AppLovin Corp. and Unity Software Inc. shares rallied Thursday after both app-monetization companies reported better-than-expected results and forecasts late Wednesday, but analysts were cautious about how quickly the mobile ad market was recovering. AppLovin APP, +23.53% shares surged as much as 29% to an intraday high of $23 after more than doubling their price year to date and up 23.5% to $22. Unity U, +12.94% shares rose as much as 14% to an intraday high of $32.78, rose 13% to $32.46, and are up 13.5% year to date. By comparison, the S&P 500 index SPX, -0.17% is up more than 7%, and the tech-heavy Nasdaq Composite Index COMP, +0.18% is up 17.5% this year. Jefferies analyst Andrew Yurkwitz said both Unity and Applewin moved lower, clearing the low bar set for them, but said he was cautious until he saw more evidence of a recovery. Uerkwitz has a hold rating and a $20 price target on Applewin, and an underperform rating and a $24 price target on Unity. Read: EA’s stock downgrades as blocked Microsoft deal eliminates ‘takeout premium’ “For the mobile ad market better than fear, troughing and efficiency were key,” Yurkwitz said. “We agree that the mobile market is not getting any worse — but we currently struggle to see evidence of a return to double-digit top-line growth. “Commentary from both Unity and Aplowin suggests that the mobile gaming market may be in turmoil and, if so, may grow again in the single digits in the future,” Yurkwitz said, “with little evidence of a return to meaningful growth.” Read: EA Stock Rally on Record Bookings, Strong View “Is This Step 1 of the App Economy’s Recovery?” Morgan Stanley analyst Matthew Kost asked in a Thursday note. Price has an Equal Weight rating on both stocks, with a $28 price target on Unity and a $17.50 target on AppLovin. “Starting in late ’22, we’ve seen a significant increase in consumer spending on mobile game in-app purchases,” Kost said, citing Activision Blizzard Inc.’s ATVI, +1.37% King Mobile division, Playtica Holding Corp. PLTK, +1.33%, SciPlay Corp. SCPL, -1.07% and Playstudios Inc. MYPS, -0.45% all reported a rebound in in-app purchases in the first quarter. “That said, we’ve been cautious at this early stage pace [in-app purchase] A recovery could carry the in-app advertising market,” Kost said. “We believe the results so far this earnings cycle have justified that caution.” The sector will eventually recover, Kost said, but it will not be until the first of 2024. Half don’t expect “significant” growth. Back in February: Unity Software’s stock has fallen since mobile-ad recovery is not expected in 2023. Among the 23 analysts covering AppLovin, 12 have a buy rating, 10 have a hold rating, and one has a sell rating, with an average target price of $23.09. $20.12 previously, according to FactSet data. Of the 24 covering Unity, 11 have a buy rating, 10 have a hold rating and three have a sell rating, with an average price target of $36.89.
