Evercore ISI’s senior analyst Robert Coolbirth says AppLovin (NASDAQ: APP) has a “significant long-term growth runway” in both mobile gaming and e-commerce advertising.
Still, APP shares are crashing this morning – currently down about 10% versus their previous close.
Coolbirth initiated AppLovin stock at “outperform” with a price target of $835, indicating potential upside of nearly 40% from here on Wednesday.
But investors are bailing on the mobile technology company today for the following four reasons.
AppLovin stock is losing in sympathy with Unity Software
Part of the sell-off in APP shares this morning is related to its primary rival – Unity (NYSE: U) – that’s also down some 10% at the time of writing.
The weakness in “U” has amplified investor concerns across the broader ad-tech and gaming eco-system, fuelling fears of slowing demand, tighter budgets, and heightened competition.
These sector-wide concerns are dragging sentiment lower – with traders wary that any softness in Unity’s performance could signal broader challenges for AppLovin’s growth trajectory.
Regulatory concerns are weighing on APP shares
AppLovin shares are under immense pressure on January 14th, also because of persistent regulatory concerns.
Investors remain on edge following recent reports of an SEC investigation into the company’s data collection practices.
This probe centres on “device fingerprinting” – a practice Apple has banned – which could threaten APP’s ability to target ads effectively on the iOS.
Valuation risks continue to haunt AppLovin shares
Valuation is another major red flag that’s making investors bail on APP stock today, despite a fairly bullish research note from Evercore ISI analysts.
The Nasdaq-listed firm is trading at a forward price-to-earnings (P/E) multiple of about 44, which makes it more expensive than some of the best-of-breed AI stocks, even including Nvidia.
On a day with broader market volatility, high-growth tech stocks with premium valuations are often the first to see profit-taking.
APP stock is slipping due to insider selling
Finally, recent regulatory filings confirm that high-level insiders – including the company’s CEO and directors – have sold more than $200 million worth of AppLovin stock in recent months.
Insider selling often rattles investors because it signals executives believe the stock is fully valued or faces challenges in the near-term.
Even when sales are for personal liquidity reasons, the optics are negative – when those closest to the firm reduce exposure, outside shareholders worry about hidden risks.
Should you buy the dip in AppLovin today?
From a technical perspective, APP shares’ sell-off this morning doesn’t look like an opportunity to increase exposure.
The mobile gaming and ad-tech firm appears on track to close decisively below its longer-term moving average (100-day) today, indicating continued bearish momentum ahead.
And AppLovin doesn’t currently pay a dividend to incentivize ownership, despite the above stated risks either.
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