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AppLovin Corp. and Unity Software Inc. shares rallied Thursday after both app-monetization companies turned in better-than-expected results and forecasts late Wednesday, but analysts were cautious about how fast the mobile ad market was recovering.
AppLovin
APP,
shares soared as much as 29% to an intraday high of $23 to more than double their price year to date, and finished up 23.5% at $22. Unity
U,
shares rallied as much as 14% to an intraday high of $32.78, finished up 13% at $32.46, and are up 13.5% year to date. In comparison, the S&P 500 index
SPX,
is up more than 7%, and the tech-heavy Nasdaq Composite Index
COMP,
is up 17.5% this year.
Jefferies analyst Andrew Uerkwitz said both Unity and AppLovin moved past a bottom, clearing the low bars set for them, but said he was remaining cautious until he saw more evidence of a recovery. Uerkwitz has a hold rating and a $20 price target on AppLovin, and an underperform rating on Unity and a price target of $24.
Read: EA’s stock catches downgrade as blocked Microsoft deal eliminates ‘takeout premium’
“Better than feared, troughing and efficiencies were the key takes for the mobile ad market,” Uerkwitz said. “We agree the mobile market isn’t getting worse — but we currently struggle to see evidence of a return to double-digit top-line growth.
“Commentary from both Unity and Applovin indicate the mobile gaming market may be troughing and if so, may grow single digits again in the future,” Uerkwitz said, noting “little evidence of a return to meaningful growth.”
Read: EA stock rallies on record bookings, strong outlook
“Is this Step 1 of the App Economy’s Recovery?” Morgan Stanley analyst Matthew Cost asked in a Thursday note. Cost has equal weight ratings on both stocks, along with a $28 price target on Unity and a $17.50 target on AppLovin.
“Beginning in late ’22, we have seen a marked reacceleration in the growth of consumer spending on mobile game in-app purchases,” Cost said, noting that Activision Blizzard Inc.’s
ATVI,
King mobile division, Playtika Holding Corp.
PLTK,
SciPlay Corp.
SCPL,
and Playstudios Inc.
MYPS,
all reported reaccelerating in-app purchases in the first quarter.
“That said, we have remained cautious on the speed with which this early-stage [in-app purchase] recovery might carry over the in-app advertising market,” Cost said. “We believe that results so far this earnings cycle have validated that caution.”
The sector will eventually recover, Cost said, but he doesn’t expect “significant” growth until the first half of 2024.
Back in February: Unity Software stock drops as mobile-ad recovery not expected in 2023
Of the 23 analysts who cover AppLovin, 12 have buy ratings, 10 have hold ratings, and one has a sell rating, along with an average target price of $23.09, up from a previous $20.12, according to FactSet data.
Of the 24 who cover Unity, 11 have buy ratings, 10 have hold ratings and three have sell ratings, along with an average price target of $36.89.
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