Outstanding performance but stock price crashes! AppLovin(APP.US) plunges 20% due to AI and competitor concerns, analysts shout: The moat is still there

Despite reporting better-than-expected quarterly earnings and guidance, AppLovin (APP.US) still fell 19.68% on Thursday. Market concerns about crowded AI race and Meta (META.US), Google (GOOGL.US), and CloudX increasing their in-game advertising efforts may weaken its competitive edge. However, most analysts remain optimistic, believing that growth drivers like e-commerce self-service platforms have yet to be fully unleashed.

Morgan Stanley analyst Matthew Coster and his team noted in their research report: “Regarding Meta, the company emphasizes that its Audience Network has always been a long-term bidding partner on the supply side of AppLovin’s advertising, and the incremental bidding for IDFA traffic is not a new variable.

More importantly, AppLovin believes the current competitive landscape is completely different from five years ago (when Meta dominated)—its improved ad effectiveness and closed-loop data advantages have built a moat.”

Morgan Stanley maintained an “Overweight” rating, lowering its target price from $800 to $720.

“We are currently focused on the ramp-up of e-commerce business in the first half of 2026 and the full rollout of web self-service tools. With AppLovin’s current valuation at 17 times 2027 EBITDA, breakthroughs in e-commerce/web advertising could become key catalysts for valuation increases and profit upgrades in 2026 and beyond,” Coster added.

Jefferies also maintained a “Buy” rating, lowering its target price from $860 to $700. The firm pointed out that the continued sell-off of gaming stocks is mainly due to “AI risk being priced indiscriminately.”

Analyst James Shiny’s team stated: “The self-serve universal advertising tool is still scheduled for launch in the first half of this year, but the app is taking a cautious approach to scaling e-commerce rather than rushing to launch. The new advertisers’ 30-day LTV/CAC returns are solid, but the qualified lead conversion rate is only 57%, indicating significant room for optimization.

The current bottleneck is insufficient video creative capacity, which limits advertisers’ volume. AppLovin plans to launch GenAI creative tools in the coming months, and management believes this could boost conversion rates to 70%-80%, making the timing for full deployment of universal advertising tools more mature.”

AppLovin CEO and co-founder Adam Foroughi addressed competition directly at the earnings call.

“As you’ve seen over the past few years, new competitors have repeatedly entered the MAX bidding system. Unity (U.US) has grown through Vector, Liftoff launched Cortex and quickly scaled, Moloco continues to expand, and last year we also introduced it into bidding. Google has shifted to a bidding model. Every market has confusion—under the dynamic bidding system, competition should erode AppLovin’s barriers. But you’ve never seen this happen in reality.”

“There are two reasons: first, we are large and highly professional; second, each impression has vastly different value. Our model has an outstanding advantage in assessing the true value of impressions,” he added.

Competitor Unity continued its decline, falling 26% on Wednesday and another 8.2% on Thursday.