AppLovin stock: Piper Sandler cuts rating after first guidance miss since IPO

 Piper Sandler downgraded AppLovin to Neutral in a note, saying the outlook is "more mixed from here" following the company's second-quarter results.

Analyst James Callahan noted AppLovin slightly missed the midpoint of its revenue guidance by 30 basis points and EBITDA by 100 basis points, "both for the first time since going public." 

Management attributed the miss to the timing of model improvements, which it said will reverse in the third quarter.

Piper Sandler's concern is that "the frequency or magnitude of directed model improvements may need to be larger going forward in order to hit Street expectations." 

The firm said that dynamic would also explain higher compute costs during the quarter and investments to build new model architectures. It added that smaller intra-quarter model improvements "have been enough in past quarters, but it's unclear if they are enough going forward."

Callahan added that the second-quarter print was "the first time we've found ourselves questioning APP's ability to drive model enhancements in-line with Street expectations," which may require more compute or more meaningful enhancements that "are not easy to do."

The firm remained impressed by management, the business and its market position, but said it has "more questions than answers on beat/raise cadence from here." It also flagged mixed e-commerce messaging as a headwind to attracting new investors.

Piper Sandler lowered its fiscal 2027 revenue and EBITDA estimates by 2% and 3%, and slashed its price target to $385 from $665, now valuing shares at about 20 times its 2027 GAAP EPS estimate of $19.29.