By Angela Palumbo
AppLovin, Meta Platforms and Alphabet's recent earnings reports show that the advertising market has bounced back from a rut, but that doesn't mean it won't run into trouble.
AppLovin stock surged on Thursday after the artificial-intelligence-powered advertising technology business reported better-than-expected fourth quarter financials and gave strong first-quarter guidance after the stock market closed on Wednesday.
"The Advertising business was simply amazing in Q4:24," Wedbush analyst Michael Pachter wrote in a research note Thursday. He increased his price target on AppLovin to $620 from $545 and maintained a rating of Outperform on the stock.
Shares of AppLovin rose 24% to $471.67, a record high, according to Dow Jones Market Data.
While AppLovin focuses mostly on mobile in-game ads, companies that focus on different types of online advertising are showing strength, too.
Raymond James analyst Andrew Marok wrote in a note on Tuesday that following earnings from companies like Alphabet, Meta, and Snap, the online ad market appears favorable. He cited "overall strength in 4Q setups fueled by strong political cycle and holiday season, and mostly positive 1Q guidance after factoring for the leap year and ongoing FX [foreign exchange] headwinds."
Meta reported fourth-quarter advertising revenue on Jan. 29 that beat analysts' estimates. CFO Susan Li said on a call with investors that the company is "continuing to see strong advertiser demand, again, particularly for AI-powered tools that are helping businesses maximize the value of their ad spend."
Snap, Snapchat's parent, said on Feb. 4 that its number of active advertisers more than doubled in the fourth quarter, while Alphabet's Google reported higher fourth-quarter ad revenue than Wall Street expected.
AppLovin also wasn't the only ad company to report quarterly results on Wednesday. Trade Desk posted better-than-expected fourth-quarter earnings, but revenue came in below analyst's estimates following a reorganization inside the company. The stock was down 33% Thursday.
"Management stated that the revenue impact was all internally driven due to a reorganization that effectively led to lower productivity," Citi analyst Ygal Arounian wrote in a note on Thursday. Management said "none of the shortfall was macro driven, and none was competition driven," Arounian wrote.
He lowered his price target on Trade Desk to $108 from $140 but maintained a Buy rating.
When asked to comment on the current state of the ad market and Thursday's stock move, Trade Desk pointed Barron's to comments made on the company's earnings call.
"If this were a sporting event, we'd still have a championship-caliber team. But in this particular game, we turned over the ball too many times. That said, we see a larger and faster-growing market than we originally expected which is why we have been making changes and will continue to do so," CEO Jeff Green said.
It wasn't too long ago that the words "advertising recession," were circulating. In 2021, Apple took steps to limit targeted advertising on its mobile devices in an attempt to protect consumer privacy. Webush analyst Scott Devitt told Barron's that this, along with broader concerns about the overall economic environment, hurt the advertising space for a few years.
Following that pain, Wall Street will be keeping an eye on the strength of the ad market. Persistent inflation, high interest rates and possible tariffs could combine to put pressure on consumers.
"If consumers spend less, that degradation spend is tied at the hip with ad spend, so advertisers spend less," Devitt said.
But for now, the advertising space looks to be holding strong as the economy remains in a good spot and consumers have continued to spend.
"The online ad market is as healthy as it's ever been," Devitt said.
Write to Angela Palumbo at angela.palumbo@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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February 13, 2025 17:21 ET (22:21 GMT)
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