Shares of the app-promoting platform look less appealing than those of the publisher-minded advertising middleman PubMatic.
Up more roughly 700% since the end of 2022, AppLovin (APP -0.89%) stock might look a bit intimidating to jump into now. There may not be enough near-term upside left to tap, while the potential for profit-taking is huge.
If you’re not keen on AppLovin and feel like you’ve missed the easy gains with it, but are interested in plugging into the same core craze that catapulted AppLovin shares over the course of the past year and a half, consider taking on a stake in PubMatic (PUBM 5.24%). Although it’s also well up from its late-October low, it’s clearly got plenty more room to run higher.
AppLovin’s short but wild story
These companies are not in the exact same business, but they’re both capitalizing on the same group of people: an audience of active internet users that will respond to the occasional web advertisement.
Simply put, AppLovin is an app-marketing service. Developers pay the company to help promote their apps on mobile devices as well as on connected television (CTV) platforms. Its customers include DoorDash, fitness app Enerjoy, and several mobile game developers, just to name a few. All told, AppLovin claims it’s responsible for more than 20 billion app downloads and installations since its 2012 inception.
Given the maturity of the smartphone market, one might think AppLovin’s growth prospects would be limited by a combination of competition and saturation. But that’s just not the case. AppLovin did $3.3 billion worth of business last year, improving on 2022’s top line to the tune of 17%. As it turns out, app developers need more — not less — help when it comes to getting smartphone owners’ attention.
Investors understand this, of course, just as they understand the unique value AppLovin brings to the table. But, they’ve struggled to consistently price this value. AppLovin shares (eventually) soared following their April-2021 initial public offering, then peeled back more than 90% in 2022, only to reclaim most of that lost ground in the meantime. This is arguably more unpredictable volatility than the average investor cares to deal with.
But, there’s a comparable, less-frothy alternative.
PubMatic, up close and personal
PubMatic is a bird of a slightly different feather. It doesn’t specialize in the promotion of apps. Rather, its service helps content publishers (writers, video platforms, digital artists, etc.) optimize their advertising businesses.
That’s not a new idea either. Indeed, since its inception the worldwide web has mostly been an ad-based industry. There are plenty of middlemen akin to PubMatic around, too. There aren’t many advertising intermediaries like PubMatic though, and none exactly like it.
See, PubMatic was built from the ground up to serve individual publishers first rather than advertisers, allowing them to custom-build offerings for marketers looking to insert ads within and around that particular publisher’s content. This makes it a “sell-side platform,” or SSP, also sometimes called supply-side platforms, which are relatively rare. Most of the web’s other digital advertising platforms tend to operate as buy-side entities that sell advertisers access to ad inventory that’s already been purchased in bulk from a wide range of publishers.
This buy-side approach works, but lacks the transparency that PubMatic offers customers. That’s why the company’s top line is expected to grow to the tune of nearly 12% this year and then repeat the feat again next year.
And this is a growth pace that could persist for a long while. Market research outfit Evolve Business Intelligence believes the sell-side advertising market will grow at an average annual pace of 12% all the way through 2033.
Given that it’s incredibly unlikely that the world will lose interest in using the internet as its portal to entertainment, information, and as a means of managing personal matters (like banking or work), Evolve’s expectation holds plenty of water.
One stock is clearly a better option than the other right now
PubMatic shares aren’t cheap either, by the way. The stock’s presently valued at 100 times its earnings…a sky-high valuation. The shares have also dished out their own oversize run-up of late, nearly doubling their low from October. That’s a tough act to continue.
If you’re looking to ride the ever-rising tide of the internet’s advertising business, PubMatic stock’s current risk-versus-reward scenario is far more compelling than AppLovin’s. The analyst community has a consensus price target of $28.13 on PubMatic. That’s roughly 25% above the stock’s present price.
Just bear in mind that with above-average growth you’re likely going to get above-average volatility. Be sure you can stomach the near-term swings if you’re going to dive into this growth name.