around the $290 mark, a level likely to provide support near the pennant pattern’s low. If selling continues below this level, shares could decline to approximately $168, where buying interest might emerge near the 50-period moving average and a previous consolidation range prior to last November’s election-driven surge.
A more considerable correction could see the stock fall to lower support around $116. Investors using buy-and-hold strategies may look for entry points in this region, particularly near the notable November 2021 swing high.
According to LSEG data, AppLovin reported earnings per share of $1.73, exceeding the expected $1.24. Revenue reached $1.37 billion, above the anticipated $1.26 billion. Net income for the quarter soared to $599.2 million, up from $172.3 million, and revenue increased by 43% from $953.3 million a year earlier.
AppLovin was recognized as the best-performing U.S. tech stock last year, attributed to its AI-driven advertising system. This year, the company launched AXON 2.0, an upgraded ad search engine that enhances targeted ads across its gaming apps and for studios licensing the technology.
Traditionally, AppLovin’s business comprised both advertising and app segments. However, with growth in the advertising sector, the company announced plans to sell its apps division, as stated by CEO Adam Foroughi during the earnings call. The agreement for the sale is anticipated to yield a total estimated consideration of $900 million, including $500 million in cash and the remainder as a minority equity stake in the new private company.
Advertising revenue rose 73% in the last quarter, nearing $1 billion. The ad business was reclassified from Software Platform to reflect that advertising now generates “substantially all” revenue in that segment.
AppLovin expects first-quarter revenue to fall between $1.36 billion and $1.39 billion, surpassing the $1.32 billion average analyst estimate, according to LSEG. The company stated that it continues to enhance its AI models, which it believes will drive further value creation for its shareholders.
Disclaimer: The content of this article is for informational purposes only and should not be construed as investment advice. We do not endorse any specific investment strategies or make recommendations regarding the purchase or sale of any securities.
Featured image credit: AppLovin
