AppLovin to Sell Gaming Division for $800M, Morgan Stanley Raises Target

Mobile Ad Tech Giant AppLovin Shifts Focus to High-Margin Platform Business with $800M Gaming Unit Sale

Three Key Facts

• Morgan Stanley raised AppLovin’s price target to $460 from $420, arguing the company would be more valuable without its first-party games business
• AppLovin will sell its Apps Segment to Tripledot Studios for $800 million ($400 million cash plus $400 million stock) in Q2 2025, despite the segment contributing 32% of revenue
• The divestiture will convert over $500 million in internal ad spend to external revenue, reallocating profits from low-multiple games business to high-multiple advertising technology

Introduction

AppLovin shareholders received encouraging news as Morgan Stanley analysts increased their price target and endorsed the company’s strategic pivot away from gaming. The mobile advertising technology firm has announced plans to divest its first-party games business, a move that analysts believe will unlock significant shareholder value.

This strategic shift represents a broader industry trend toward platform specialization, where companies focus on their highest-margin operations. AppLovin’s decision to prioritize its advertising technology platform over game development reflects changing market dynamics and investor preferences for scalable, recurring revenue models.

Key Developments

AppLovin has structured a comprehensive sale of its Apps Segment to Tripledot Studios, scheduled for completion in Q2 2025. The $800 million transaction includes equal portions of cash and Tripledot stock, providing AppLovin with immediate liquidity and ongoing exposure to the gaming sector.

The company reported strong financial performance in 2024, with total revenue reaching $4.71 billion, representing a 43.44% year-over-year increase. Operating income surged 188.5% to $1.87 billion, demonstrating the strength of AppLovin’s core advertising technology platform.

Management has accelerated development of its self-service dashboard for advertisers, targeting expanded growth in web and e-commerce advertising segments. This initiative supports the company’s strategic focus on scaling its ad network beyond traditional mobile gaming applications.

Market Impact

The divestiture fundamentally changes AppLovin’s revenue recognition model by converting internal advertising spend into external revenue streams. Morgan Stanley estimates this accounting shift will nearly offset the lost EBITDA from the gaming business while improving overall profit margins.

Institutional investors have responded positively to the strategic realignment, with reporting funds increasing their positions by 38.25% in the latest quarter. The bullish sentiment reflects confidence in AppLovin’s ability to command higher valuation multiples as a focused advertising technology company.

Analyst consensus remains strong, with 27 brokerage firms maintaining an average recommendation of 1.9, indicating “Outperform” status. The average price target of $474.51 suggests 13.55% upside potential from current trading levels, with projections ranging from $250 to $650 per share.

Strategic Insights

AppLovin’s transformation aligns with broader market preferences for specialized technology platforms over diversified entertainment portfolios. The advertising technology sector commands premium valuations due to its scalable infrastructure and predictable revenue characteristics.

Morgan Stanley has adjusted its valuation methodology, applying a 29x EBITDA multiple compared to the previous 26x, while abandoning its Sum-of-the-Parts approach that valued the gaming division at only 4x EBITDA. This change reflects the market’s recognition of AppLovin’s improved business quality and growth prospects.

The company’s expansion into non-gaming verticals has outpaced the broader in-app advertising market, demonstrating the platform’s versatility and growth potential. Free cash flow generation remains robust at $826 million for the latest quarter, up 113% year-over-year.

Expert Opinions and Data

According to Investing.com, Morgan Stanley analysts view the divestiture as enabling AppLovin to “realize high-margin revenue that the 1P studios spend on APP’s ad network, offsetting most of the lost earnings from 1P games.”

The firm’s analysis suggests this strategic shift will reallocate profits “from the low multiple games business to the high multiple ad business, increasing the total value of the company.” This perspective reflects growing investor sophistication in valuing technology platforms based on margin quality and scalability metrics.

Financial projections support this optimistic outlook, with earnings per share expected to grow from $8.26 in 2025 to $14.36 in 2027. The company achieved an 83% increase in adjusted EBITDA to $1 billion, maintaining a healthy 68% margin that demonstrates operational efficiency.

Industry observers note potential challenges, including the early-stage nature of AppLovin’s web advertising model and possible onboarding bottlenecks for new advertisers. The company acknowledges that its current web advertising approach requires refinement to serve all customer segments effectively.

Conclusion

AppLovin’s strategic divestiture represents a calculated move to optimize shareholder value through focused execution on advertising technology. The transaction structure provides immediate capital while maintaining gaming sector exposure through equity participation in Tripledot Studios.

Morgan Stanley’s increased price target and upgraded methodology reflect broader market recognition of AppLovin’s improved business model and growth trajectory. The company’s strong financial performance and expanding platform capabilities position it favorably within the competitive advertising technology landscape.