AppLovin's (APP) plan to divest its 1P games business, the Apps segment, could enhance shareholder value and be neutral to future earnings, Morgan Stanley said in a report Monday.
"The sale would allow APP to recognize high-margin revenue that the 1P studios spend on APP's ad network, offsetting most of the lost earnings from 1P games," the report said.
"This would effectively shift profits from the low multiple games business to the high multiple ad business, increasing the total value of the company," it added.
The company struck a deal to sell its mobile games segment, which accounts for roughly 32% of revenue and 10% of EBITDA in 2024, to Tripledot Studios for $400 million in cash and $400 million in stock. The deal is expected to close in Q2.
Morgan Stanley raised its price target to $460 from $420 while keeping its overweight rating on the stock.
Price: 400.61, Change: -17.29, Percent Change: -4.14
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