Your portfolios in brief
Founded by Adam Foroughi, AppLovin is a global company that offers both a marketing platform for mobile app developers and develops its own mobile games. The company reported better-than-expected quarterly results this week.
- Highlights in 2023
Annual guidance: AppLovin surprised positively with its results for the fourth quarter of fiscal 2023, posting sales of $953.3 million, up 35.7% year-on-year, and GAAP earnings per share of $0.49, improving on its earnings of $0.25 per share in the same quarter last year.
Product performance: AppLovin's software platform accounted for 60% of sales, while its mobile games contributed the remaining 40%.
Adjusted earnings forecast: For the first quarter of 2024, AppLovin forecasts sales of $965 million at the mid-point of the range, exceeding analysts' estimates.
Why is this a stock to watch?
AppLovin is demonstrating impressive growth in an expanding digital advertising market. Its ability to generate significant free cash flow, an improving gross margin, and its strong competitive position in the mobile software and games sector make it an attractive company for investors.
The company recently highlighted the key factors behind its success in its letter to shareholders, highlighting the strength of the holiday season, overall growth in the mobile app advertising market, and improvements in bidding. These elements are helping to improve advertising efficiency in the market, which AppLovin expects to lead to continued and significant growth for its partners.
For the first quarter, the company anticipates total revenues of between $955 and $975 million, as well as adjusted EBITDA of between $475 and $495 million, surpassing FactSet's expectations of $912 million and $440 million respectively. In addition, AppLovin announced a $1.25 billion increase in its share buyback program, affirming its commitment to generating long-term shareholder value through efficient share management and free cash flow generation.
Conclusion
At Pratte Portfolio Management, our confidence in AppLovin's potential is reinforced by its recent performance and ability to outperform expectations. Mixed estimate revisions and the company's strong position in the technology services sector suggest that owning this stock in our portfolio remains an informed decision. We remain attentive to the company's prospects and its potential impact on our investment strategy.
Market Brief
Monday
Dow: The index rose by 0.33% to close at 38,797.38 points.
NASDAQ: The index fell by 0.30% to close at 15,942.55 points.
S&P 500: The broad index lost 0.09% to close at 5,021.84 points.
The stock market session was characterized by an atmosphere of anticipation as investors prepared to welcome new inflation and corporate earnings data. Despite a mixed performance from equities, with minor downward adjustments for some and gains for others, the market continued to show signs of strength and resilience.
The S&P 500's recent close above the historic 5,000-point threshold, and the market's continued advance since the start of the year, reflect the prevailing optimism despite economic challenges. This period of strong market performance, marked by a prolonged absence of significant pullbacks, is prompting discussion about the sustainability of the current trend and the possibility of a correction on the horizon.
Despite the market's strong and steady rise over the past three months, analysts remain wary of the possibility of a pullback. The S&P 500 has not experienced a 2% decline in over 70 trading days, a remarkable streak that could suggest a correction is on the way.
- Stockss in brief
Salesforce (-1.4%): Salesforce weighed on the Dow with a 1.4% decline, reflecting market adjustments in the cloud-based software sector.
Hershey (-1%): Hershey declined slightly following a downgrade by Morgan Stanley, due to weaker-than-expected demand.
Diamondback Energy (+9.4%): Diamondback Energy shares climbed 9.4% after the announcement of the acquisition of Endeavor Energy Partners, underlining the positive momentum in the energy sector.
Nvidia (+0.16%): Continuing to benefit from enthusiasm for artificial intelligence, Nvidia saw its value rise significantly, even briefly overtaking Amazon in market capitalization.
Arm Holdings (+29.30%): Arm Holdings enjoyed a spectacular rise, doubling its market capitalization in one week thanks to its advantageous positioning in the artificial intelligence sector and a low volume of shares available for trading.
Coinbase (+3.75%): Bitcoin's advance beyond the $50,000 mark boosted cryptocurrency-related stocks, including Coinbase, which recorded a notable rise.
