AppLovin stock price has gone parabolic since 2023, making it one of the best-performing companies in Wall Street. APP shares surged to $520 this week, a remarkable surge considering that it was trading at $9.75 in 2023. This surge has brought its market cap to over $150 billion. This article explains why the Applovin stock price may crash soon.
AppLovin business is thriving
Results released this week showed that Applovin’s business continued to do well in the fourth quarter, capping what has been its best year on record.
Its Q4 revenues jumped to $1.3 billion, a 44% annual increase. This growth brought its annual revenue to $4.7 billion, up by 43% from the previous year.
Most of this revenue growth came from its advertising business, whose revenue jumped by 73% to near $1 billion. This is a notable figure since this business is a fairly new one in its ecosystem. Its original app development business continued its slowdown, with its revenue falling by 1% to $373 million.
AppLovin has become a profitable company, a trend that may continue in the coming months. Its net income rose by 248% in the last quarter to near $600 million. This brought its annual profit to $1.57 billion, a 343% annualized increase. It also means that its profit margin is about 46%.
AppLovin’s momentum will likely continue in the coming years as it attracts more demand. Some of its top customers so far are the likes of Spotify, OpenTable, Hotels.com, and Groupon.
Still, there are two main reasons why the AppLovin stock price may suffer a harsh reversal in the next few months.
APP’s valuation is stretched
The first main reason why the AppLovin stock price may crash soon is that its valuation is highly stretched.
As mentioned, AppLovin’s annual revenue came in at $4.7 billion in 2024, and analysts expect it to get to $5.84 billion in 2025 and $7 billion in 2026. A $7 billion annual revenue for a company valued at over $150 billion is a big stretch, even as it experiences a double-digit growth rate.
These numbers mean that the company is highly overvalued, as its forward price-to-sales ratio is over 21. That is a big valuation metric since taking it private at the current valuation and assuming no growth, will take 21 years to recover the funds.
AppLovin has a forward PE ratio of 74, higher than the S&P 500 average of 22. Popular companies like Microsoft, NVIDIA, and Meta have a much lower valuation metric.
Wyckoff’s Theory suggests an AppLovin stock price crash
The Wyckoff Theory, which was developed over 95 years ago suggests that the AppLovin stock price will crash soon as smart money investors start to take profits.
The chart above shows that the APP stock price remained in an accumulation phase in 2022 and 2023. This phase is usually followed by the markup, which started happening in 2024 as the Fear of Missing Out (FOMO) intensified. FOMO is characterized with bullish hype for an asset, including the ingoing calls to add it to the Magnificent 8 category.
Therefore, the AppLovin stock price will then get to the distribution phase, followed by the markdown, where assets crash. A crash will likely trigger a panic among investors, pushing it lower over time.
This arrangement has happened in other companies before. Some of the most notable ones were companies like Celsius Holdings and Super Micro Computer. All these stocks surged in 2023 and then crashed in 2024.
Read more: AppLovin stock has surged: brace for mean reversion in 2025
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