Shares of AppLovin (APP +2.27%) rallied 22.5% in August, according to data from S&P Global Market Intelligence.
The artificial intelligence (AI)-powered mobile game advertising engine delivered another exceptional quarter when it reported second-quarter earnings on Aug. 6. Not only were results great, but management also laid out near-term catalysts as the company penetrates new market segments.
NASDAQ: APP
Key Data Points
AppLovin's ad engine takes hold
In the second quarter, AppLovin grew revenue a whopping 77% to $1.26 billion, while earnings per share from continuing operations was $2.28, up 153%. Both figures handily beat expectations. Management also guided strongly this quarter for revenue of $1.33 billion at the midpoint, along with an astonishingly high 81% adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin.
AppLovin has put together a seamless platform that allows advertisers to acquire users and monetize mobile games, but is now opening up its platform to more non-gaming companies, such as e-commerce and connected-TV apps.
Management piloted e-commerce customers starting in Q4 last year, and has been methodically ramping up in 2025, actually limiting advertiser participation as AppLovin tweaks its ad engine on new publishers and advertisers. But management noted the holiday season should be a big ramp-up in that segment, which is growing at a higher rate than the overall business, and now accounts for about 10% of revenue.
Coming up on Oct. 1, AppLovin intends to open up self-service function for its AXON platform, which should reduce friction to onboarding advertisers, easing the way for more growth. Management will also be opening up e-commerce advertisers to international markets on that date.
Image source: Getty Images.
AppLovin has the makings of a compounder
AppLovin is not only displaying tremendous growth, but it's doing so with very little incremental spending. Over the past two years, AppLovin's revenue has more than tripled, while net margin has expanded from 20% to 65%.
While AppLovin is now expanding into new ad segments, it's still generating strong cash flow and repurchasing stock. So although the stock is up 73% on the year and looks expensive at 77 times earnings, AppLovin's rare combination of high growth and high margins could justify its valuation.
After all, management noted AppLovin only serves a tiny proportion of total addressable advertiser base on its platform, lending optimism for a long growth runway.
