AppLovin Is Vulnerable To Hyper-Casual Headwinds, Further Hampered By Google's Ad Restrictions, Analyst Says

Author: Anusuya Lahiri | February 06, 2023 02:42pm

• Benchmark analyst Mark Zgutowicz reiterated Sell on AppLovin Corp (NASDAQ:APP) with a $7.00 price target.
• The consensus does not reflect ’23 hyper-casual secular headwinds, setting up for a challenging 1Q and CY23 guidance.
• Specifically, the analyst believes ’23E consensus revenue grossly overstates existing and net new SPEC organic growth potential, the latter of which is tapped out as both Apple Inc (NASDAQ:AAPL) and Alphabet Inc (NASDAQ:GOOG) (NASDAQ:GOOGL) Google ad restrictions have ended the life of low-end app developers, APP’s target market. 
• Further, while management’s desire to divest its Apps division is well understood and business model risks of not having 1P data differentiation are meaningfully underappreciated. 
• Tencent Holdings Ltd (OTC:TCEHY)-owned gaming studio, Voodoo recently announced its ambitions to divest from hyper-casual, and its head of publishing, Alex Shea, went as far as to suggest, “Hypercasual is dead.” 
• Voodoo Studio assets average ~300M MAUs and 6B downloads per month as hyper-casual fueled its historical success. 
• Its decision to reinvest away from hyper-casual and towards casual/mid-core/web3 is consistent with APP’s decision to divest its studio assets. 
• APP-owned properties have become less competitive on App Store and Google Play store rankings, and it was unable to launch a successful new title in ’22. 
• Google’s September ’22 ad placement restrictions have caused a material deceleration in App-segment revenue. 
• Android over-exposure is likely to impede growth further, the analyst noted.
• The analyst expects material resets in consensus estimates post-4Q results, more accurately reflecting these secular headwinds that do not lap until September ’23.
• Price Action: APP shares traded lower by 5.18% at $12.54 on the last check Monday.

Posted In: AAPL APP GOOG GOOGL TCEHY