AppLovin (APP 0.78%) once again held up to the short-seller scrutiny it's been under, with yet another quarter of surging revenue and profitability growth. The stock is now up more than 500% over the past year and more than 30% year to date.
A trio of short-sellers -- Fuzzy Panda Research, Muddy Waters, and Culper Research -- have tried to cast doubt on the legitimacy and effectiveness of AppLovin's artificial intelligence (AI) adtech platform, Axon 2.0. However, the company just keeps delivering outstanding growth quarter after quarter.
Meanwhile, their claims that AppLovin's software violates user privacy and installs apps on users' devices without their consent have not been met with any blowback from app store operators Alphabet or Apple.
Image source: Getty Images.
No slowdown in sight
After selling its legacy app business, AppLovin is now a pure-play adtech company. In the second quarter, its revenue surged 77% to $1.26 billion.
The company also continues to see strong gross margin improvement and reduced operating costs. In Q2, its gross margins improved to 87.7% from 82.9% a year ago, while it lowered its operating costs by 29%, including a 34% reduction in sales and marketing spending. This is leading to soaring profitability metrics that are growing even faster than revenue.
Earnings per share (EPS) from continuing operations jumped from $0.89 a year ago to $2.39. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), meanwhile, nearly doubled year over year to $1 billion.
AppLovin generated $772 million in operating cash flow and $768 million in free cash flow. It ended the quarter with $2.3 billion in net debt, down from $3.2 billion in Q1, following the sale of its app business.
The majority of AppLovin's revenue growth continues to come from its core gaming ad business. It said that e-commerce, which it is piloting, also performed well, but it limited new customer onboarding to focus on the upcoming launch of its self-serve platform.
The company believes its self-service portal will be the foundation for its next decade of growth. It said the platform establishes the framework for automatically generated ads and that it puts the day-to-day control directly in advertisers' hands. It will open up the Axon ads manager on a referral basis at the start of October, with plans for a global public launch in the first half of 2026.
It will also open up its platform to advertisers outside the U.S. for the first time at the start of October. Notably, the company said that the vast majority of its user audience is outside the U.S.
It also plans to implement a paid marketing campaign next year to recruit new advertisers. Historically, the company's adtech platform has grown more by word of mouth.
Looking ahead, AppLovin forecasts Q3 revenue to be between $1.32 billion and $1.34 billion, representing growth of around 59%. It projected adjusted EBITDA to come in between $1.07 billion and $1.09 billion.
It expects to be able to grow its revenue by 20% to 30% a year moving forward, just from gaming. However, management is upbeat about the potential of expanding beyond its core market.
Is it too late to buy the stock?
Despite its more than 500% gain over the past year, AppLovin's stock is still reasonably priced. It trades at a forward price-to-earnings (P/E) ratio of about 40.5 times 2026 analyst estimates, but a one-year forward price/earnings-to-growth (PEG) ratio of just 1, with 1 being the threshold of whether a stock is considered undervalued.
Meanwhile, 2026 appears to be shaping up to potentially be an exciting year. Between opening up its platform globally this fall to the launch of its self-serve platform and continuing to expand beyond gaming, AppLovin has a lot of irons in the fire to keep driving strong growth.
While the short-seller scrutiny needs to continue to be monitored, I still think AppLovin's combination of growth and valuation warrants taking a position in the stock.
