An incredible growth opportunity is materializing before your very eyes — or at your fingertips.
What’s your ultimate investing goal? For most people, it’s complete financial independence. Although it’s not a massive amount of money anymore, a million bucks is still something of a mental milestone that says you’ve reached an important goal. The key to getting there, of course, is just buying and holding the right stocks.
With that as the backdrop, millionaire-minded investors might want to put an up-and-coming company called AppLovin (APP -1.29%) on their radars, if not in their portfolios. It’s got the potential to turn a modest amount of money now into a sizable sum in the future.
What’s AppLovin?
There’s a good chance you’ve never heard of it. There’s an even better chance, you’ve already seen its work firsthand. AppLovin helps companies advertise their products or services on mobile devices (including within apps) as well as through ad-supported streaming television. Companies ranging from Experian to DealDash to SmartNews have all benefited greatly by tapping AppLovin for assistance navigating this tricky market.
But first things first.
Advertising isn’t what it used to be. There was once a time when companies simply took a leap of faith on the purchase of TV commercial time, a billboard, and maybe some print-based promotion targeting what was more or less the right audience. The approach basically worked well enough. Smaller companies that didn’t have a ton of money to work with were forced to be more creative but were often left struggling to connect with consumers due to the lack of an advertising budget.
Not anymore. As it has so many other industries, the advent of the internet has disrupted the advertising business. Smaller players now enjoy more flexibility in terms of how much ad inventory they can buy. And ads are highly targeted thanks to the digital footprints all of us leave behind when we go online. This is why spending on digital video advertising in the U.S. (the biggest connected-TV market) surpassed cable/linear TV advertising spending last year, according to Interactive Advertising Bureau, while mobile advertising itself has been bigger than the traditional web advertising market for some time now.
The flipside? This newfound flexibility and tighter targeting has also drawn out a huge number of players all vying for consumers’ attention. Advertisers need a technical edge in this digital age — and that’s what AppLovin provides.
How it works
There’s more than one service on AppLovin’s menu. It offers several ways of helping a company grow by cost-effectively expanding its advertising’s reach. Take its flagship AppDiscovery service as an example. Just as the name suggests, this solution drives installations of a company’s app by leveraging the power of artificial intelligence to determine which consumers are likely to download an app and not wasting resources on anyone less likely to do so. The end result is a stronger return on dollars invested in advertising.
Then there’s AppLovin’s MAX aimed at companies that have already developed an app they would like to monetize — or better monetize — by injecting the occasional well-targeted ad into its users’ experience. MAX essentially allows app owners to sell their own ad inventory to the highest bidder, in real time.
SparkLabs serves advertisers again, allowing them to construct animated or even video advertisements with the strongest install-per-impressions rate.
While mobile apps are hardly new at this point, the need for such logistical improvements translates into an enormous growth opportunity. Technology market research outfit Technavio predicts the mobile advertising industry is set to grow at an annualized pace of more than 14% through 2028. Separately but simultaneously, Omdia believes the connected-television ad market alone is likely to double in size between now and 2029.
More risk than reward, but there’s still much risk
This tailwind doesn’t necessarily make AppLovin the easiest name to step into right now. Anyone keeping tabs on this ticker of late likely knows it has soared more than 300% just since September when investors first began connecting the dots between what the digital advertising market needs and what this company offers.
This big move has shares valued richly at more than 60 times last year’s projected per-share earnings and roughly 50 times this year’s expected bottom line. The stock’s also within sight of analysts’ consensus price target of nearly $383. That’s a tough valuation to get behind.
Just take a step back and look at the bigger picture. The stock may be expensive, but this profitable company is growing like crazy, already outpacing the aforementioned outlooks from Omdia and Technavio.
Data source: StockAnalysis.com. Chart by author.
The market has certainly supported crazier valuations before, with stories that were less compelling than this one. Just don’t lose perspective. While AppLovin is one of the names that could lead your portfolio’s charge to the seven-figure mark, this higher potential is also paired with higher risk, not to mention higher volatility that’s sure to linger for a while longer. It fits the bill for the aggressive growth portion of your portfolio, but it’s far from being a foundational holding that can go for years on end without regular monitoring.
James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AppLovin. The Motley Fool has a disclosure policy.
