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Why Investors Were Loving AppLovin on Tuesday

By Eric Volkman – Aug 17, 2021 at 5:47PM

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A noted investment bank got cautiously more optimistic on the stock.

What happened

Mobile game developer AppLovin (APP -0.07%) won plenty of affection from the market on Tuesday. The company's shares rose by just under 12% on the day, thanks to a fresh recommendation upgrade from an analyst.

So what

Tuesday morning, Morgan Stanley prognosticator Brian Nowak tagged AppLovin shares with an equalweight (read: neutral) rating. That's a notch up from his previous rating of underweight (sell), although he cut his price target to $60 per share from $68.

Young man triumphantly looking at a smartphone.

Image source: Getty Images.

Pointing out that the enterprise value-to-sales multiple on the tech stock has lowered by more than 30%, Nowak added that AppLovin's recently reported quarterly figures "showcased a significant acceleration in the ad network's growth rate, which we believe could be sustained from here as small ad networks continue to benefit from the recent IDFA privacy changes." 

He's referring to Apple's (AAPL -0.34%) Identifier for Advertisers, or IDFA. This is an electronic identifier Apple provides that allows advertisers to track a user's activity on his or her iDevice. Earlier this year, hewing to mounting privacy concerns, Apple made IDFA an opt-in for those users, rather than an opt-out.

Now what

It's important to note that Nowak's changes don't make him an instant AppLovin bull; he still has reservations about the company. Referring to the second of AppLovin's two main business activities, he wrote that its "game portfolio also underperformed in 2Q and we remain cautious on the organic growth runway from here, particularly given the potential negative impact of IDFA and reopening on that portion of the business."

Eric Volkman owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

Stocks Mentioned

AppLovin Corporation Stock Quote
AppLovin Corporation
APP
$14.28 (-0.07%) $0.01
Apple Stock Quote
Apple
AAPL
$147.81 (-0.34%) $0.50
Morgan Stanley Stock Quote
Morgan Stanley
MS
$92.10 (-0.97%) $0.90

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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