VF Corp (+12.94%): VF Corp saw its share price soar following the support of a member of the founding family for the activist fund Engaged Capital, which is calling for a review of the company's strategy and management.
Tuesday
The session was marked by a significant fall in the main stock market indices, reacting negatively to a higher-than-expected US inflation report. This inflation dampened hopes of imminent rate cuts by the US Federal Reserve, leading to an adverse market reaction and a rise in bond yields.
Dow Jones: The index lost 524.63 points, or 1.35%, to close at 38,272.75 points. At its lowest, the index fell by 757.52 points, or 1.95%.
NASDAQ: The index fell 1.80% to close at 15,655.60 points.
S&P 500: The broad index fell 1.37% to close at 4,953.17 points.
Bond yields reacted strongly to this announcement, with the two-year yield rising above 4.66% and the ten-year yield reaching 4.32% following the release of the CPI data. Technology stocks, notably Microsoft and Amazon, which led the market's run to record highs as rates fell, were among the session's biggest losers, each losing over 2%.
- Stockss in brief
Coca-Cola (-0.59%): Despite stronger-than-expected growth in the fourth quarter of 2023, Coca-Cola shares were shunned by investors.
Shopify (-13.40%): Shopify shares plunged following disappointing projections despite better-than-expected quarterly results.
Airbnb (+8% after close): After falling 1.94% in trading, Airbnb saw its shares soar 8% in electronic trading, thanks to better-than-expected sales for 2023 and optimistic growth forecasts for 2024.
Lyft (+28% after close): Lyft rose spectacularly after announcing better-than-expected results and plans to reach operating breakeven by 2024.
JetBlue Airways (+22%): JetBlue shares surged after activist investor Carl Icahn revealed that he owned nearly 10% of the airline.
Hasbro (-1.4%): Hasbro lost 1.4% after missing analysts' expectations for the fourth quarter.
Avis Budget Group (-23%): Avis Budget Group shares slipped by around 23%, adding to the session's list of significant losers.
- January inflation in the United States
Inflation exceeded expectations in January, mainly due to persistently high housing prices, which continue to weigh on consumers. According to the Labor Department's report, the Consumer Price Index (CPI), which measures price trends for a wide range of goods and services, rose by 0.3% over the month. On an annual basis, this represents a rise of 3.1%, down from the 3.4% recorded in December, but above economists' forecasts of a monthly increase of 0.2% and an annual gain of 2.9%.
Core inflation, excluding volatile food and energy prices, accelerated to 0.4% in January, posting a year-on-year rise of 3.9%, stable on December but ahead of expectations. Housing prices, accounting for around a third of CPI's weight, were the main driver of this increase, rising by 0.6% over the month. Food prices also rose, while energy prices slightly offset the increase, down 0.9% thanks to a 3.3% drop in gasoline prices.
Despite this price increase, inflation-adjusted wage earnings rose by 0.3% over the month, although real weekly earnings fell by 0.3% when the reduction in average weekly working hours is taken into account.
Wednesday
Dow Jones: The index rose 0.40% to close at 38,424.27 points.
NASDAQ: The index gained 1.30% to close at 15,859.15 points.
S&P 500: The broad index gained 0.96% to close at 5,000.62 points.
The stock market session ended on an optimistic note, with the main indices posting notable gains. Investors seemed to adopt a new perspective after a night of reflection, returning with renewed optimism. They interpreted the continuing downward trend in prices as a sign that the economy remains robust and that rate cuts could still be on the cards this year, albeit perhaps less frequently than hoped.
Technology stocks, in particular, enjoyed a significant resurgence, as investors massively reinvested in the sector that has dominated the New York stock market for over a year. Nvidia, the graphics card giant, was particularly prominent, surpassing Amazon and Alphabet in market capitalization during the session. The Santa Clara, California-based company became the third-largest capitalization on Wall Street and the fourth-largest worldwide, with a valuation of $1,825 billion. This remarkable performance places Nvidia ahead of Amazon in terms of market weight, despite its annual sales forecasts being well below those of the Seattle ogre.
