Citigroup issues bullish research report on Applovin(APP.US): Open up a new universe of e-commerce growth with "AI + digital advertising"

Wall Street financial giant Citigroup (Citi) recently released a research report stating that it maintains a "buy" stock rating on the AI application leader Applovin focused on "AI+ digital advertising" (APP.US), and continues to include the stock in Citigroup's "Preferred Stock List." It also gives Applovin a target stock price of $820 within the next 12 months. Citigroup stated that Applovin will continue to benefit from the stronger growth of the "AI+ digital advertising" market in non-mobile gaming sectors (such as e-commerce and financial technology) in the coming years. As of the closing of the U.S. stock market on Tuesday, Applovin's stock price closed at $724.620. The Citigroup research report pointed out that as a leader in AI-driven advertising solutions, Applovin's core product, the Axon platform, has demonstrated strong growth momentum as of December 5, the number of e-commerce clients reached 3,545 (up 17% from November 7), Shopify platform stores using Axon saw a significant rise in ranking, and its market share in the U.S. remained stable at 68.2%, reflecting regional resilience. Citigroup stated that the company has strong technical innovation capabilities, and the Axon platform is providing e-commerce advertisers with more precise advertising placement and data analysis services. It is expected that Applovin will continue to accelerate its growth in the "AI+ digital advertising" market, especially with the accelerated expansion of advertising demand within mobile internet app advertisements. In terms of fundamentals, Citigroup stated that Applovin's financial performance (expected revenue of $5.74 billion in 2025, EBITDA profit margin of 78.3%) and cash flow generation capability (expected FCF of $4.85 billion in 2026) support its long-term value as a core player in the AI advertising ecosystem, but attention should be paid to the risk of game product iteration and fluctuations in advertising return on investment. Citigroup emphasized in the report that the $820 target price corresponds to a 40x multiple of the expected 2027 FCF, representing a significant premium over digital advertising peers (average of 25-30x). Citigroup considers the rationale for this valuation to be based on: Growth scarcity with a revenue CAGR of 33% from 2023 to 2026, higher than the industry average of 15-20%; cash flow generation with an expected FCF profit margin of 62% in 2026 (compared to only 32% in 2023); market leadership Axon, Applovin's flagship AI+ digital advertising platform, continues to penetrate the ecosystem of e-commerce platforms like Shopify, deepening its competitive moat; and migration of mobile advertising budgets to AI optimization platforms Applovin has a significant advantage in the mobile ad space with its strong first-party data (directly reaching 3,545 e-commerce businesses). Additionally, from a macro perspective, the investment logic for Applovin, as a leader in AI applications focused on "AI+ digital advertising," is well-supported. Global digital advertising budgets are expected to grow at a compound annual growth rate of 8-10% from 2025 to 2027, with AI-driven digital advertising expected to increase to 30%; the Fed's interest rate cuts will significantly reduce the discount rate for high-growth tech stocks, boosting DCF valuation; and with 68% of its revenue coming domestically in the U.S., Applovin significantly reduces exposure to international regulatory risks. Since ChatGPT gained global popularity in 2023, accelerated integration of artificial intelligence in the digital advertising sector has become an undeniable trend. Alphabet Inc. Class C and Meta, the two giants in the digital advertising industry, have rapidly introduced generative AI technology into their advertising systems in recent years, innovating in areas from ad placement optimization to content presentation. In the case of Alphabet Inc. Class C, in addition to AI search summaries and Performance Max, machine learning algorithms have been incorporated into its ad network and cloud services to improve ad placement efficiency; Meta leverages AI to improve ad return on investment (such as using machine learning to improve ad rankings and actual efficiency conversions) and explores generative AI to create content to enhance user engagement and ad diversity. For the digital advertising sector, the structural impact of AI integration is beginning to show: on one hand, AI helps improve the targeting accuracy and conversion efficacy of digital ad placements, driving higher ROI for advertisers (evident in the rapid spread of products like Performance Max); on the other hand, AI-generated content and answers may divert some traffic, leading to a reassessment of the value of traditional ad inventory (for example, an increase in ad impressions based on Alphabet Inc. Class C's search model but a decrease in click-through rates). Applovin is a company focused on helping businesses grow through AI-driven advertising solutions. Headquartered in Palo Alto, California, United States, Applovin provides a digital advertising platform for e-commerce and gaming companies, optimizing ad placements highly efficiently through its Axon platform, significantly increasing advertisers' sales and profits. The company mainly enhances the advertising effectiveness of applications and games through its proprietary "AI+ digital advertising" technology platform.