Shareholders of AppLovin would probably like to forget the past six months even happened. The stock has dropped 44.7% and now trades at a new 52-week low of $257.12. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Following the drawdown, is now the time to buy APP? Find out in our full research report, it’s free.
Why Is AppLovin a Good Business?
Sitting at the crossroads of the mobile advertising ecosystem with over 200 free-to-play games in its portfolio, AppLovin (NASDAQ:APP) provides software solutions that help mobile app developers market, monetize, and grow their apps through AI-powered advertising and analytics tools.
1. Long-Term Revenue Growth Shows Strong Momentum
Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, AppLovin’s sales grew at a solid 25.8% compounded annual growth rate over the last five years. Its growth surpassed the average software company and shows its offerings resonate with customers.
2. Customer Acquisition Costs Are Recovered in Record Time
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
AppLovin is extremely efficient at acquiring new customers, and its CAC payback period checked in at 1.3 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give AppLovin more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
AppLovin has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 66.3% over the last year.
Final Judgment
These are just a few reasons why we think AppLovin is an elite software company. After the recent drawdown, the stock trades at 10× forward price-to-sales (or $257.12 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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