Gaming software company AppLovin’s (NASDAQ: APP) second-quarter report shows that the business is still struggling with lackluster consumer and advertising expenditure, sending its share price lower this week.
How Did AppLovin Perform?
The Q2 loss per share posted by the mobile technology company was 6c, significantly lower than the $0.15 consensus expectation. The revenue was $776.2 million, falling short of the analysts’ projection of $830.7 million.
The company also reiterated its annual full-year revenue to $2.84 billion to $3.14 billion, missing the initial projection of 3.29 billion. The $1.2 billion midpoint adjusted EBITDA target for the fiscal year was also corrected.
AppLovin now expects $1.14 billion to $1.29 billion in revenue from the full-year software platform and $1.70 billion to $1.85 billion from full-year apps revenue.
“The mobile app industry is facing several headwinds. While overall consumption of mobile gaming apps remains stable, consumer spending is down compared to last year,” the company said in a letter to its shareholders.
Reflecting the reduced software outlook, BTIG analysts lowered the price target from $60 to $53.
“Downside risk on the stock has increased slightly vs. our prior view due to macroeconomic factors,” analysts told clients in a note.
Bank of America analysts see rising headwinds as well but also mentioned a favorable valuation.
“Despite fundamental bumps and potential deal-related hiccups, APP remains a highly profitable, rapidly scaling mobile in-app operation focused on driving bigger lifts in accuracy/budget. Following Tuesday’s NBO, it would not surprise us if other strategic options emerge for APP,” analysts wrote.
Unity Bid
AppLovin launched a $17.54 billion all-stock bid to purchase Unity Software (NYSE: U) on Tuesday, endangering Unity’s previously disclosed plans to acquire AppLovin’s smaller rival ironSource.
Reuters reported that AppLovin sought consultants to develop an offer towards Unity, which conditions them to terminate the ironSource agreement for the merger with AppLovin to go through. Last month Unity announced that it will acquire ironSource for $4.4 billion in an all-stock deal.
AppLovin has proposed $58.85 for each share, a premium of 18% compared to Unity’s end of the Monday trading price. If the deal goes through Unity will have about 49% of the voting rights and 55% of the share capital of the combined firm.
According to the planned merger, AppLovin CEO Adam Foroughi would serve as the chief operating officer and John Riccitiello, CEO of Unity, will serve as CEO of the merged entity.
IronSource’s stock also fell 11.21%, but according to the merger agreement, ironSource might be entitled to a $150 million termination fee if Unity decides to back out.
The Applovin-Unity deal would make sense since both businesses produce game development software and have been advancing to incorporate cutting-edge innovations like the so-called metaverse, but Unity stated that its board is yet to review the proposal.
The offer from AppLovin comes as game developers and console makers warn of a decline in the industry as gamers turn to outdoor activities post Covid-19 restrictions.
“The proposed price for Unity appears well below its intrinsic value, and we would expect Unity to reject it for that reason, “an analyst at Wedbush Securities Michael Pachter wrote in a note.
“We think interference with the ironSource acquisition is problematic and will cause Unity’s board to tread very carefully before agreeing to a sale outright.”
Summary
Applovin shares are trading lower this week after the company reported mixed results and failed to share more details with investors on the call about its plans to acquire Unity Software.
