AppLovin Stock Price Down Pre-Market as Expected S&P 500 Inclusion Fails to Materialize

Shares of AppLovin Corporation (NASDAQ: APP) are trading down 5.17% in pre-market trading today, a move largely attributed to the company's unexpected exclusion from the S&P 500 index during the latest rebalancing.

This disappointment, coming after traders had run the stock up in anticipation, has cast a shadow over the mobile gaming and advertising technology company's recent stellar performance. While AppLovin has enjoyed a meteoric rise over the past year, the current environment demands a closer examination of its underlying fundamentals and future prospects.

The failure to secure a spot in the S&P 500 is a significant setback for AppLovin, as inclusion in the index typically leads to increased visibility, liquidity, and automatic buying from index funds. The omission has fueled speculation about the index committee's concerns regarding AppLovin's business model, financial stability, or corporate governance.

Additionally, analysts have expressed concerns about a deceleration in the mobile gaming sector and increased competition from tech giants like Meta Platforms and Alphabet. This cautious outlook has caused a little bit of an overhang on sentiment, that had previously been overwhelmingly bullish.

A glance at AppLovin's recent performance reveals the stock has demonstrated impressive gains over the past year, with a 1-year return of +419.72% and a 5-year return of +540.72%. Today's pre-market dip serves as a reminder that past performance is not indicative of future results, and that index inclusion is by no means guaranteed in the lead up to expected rebalances. The stock is currently trading well above its 50-day and 200-day moving averages, suggesting a strong bullish trend, but the high beta of 2.53 indicates significant volatility.

Analyst ratings are mixed, with a consensus “Moderate Buy” and a price target around $457.67, but the high Price-to-Earnings (P/E) ratio of 92.05 and P/E-to-Growth (PEG) ratio of 3.02 suggest that the stock may be approaching full value on usual metrics. That being said, the stock has not historically traded on usual metrics. The consensus price target continues to indicate upside from the current price action, showing the street see's more to come.

Failure to be included in the index for now has hit sentiment in the short term, yet those who have been in the stock longer than a moment will likely be seeing outperformance on broader markets regardless.