AppLovin is set to join the S&P 500 before the U.S. stock market opens on September 22, highlighting the company’s significant rise in the advertising sector. Since the beginning of 2023, AppLovin’s stock has skyrocketed by an astonishing 4,560%, far surpassing the 2,280% increase posted by Palantir during the same timeframe. Expectations are high for shareholders, with analysts projecting a 12-month target price of $514 per share, which indicates a potential upside of 5% from its current price of $490.
Inclusion in the S&P 500 is historically associated with stock price increases. The S&P 500 is a critical index that tracks the performance of 500 large-cap U.S. companies, capturing roughly 80% of the domestic equity market. For a company to qualify for the index, it must have a market capitalization of at least $22.7 billion and report a profit in the last quarter according to generally accepted accounting principles (GAAP). The stock must also be liquid, with at least 50% of shares available for public trading. Notably, even after meeting these stringent criteria, inclusion ultimately rests with the index’s selection committee.
Over the past decade, 176 companies have been added to the S&P 500, with 159 maintaining their membership for at least one year. Those stocks recorded an average return of 13.9% in the year following their inclusion. This trend is attributed to two primary factors: index funds that track the S&P 500 must purchase newly added stocks, and investor sentiment typically improves once a company is recognized on this prestigious index. Historical data suggest that AppLovin’s stock could rise by around 14% in the year following its S&P 500 debut.
AppLovin is an advertising technology company that has experienced rapid growth. Initially focused on helping video game developers market their products through mobile advertising, the company is currently expanding its reach by developing new advertising solutions for e-commerce brands. This shift will broaden its market potential beyond gaming.
At the core of AppLovin’s competitive edge is Axon, its proprietary AI-powered recommendation engine, which uses predictive algorithms to optimize the match between advertiser demand and publisher supply. Morgan Stanley analysts have lauded Axon as a “best-in-class machine learning ad engine.” The company’s recent financial performance underscores its upward trajectory, with a 77% revenue increase to $1.2 billion in the latest quarter and a GAAP net income surge of 168%, amounting to $2.39 per diluted share.
Looking ahead, AppLovin intends to launch a self-service advertising platform on a referral basis in October, followed by a global rollout next year. This new solution aims to attract more e-commerce brands, complementing its traditional managed advertising services. CEO Adam Foroughi emphasized that this self-service platform will form a crucial part of the company’s growth strategy over the next decade.
Wall Street is optimistic about AppLovin’s future, forecasting an annual earnings growth rate of 54% through 2026. This optimistic outlook supports the company’s valuation, currently pegged at 70 times earnings, especially as AppLovin has consistently surpassed consensus earnings estimates by an average of 23% over the past six quarters.
Despite the fierce competition from larger players in the digital advertising space—such as Alphabet’s Google, Meta Platforms, and Amazon—AppLovin’s robust growth trajectory, fueled by its innovative Axon engine and expanding e-commerce capabilities, positions it well for future success. Investors willing to navigate the inherent volatility in the market may want to consider taking a position in the company.
