Morgan Stanley upgrades AppLovin, sees 27% upside on strong ad growth potential

Investing.com -- Morgan Stanley upgraded AppLovin (NASDAQ:APP) Corp to “Overweight” from “Equal-weight,” citing strong execution, expanding market share in in-app advertising, and a favorable risk-reward setup.

The brokerage has a new price target of $350, implying 27% upside from current levels.

AppLovin has outperformed the in-app ad market since 2023, gaining share in gaming and rapidly scaling its non-gaming ad business, particularly in ecommerce.

Morgan Stanley (NYSE:MS) said its updated analysis shows ad growth targets are now more achievable, even in a weaker macro environment.

Despite a more conservative consumer outlook, we now see a clear path for APP to deliver solid ad revenue growth, driven by both gaming and non-gaming verticals, the analysts wrote.

The brokerage cut its 2025 and 2026 EBITDA estimates by 9% each and lowered its price target from $475 to $350.

However, Morgan Stanley believes the recent 46% decline in the stock presents a buying opportunity.

APP remains one of the most resilient names in our ad coverage, the note said, pointing to its innovation, pricing power, and exposure to direct-response advertising.

AppLovin’s non-gaming ad segment is now expected to contribute $750 million in revenue this year and become the primary driver of growth.

The company’s ad revenue is projected to grow at a 30% CAGR from 2024 to 2027.

While the bear case assumes a consumer-led recession and slower growth, Morgan Stanley sees a favorable ~2:1 risk-reward skew, with a bull case valuation of $575 per share.

Even with lower forecasts, we believe APP is well-positioned to outperform, supported by strong fundamentals and a valuation that still trades below peers on GAAP PE, as per analysts at Morgan Stanley.