Morgan Stanley spills beans on its growth thesis for AppLovin stock

AppLovin just delivered another strong quarter. Its e-commerce advertising business is accelerating faster than expected. And Morgan Stanley walked away from the results more convinced than before.

The bank's message to investors is direct: AppLovin is still in the early days of what could be a multi-year growth cycle, and the best part of the story is yet to come.

Morgan Stanley reiterated AppLovin rating and price target

Morgan Stanley analysts led by Matthew Cost and Brian Nowak, CFA reiterated their overweight rating and $720 price target on AppLovin on May 7 via a note.

The stock closed at $468.83 on May 6, giving the company a market cap of approximately $158.8 billion and implying roughly 54% upside to the bank's target, according to Yahoo Finance.

The note describes the Q1 results as strengthening the bank's long-term thesis. Revenue and EBITDA came in 4% and 6% ahead of Morgan Stanley's prior estimates. Ad revenue grew 11% quarter over quarter, beating AppLovin's own 6% growth target.

E-commerce advertising momentum ahead of expectations

The standout development in the quarter was the pace of AppLovin's web and ecommerce advertising business. Morgan Stanley estimated the segment contributed approximately $350 million in revenue during Q1.

Management also disclosed that April set a record month for web revenue, suggesting the exit rate from the quarter was strong and that momentum has continued.

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The bank attributed the outperformance to meaningful model improvements that delivered immediate gains in return on ad spend, prompting advertisers to raise budgets. "Performance is driving competitive returns as it scales," the note said.

Morgan Stanley's broader assessment is that the e-commerce advertising business, now roughly 18 months into its launch, is still in the early stages of its innovation cycle. The bank argued that if AppLovin can replicate even part of the technological improvement curve it achieved in gaming ads, the business has a multi-year growth path ahead.

AppLovin's self-serve launch seen as next major catalyst

Beyond the Q1 results, Morgan Stanley pointed to two near-term catalysts it expects to extend AppLovin's growth runway. The first is the planned self-serve advertising launch in June, which the bank said could significantly expand advertiser adoption by making it easier for brands to manage campaigns directly on AppLovin's platform.

The second is inventory expansion into new games that want to monetize through non-endemic ads, which would broaden the supply side of AppLovin's advertising marketplace.

For Q2, AppLovin guided for $1.93 billion in revenue and $1.63 billion in EBITDA at the midpoint, representing an 84% EBITDA margin. Both figures came in 3% and 5% above Morgan Stanley's prior estimates.

Gaming ads: 13 consecutive quarters above 5% sequential growth

While e-commerce is the newer growth driver, Morgan Stanley was equally emphatic about the durability of AppLovin's core gaming advertising business. The bank estimated gaming ad revenue grew 44% year over year and approximately 97% on a two-year stacked basis.

The business has now delivered more than 5% quarter-over-quarter growth for 13 consecutive quarters, a streak the note described as reflecting continual technology breakthroughs driving consistent and largely a-seasonal growth.

Morgan Stanley also flagged a specific opportunity. Gaming ad conversion rates currently sit at approximately 1.3%, which the bank described as low given the high ad load environment. That gap represents meaningful room to extract more value from existing traffic.

Key figures from Morgan Stanley's AppLovin note dated May 7, 2026:

• Rating: Overweight, price target $720, stock at $468.83, market cap $158.8 billion, 52-week range $290.96 to $745.61
• Q1 ad revenue growth: 11% quarter over quarter, ahead of the company's own 6% target
• Estimated web and ecommerce revenue in Q1: Approximately $350 million, with April setting a record month
• Q2 guidance midpoint: $1.93 billion revenue, $1.63 billion EBITDA at 84% margin, both above prior Morgan Stanley estimates
• Gaming ad revenue growth: 44% year-over-year, 97% on a two-year stacked basis
• Non-gaming ad revenue estimate: Approximately $1.8 billion in 2026, rising to over $3 billion by 2028
• Wall Street consensus: 91% overweight, 9% equal-weight, 0% underweight, mean consensus price target $648.19
  
  Source: Morgan Stanley May 7 note shared with TheStreet

Why Morgan Stanley calls AppLovin the "blue chip" ad tech name

Morgan Stanley's valuation uses a 27x EV/2027 EBITDA multiple, which it acknowledged sits above the peer regression average. The bank argued the premium is justified by AppLovin's large multi-vertical market opportunity and rapid pace of innovation.

Under the base case, the $720 target reflects 2027 EBITDA of approximately $8.78 billion. The bull case of $1,100 applies 29x to a more aggressive $12.58 billion EBITDA scenario, assuming AppLovin accelerates share gains and ecommerce scales faster than the base case. The bear case of $200 assumes a 12x multiple on $5.42 billion in 2027 EBITDA.

The note described AppLovin as the "blue chip" name in mobile ad technology and said it is the company most likely to outperform peers, even as broader sentiment around gaming and mobile advertising remains under pressure.

The bank's conclusion is that e-commerce advertising is evolving into one of AppLovin's most important growth engines, while gaming continues to deliver strong, consistent cash flow.

Related: Bank of America resets AppLovin stock forecast

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This story was originally published May 8, 2026 at 1:03 PM.