- Stockss in brief
Nvidia (+2.5%): Nvidia continues to capture the market's attention, becoming Wall Street's third largest market capitalization. This performance underlines the growing importance of the technology sector in the global economy.
Lyft (+35.12%): The platform surprised positively with better-than-expected results, propelling its shares to record levels. This performance is a strong signal of recovery and optimism in the service sector.
Uber (+14.73%): Following in Lyft's footsteps, Uber also saw its shares rise following the announcement of a share buyback program. This marks a significant moment for the company, reflecting an ambitious growth and valuation strategy.
Kraft Heinz (-5.45%): Conversely, Kraft Heinz suffered a setback after reporting lower-than-expected sales. This highlights the challenges faced by some consumer companies in the face of inflationary pressure.
Thursday
Thursday's trading session ended on a positive note, despite mixed macroeconomic data. The major indices all finished higher, recovering the losses incurred at the start of the week. The S&P 500 even set a new record, marking the index''s 11th record of the year.
Dow Jones: The index rose by 0.91%, or 348.85 points, to close at 38,773.12,773.12 points.
NASDAQ: The index gained 0.30% to close at 15,906.17,906.17 points.
S&P 500: The broad index gained 0.58% to close at 5,029.73,029.73 points.
This performance is all the more remarkable in that it comes after a mixed opening, influenced by disappointing US retail sales for the month of January. U.S. household purchases fell by 0.8%, mainly due to lower purchases of automobiles and building materials.
- Stockss in brief
Deere (-5.20%): The world leader in agricultural equipment saw its share price plummet after announcing an 11% drop in quarterly net profit and lowered projections for the current financial year.
Cisco (-2.43%): The telecoms giant lost points following the announcement of several thousand job cuts and quarterly sales down 6% year-on-year.
Coinbase (+3.30%): The cryptocurrency exchange platform saw its share price rise as bitcoin continued its advance, recently surpassing the $50,000 threshold.
Lyft (+16.11%): The chauffeur-driven car rental company posted a fine performance for the second day running following encouraging results.
Roku (-15% after close): Despite rising 3.57% during the session, the streaming channel fell in after-hours electronic trading, following the announcement of better-than-expected results with 80 million subscribers.
Tripadvisor (+9%): The company surged after exceeding estimates at both the top and bottom of the range.
Friday
Wall Street had a difficult day on Friday, with the main indices turning red following the publication of a higher-than-expected US wholesale price index, signalling persistent inflation.
Dow: Opened down 0.46
NASDAQ: down 0.72% at opening.
S&P 500: The index, which had reached a record level the previous day, saw its value fall by 0.51%.
This market reaction followed the US Department of Labor''s announcement of a 0.3% increase in producer prices in January, a figure higher than analysts' expectations of a more modest 0.1% rise. This news led to a rise in bond yields, reflecting investors' concerns that the Federal Reserve might keep interest rates higher for longer than expected to counter inflation. At the same time, the banking sector, with players such as Bank of America and Citigroup, suffered from this rate tension, while companies such as Coinbase and Applied Materials experienced mixed fortunes, reflecting the complexity and volatility of the current market.
Conclusion
The week on the financial markets was marked by alternating optimism and caution, reflecting current economic volatility and uncertainty. The fall in the main indices on Friday, following a higher-than-expected inflation report, was a reminder of the persistent challenges facing the market.
This week illustrated the importance of market responsiveness to economic data and monetary policy expectations. Despite the fluctuations, the market showed signs of resilience, with sectors such as technology and energy posting notable performances. However, caution is still called for in the face of persistent inflation and possible adjustments to the Federal Reserve''s monetary policy.
Against this backdrop, investors remain vigilant, continually assessing the sustainability of the market's upward trend in the face of economic challenges. The market's ability to maintain its positive momentum will be key to determining its future direction.
