AppLovin stock price has imploded this month, ending one of the biggest rallies in Wall Street in the past few months. APP shares plummeted to a low of $290, its lowest level since November 15. It has plunged by almost 40% from the highest point this year. So, what next for the stock?
Why AppLovin stock price crashed
AppLovin has been one of the brightest stars on Wall Street in the past two years. A company that was little known soared from $9.75 in 2023 to $520 earlier this month. This transitioned it into one of the biggest companies on Wall Street with a market cap of over $230 billion.
The ongoing AppLovin stock crash was in line with our expectations, as we wrote here, here, and here.
APP is highly overvalued
The most important reasons why the AppLovin stock price has plummeted is that it became highly overvalued. While the company is growing, there is no way to justify a $230 billion valuation.
That’s because AppLovin’ revenue in 2024 stood at over $4.7 billion, a big increase from the $3.2 billion that it made a year earlier. AppLovin’s net income jumped from $356 million in 2023 to $1.58 billion in 2024.
The most recent results showed that AppLovin’s revenue rose to $1.32 billion, up from $953 million in the same period a year earlier. Its net income rose from $476 million to $848 million.
Analysts expect that AppLovin business will continue to do well this year. The average estimate is that its revenue will grow by 30% in the first quarter to $1.38 billion, followed by 30.90% in Q2 to $1.41 billion. This growth will lead to an annual revenue of $5.8 billion, followed by $7 billion next year.
While these are good numbers, they don’t justify a $230 billion valuation. That’s because this valuation gives it a forward 2026 price-to-sales (P/S) ratio of 32, which is much higher than most countries.
This P/S figure simply means that one would take about 32 years to recover his investment if he acquired the company today, assuming that its growth stops. It would take over 50 years to breakevem since the firm has a forward P/E ratio of 50.5.
Wyckoff Theory explains the AppLovin stock crash
The other reason why the AppLovin share price has crashed is known as the Wyckoff Theory.
Wyckoff is a 90-year old theory that explains how asset price move over time. The first phae is known as accumulation, and in it, an asset remains in a consolidation. Investors then start to take note of the firm, such as when it publishes strong results.
It then moves to the markup phase, which is characterized by a parabolic move as the fear of missing out (FOMO) intensifies. AppLovin stock has been in this stage since late 2023.
The next stage is known as distribution, and is characterized by a battle between bears and bulls. It typically has some big moves as bulls buy the dip and bears sell each rebound.
AppLovin stock will then move to the markdown phase, which happens when there is a panic selling among investors.
AppLovin stock price technical analysis
The weekly chart shows that the APP share price peaked at $528 this year, and has now plunged to $320. It has moved below the 38.2% Fibonacci Retracement level, while all oscillators have pointed downwards.
Therefore, the APP share price will likely keep falling as sellers target the 61.8% Fibonacci Retracement level at $200, down by almost 40% from the current level.
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