Citi sends bullish research report to Applovin (APP.US): Using “AI+ Digital Advertising” to open up a new universe of e-commerce growth

The Zhitong Finance App learned that Wall Street financial giant Citi (Citi) recently released a research report stating that it maintains a “buy” stock rating for AppLovin (APP.US), an AI application leader focusing on “AI+ digital advertising,” and continues to include the stock in Citi's “Preferred Stock List”, while giving AppLovin a target share price of 820 US dollars within 12 months. Citi said Applovin will continue to benefit from stronger growth in the “AI+ digital advertising” market in the non-mobile gaming sector (such as e-commerce and fintech) in the next few years. As of the US stock close on Tuesday, Applovin's stock price closed at $724.620.

According to the Citigroup research report, as a leader in AI-driven advertising solutions, the company's core product, the Axon platform, showed strong growth momentum — as of December 5, the number of e-commerce customers reached 3,545 (up 17% from November 7), the ranking of stores using Axon on the Shopify platform rose sharply, and its share of the US market stabilized at 68.2%, reflecting regional resilience. Citi said that the company has strong technological innovation capabilities, and the Axon platform is providing e-commerce advertisers with more accurate advertising and data analysis services. It is expected that AppLovin will continue to grow at an accelerated pace in the “AI+ digital advertising” market, especially as advertising demand for advertising in mobile Internet apps expands at an accelerated pace.

In terms of a fundamental outlook, Citi said that Applovin's financial performance (expected revenue of US$5.74 billion in 2025, EBITDA profit margin of 78.3%) and cash flow generation capacity (FCF expected US$4.85 billion in 2026) support its long-term value as a core player in the AI advertising ecosystem, but it is necessary to pay attention to game product iteration risks and fluctuations in advertising return.

Citi emphasized in the report that the target price of $820 corresponds to the expected FCF multiplier of 40x in 2027, with a significant premium compared to digital advertising peers (average 25-30x). Citi believes the rationality is based on growth scarcity — that is, the revenue CAGR from 2023 to 2026 is 33%, which is higher than the industry average of 15-20%; cash flow generation — the FCF profit margin is expected to reach 62% in 2026 (only 32% in 2023); market dominance — the ecosystem of Axon, the flagship AI+ digital advertising marketing product, on e-commerce platforms such as Shopify The penetration rate continues to increase, and the moat continues to deepen; mobile advertising budgets are shifting to AI optimization platforms — AppLovin has a significant advantage in the mobile advertising field with strong first-party data ahead of its peers (directly reaching 3,545 e-commerce businesses).

Furthermore, from a macro perspective, it also supports the investment logic of AppLovin, an AI application leader focusing on “AI+ digital advertising.” The 2025-2027 compound growth rate (CAGR) of the global digital advertising budget is expected to grow by 8-10%, of which the share of AI-driven digital advertising is expected to rise to 30%; the Fed's interest rate cut cycle will significantly reduce the discount rate of high-growth technology stocks and boost DCF's valuation; the share of domestic US revenue is as high as 68%, which can be described as significantly reducing exposure to international regulatory risks.

Since ChatGPT became popular around the world in 2023, the accelerated integration of artificial intelligence in the field of digital advertising has become a trend that cannot be ignored. The two major digital advertising industry giants, Google and Meta, have rapidly introduced generative AI technology into advertising systems in recent years, and have innovated in everything from ad placement optimization to content presentation. On the side of Google, in addition to AI search summaries and Performance Max, it also embeds machine learning algorithms in its ad networks and cloud services to improve delivery efficiency; Meta uses AI to improve advertising returns (such as using machine learning to improve ad rankings and actual efficiency conversion optimization), and explores generative AI to create content to enhance user engagement and advertising diversity.

In the field of digital advertising, the structural impact of AI integration is already showing: on the one hand, AI helps improve the targeting accuracy and conversion effect of digital advertising, driving advertisers to obtain higher ROI (as can be seen from the rapid popularity of products such as Performance Max); on the other hand, AI-generated content and answers may divert part of the traffic, causing the value of traditional advertising inventory to be re-evaluated (for example, the frequency of ad impressions based on the Google search model increases but the click rate drops).

AppLovin is a company focused on helping businesses grow through AI-driven advertising solutions. Headquartered in Palo Alto, California, USA, AppLovin provides a digital advertising marketing platform for e-commerce and game companies. Through its Axon platform, it optimizes ad delivery with extreme efficiency, thereby significantly increasing advertisers' sales and profits. The company has comprehensively enhanced the advertising effectiveness of apps and games, mainly through Applovin's exclusive “AI+ Digital Advertising” technology platform.