Morgan Stanley Argues That Shedding 1P Games Could Enhance AppLovin's (APP) Market Value
AppLovin Corporation (NASDAQ:APP) is one of the best stocks to buy. On June 9, Morgan Stanley reiterated an Overweight rating on APP and lifted the price target to $460 from $420, noting that the company would be "more valuable without its 1P games." The analysts were bullish on AppLovin's initiative to sell its Apps segment, suggesting the move would create shareholder value while keeping future earnings steady.
As reported in February, the company plans to shed its first-party mobile games division, called the Apps Segment, in the second quarter of 2025 to Tripledot Studios for $400 million in cash and $400 million in Tripledot stock.
Morgan Stanley is bullish on this divestiture, even though the Apps segment generated 32% of AppLovin's revenue and 10% of EBITDA in 2024. The analysts commented that the sale would allow the company to achieve "high-margin revenue that the 1P studios spend on APP's ad network, offsetting most of the lost earnings from 1P games."
A close-up of a mobile device, showing an advertiser reaching out to a consumer via a software-based platform.
The tactical shift will redistribute profits "from the low multiple games business to the high multiple ad business, increasing the total value of the company."
Morgan Stanley has revised its 2026 and 2027 EBITDA projections for AppLovin downward by 1%. However, the analysts are using a larger EBITDA multiple of 29x, up from the prior 26x. This update suggests a shift from the prior sum-of-the-parts valuation model, which placed a conservative 4x multiple on the Apps' EBITDA.
AppLovin Corporation (NASDAQ:APP) builds software tools that help advertisers and app developers grow and monetize their content across mobile and connected TV platforms.
While we acknowledge the potential of APP as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.
READ NEXT: The Best and Worst Dow Stocks for the Next 12 Months and 10 Unstoppable Stocks That Could Double Your Money.
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