Move around Nvidia And Palantir Technologies, AppLovin (APP 17.64%) became the most efficient artificial intelligence (AI) title in 2024 thanks to the surge in share price that followed the release of its third quarter results. Rising prices have the stock up about 628% year-to-date as of November 9.

AppLovin has a portfolio of gaming apps, but its core business is an adtech solution to help mobile app developers attract users and better monetize their apps. Since the launch of its AI-powered advertising technology Axon 2 in the second quarter of 2023, the company has seen explosive growth.

Let’s take a close look at the company’s third quarter results and if the stock is still a buy.

Axon 2 continues to drive growth

Axon 2 is driving almost all of AppLovin’s growth, with revenue from its software platform up 66% to $835 million. The company’s traditional applications business, meanwhile, saw revenue increase 1% to $369 million. Overall revenue climbed 39% to $1.2 billion, beating the consensus of $1.13 billion compiled by LSEG.

The company continues to enjoy considerable operating leverage in its business as sales increase, with gross margin for the quarter, improving to 77.5%, compared to 69.3% a year ago. The increase in revenue also occurred despite the company cutting its sales and marketing expenses by 3%. This combination is quite remarkable.

Earnings per share (EPS) increased from $0.30 a year ago to $1.25. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), meanwhile, climbed 72% to $722 million. Adjusted EBITDA for software platforms jumped 78% to $653 million, while the applications business increased adjusted EBITDA 19% to $68 million as the company optimized the company’s cost structure. business.

The company generated $551 million in operating cash flow and $545 million in free cash flow. The company ended the quarter with net debt of $2.9 billion.

AppLovin expects fourth-quarter revenue to be between $1.24 billion and $1.26 billion. This would equate to growth of between 30% and 32%, which would be higher than the company’s long-term goal of increasing revenue between 20% and 30%. It expects fourth-quarter adjusted EBITDA to be between $475 million and $495 million, up from $476 million a year ago.

Image source: Getty Images.

Is the stock still a buy?

AppLovin has proven to be one of the biggest winners in AI, as its Axon 2 AI adtech platform has driven increased revenue from its gaming clients. At the same time, the company has benefited from significant operating leverage in its business, allowing it to achieve considerable growth without increasing its sales and marketing expenses and improving its gross margin.

The company expects a steady 20-30% growth from its gaming customers, but it has also just started piloting the platform with e-commerce. He said early results were better than expected and he believed this vertical could scale next year and start to be a significant contributor. Moving beyond gaming presents a huge potential opportunity for the company.

With inventory up approximately 628% year-to-date, the forward price/earnings (P/E) the ratio increased to 47 based on analyst estimates for 2025. This is price/earnings/growth ratio (PEG) the ratio now stands at 1.28. A PEG ratio below 1 is considered undervalued and growth stocks will often have multiples well above 1.

Data by Y charts.

I’ve written in support of AppLovin several times this year, going as far back as Aprilwhile in June I listed it as one of two titles that I thought might disappear parabolic. Although the stock and its valuation have risen significantly since then, I believe there could still be further upside potential.

If AppLovin can continue to grow revenue at a rate of 30% while controlling expenses, its valuation is reasonable. In the meantime, if it manages to move beyond gaming with Axon 2, the sky remains the limit.

While I think it’s prudent for investors with significant gains to take profits, I would still hold the stock even after this incredible rise in its price.