AppLovin stock took it on the chin Tuesday after a downgrade by a BofA Securities analyst who isn't sure whether the ad-technology platform can jump-start its revenue growth.
Shares were down 5% to $322.11 and were on pace for their lowest close since May 7, 2025, according to Dow Jones Market Data. The stock was the worst performer in the S&P 500, which was up 0.1%.
The analyst, Omar Dessouky, lowered his rating to Neutral from Buy and cut his price target to $400 from $430.
"Given APP's large size in the mobile gaming market, we need more evidence that it can grow 30% Y/Y, on a much higher base of revenue," Dessouky wrote in a note.
AppLovin didn't respond to Barron's request for comment.
Dessouky's move comes about one week after AppLovin reported second-quarter revenue of $1.92 billion, which missed Wall Street estimates of $1.94 billion.
"We've always managed this business with the goal of outperforming our own expectations, and this quarter we fell short of that standard," CEO Adam Foroughi said on the Aug. 5 earnings call. "What matters is that we know what happened, and it's already been addressed."
Foroughi added that the delay of updates to AppLovin's AI models had an impact in the second quarter. When updates happen, he explained, advertisers usually increase their budgets because they expect to a higher return on their investments. The improvements, however, "landed just after quarter end."
Dessouky wrote that AppLovin's management explained a plan to train larger and more complex recommender system models to help unlock meaningfully larger revenue gains over time. Recommender system models are smaller than large-language models, or LLMs.
"They believe their recommender system models (which are currently smaller than LLMs) can benefit from the same scaling laws seen in LLMs," he said. "Although this thesis sounds plausible, we have not seen evidence to support it." he said.
Wall Street also has its concerns. The stock is now down 52% this year.
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