Alta Fox Capital, an investment management company, released its “Alta Fund Opportunities Fund” Q3 2024 investor letter. A copy of the letter can be downloaded here. The fund generated a gross return of 5.65% and net return of 4.16% in the third quarter. The fund generated a gross return of 808.14% and net return of 482.12% since its inception in April 2018 compared to the Russell 2000’s 59.25% and the S&P 500’s 143.73% returns. You can check the fund’s top 5 holdings for its best picks for 2024.
Alta Fox Capital highlighted stocks like AppLovin Corporation (NASDAQ:APP), in the third quarter 2024 investor letter. AppLovin Corporation (NASDAQ:APP) develops a software-based platform for advertisers to enhance the marketing and monetization of their content. The one-month return of AppLovin Corporation (NASDAQ:APP) was 3.90%, and its shares gained 683.97% of their value over the last 52 weeks. On December 17, 2024, AppFolio, Inc. (NASDAQ:APPF) stock closed at $337.89 per share with a market capitalization of $113.393 billion.
Alta Fox Capital stated the following regarding AppLovin Corporation (NASDAQ:APP) in its Q3 2024 investor letter:
“Alta Fox has followed AppLovin Corporation (NASDAQ:APP) since its IPO in 2021, watching its initial high valuation (>30x EBITDA) through the mobile gaming downturn in 2022, failed Ironsource bid), and its consistent share gains from Unity/Ironsource. After years of diligence and consistent admiration for APP’s adtech revenues, we gained conviction in Applovin’s data-driven competitive advantage and initiated a position this summer.
We purchased shares at~11x NTM EBITDA, an attractive price relative to APP’s growth and quality compared to similar adtech peers. The entry price also appeared inexpensive relative to APP’s own historical valuation, which averaged -20x EBITDA. We felt confident in underwriting mid-teens revenue growth and modest operating leverage over the medium-term. Without any multiple expansion, we expected to earn a low-20%s IRR in the stock-an attractive return for owning such a dominant, secular growth business.
As the year progressed, the market increasingly rewarded APP for its quality & growth, nearly doubling its forward EBITDA multiple from our cost basis. With the valuation nearing 20x EBITDA, we no longer saw a sufficient margin of safety and exited our position at roughly 2x our cost basis.”
A close-up of a mobile device, showing an advertiser reaching out to a consumer via a software-based platform.
AppLovin Corporation (NASDAQ:APP) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 51 hedge fund portfolios held AppLovin Corporation (NASDAQ:APP) at the end of the third quarter which was 54 in the previous quarter. AppLovin Corporation (NASDAQ:APP) reported an outstandings third quarter, generating $1.2 billion in total revenue and $722 million in adjusted EBITDA, achieving a 60% adjusted EBITDA margin. While we acknowledge the potential of AppLovin Corporation (NASDAQ:APP) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article, we discussed AppLovin Corporation (NASDAQ:APP) and shared top AI stock news and ratings dominating Wall Street. In addition, please check out our hedge fund investor letters Q3 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.