AppLovin's (APP) underwhelming Q2 results reflected a short-term execution issue rather than structural headwinds, Morgan Stanley said in a Thursday note.

The company was not able to deploy a planned major model improvement, which was a major factor in the underperformance for the quarter. However, AppLovin reaffirmed that it anticipates long-term growth of over 30% while not seeing demand or competitive headwinds.

AppLovin's gaming advertising business continues to significantly outperform the broader mobile gaming market, with Q2 gaming ad revenue ramping an estimated 39% from a year ago compared with consumer spending on mobile games declining 6%, Morgan Stanley analysts said, citing data from Sensor Tower.

The analysts continue to be positive on the company's stock. Even as investors debate whether its ecommerce ad revenue is sufficiently large, the company's gaming ad business is projected to generate earnings before interest, taxes, depreciation, and amortization of $6.6 billion in 2027.

Morgan Stanley maintained the company's stock rating at overweight and lowered the price target to $650 from $720.

Shares of AppLovin were down 20% in Thursday trading.

Price: 333.92, Change: -83.88, Percent Change: -20.08