Applovin reported revenue of $1.26 billion compared to consensus of $1.28 billion according to some sources yet others reflect the consensus we had of $1.22 billion, thereby it’s debatable if the top line beat. Our notes show App beat, although narrowly.
Management had guided last quarter for revenue of $1.195B to $1.215B, representing YoY growth of 69.5% at the midpoint. By this standard, as well, Applovin beat with growth of 77%.
On the bottom line, the company had a large beat with EPS of $2.39 compared to $1.99 EPS expected, representing growth of 169%. This was a 45 point beat on growth rate for the bottom line. Adjusted EBITDA doubled to $1.02 billion, up from $943 million last quarter. This represents an adjusted EBITDA margin of 81%.
As management alluded to on the earnings call, the company “prints cash” with a 61.3% operating cash flow margin and a 61% free cash flow margin.
The Q&A was primarily focused on when Applovin plans to launch its self-serve ad platform, as this should create a boost for growth. Management was encouraging saying “as soon as possible” yet the tone on the earnings call was particularly optimistic about Q4 being a bigger quarter for the company. Details on why management had the confidence to call out Q4 specifically are noted below.
Revenue
Regardless of a nominal decimal point that caused a beat (or miss), the quants may have quickly sold the report after hours from mistakenly pricing Applovin for a deceleration from the March quarter to the June quarter.
- Overall revenue last quarter was $1.48B versus this quarter at $1.26B. As we covered in the past, this is due to Applovin divesting its mobile gaming “Apps” business, with the sale completed on June 30th. Therefore, if you adjust for this sale, revenue for the ads business in Q1 was $1.15B for QoQ growth of 8.7%.
- The current quarter marks an acceleration from 71% YoY growth yet QoQ growth is slowing.
- For next quarter, Applovin expects to see $1.33 billion in revenue, slightly above estimates for $1.31 billion. This represents 59% YoY growth and QoQ growth of 5.5%.
As stated, Applovin divested its Apps business, which was weighing on both growth and margins. For example, Applovin had been reporting low growth in this segment of (13%) growth in the March quarter leading up to the sale.
Margins and EPS: Operating margin doubled to 76% … what?!
Applovin’s revenue growth is only part of the story, whereas the bottom line is what sets Applovin apart. I can count on one hand (or maybe even one finger) the number of tech companies that have reported a 76% GAAP operating margin.
It may be common for tech companies to be in hypergrowth stage at times, yet very few ever reach the quality margins that App is reporting quite early in its company history.
The bottom line presented below is a thing of beauty. The margins have clearly benefited from divesting the Apps business, which had been weighing on the margins.
- Gross margin of 88% compares to last quarter at 81.7% and the year ago quarter at 73.85.
- Operating margin of 76% expanded from 44.7% last quarter and more than doubled from the year ago quarter at 36.2%. Wow!!
- Net margin of 65% expanded from 38.8% last quarter and doubled from 28.7% in the year ago quarter. Wow!!
Earnings per share of $2.39 beat estimates for EPS of $1.99, representing growth of 169%. This was a large beat as growth was expected to be 123.5% on the bottom line.
Cash Flow Margin of 61%
In yet another impressive bottom-line number, Applovin reported a 61% free cash flow margin for free cash flow of $768 million. The company has been strong on cash for sometime, yet this still represents a 540 bps expansion QoQ and 20-point expansion YoY.
The operating cash flow margin of 61.3% is up from 56% last quarter for operating cash of $772M. The company has $1.2 billion in cash on the balance sheet including $425M from the sale of the Apps business. The company has $3.7B in debt.
Applovin does share buybacks with 900,000 shares repurchased in the last quarter for a total of $341 million funded through free cash flow. This lowered share count form 346M to 342M last quarter.
Earnings Q&A:
Self-Serve platform set to launch October 1st
Management has repeatedly stated that gaming alone can sustain growth of 20% to 30% YoY. Therefore, the catalyst for the next few years is securing additional supply, such as e-commerce, as well as opening up the AXON ad platform to more advertisers.
The AXON ads manager recently became self-service, which means it can scale at levels not previously seen by offering self-service interface for Applovin’s 1 billion reach. As of now, Applovin is limited in the number of advertisers it can manually on board. According to the opening remarks: “With the rollout going smoothly, we are ready to widen access. On October 1, 2025, we plan to open the AXON ads manager on a referral basis, perfectly timed for the holiday season. Feedback from these partners will guide our global public launch in the first half of 2026. To date, web advertising campaigns have been limited to the United States. On October 1, we plan to open our platform to most major international markets.”
When it comes to e-commerce, Applovin explained they limited the number of advertisers initially in order to make sure the tools were working properly, and they are now satisfied with the results and ready to launch self-serve on an invite basis to start.
Per the Q&A:
“And then the last point to remember is another one of my prepared remarks highlighted the fact that we have constrained the advertisers we even have live today by not allowing them to buy our audience that's international. The vast majority of our user audience is outside the U.S. We will be releasing almost all markets once we go into this October 1 release.”
Looking longer-term, by matching categories such as e-commerce with a self-serve platform, Applovin discussed a flywheel effect: “So in terms of opportunity for us, not only does opening up the platform get us more demand, which is going to be massively accretive and incremental to our business. It gets us more data. And so every single quarter, you're going to have that flywheel effect that, that then paired with our engineers' ability to take added data and improve the technology and its interpretation of that data creates a real strong foundation for growth for a long time to come.”
Commentary that Q4 will be strong:
During the Q&A, there were a few mentions that Q4 should be strong along with mention of upside to the numbers come 2026.
I want to make money in 2026 about as much as I want to make money in 2025, so this kind of discussion is my favorite moment during an earnings call (…and is the reason I take the time to listen to these calls and not run the transcript through Chat-GPT, like many, many research sites do these days!)
Here’s one example:
“We expect that will increase the advertiser count quite quickly and also allow us to go through live examples of advertisers coming in self-service all the way to scale on our product. Assuming all that goes well, then we talked about opening up the platform entirely to the world in first half of next year. We think as advertiser count grows on our business, especially in categories outside of gaming, you're going to see a lot of upside in the numbers that we're able to report.”
Here was a more specific mention to Q4:
“As we go into Q4, that's a huge holiday shopping season. So not only are you going to see the cohort that we have live spend a lot more. You're also going to have new onboarding happening for the first time in our history at a rate that's much higher than we will have ever seen before. So we fully expect that e-commerce will see a pretty substantial ramp-up through that, what you can call a soft launch period and then, obviously, as we go into a broader global release, the impact from that.”
It was repeated again with more details around the compounding effect of onboarding the many new advertisers for existing gaming inventory and also new categories:
“Now it's not necessarily true that we're going to take our queue that's built over the last year and just say, everyone you're in. They're still going to have to get invited to get into the platform. So it will be still curated onboarding. The reality is like Q4 is going to end up being a fun quarter. You've got the advertiser cohort that we didn't have last Q4 that was growing in the quarter to the point where we reported huge numbers and then had huge numbers in Q1. But we're going to have those advertisers primed and ready to go for the full Q4. We're going to have advertisers inviting their friends onto our platform in Q4, and we're going to be opening up international all at the same time.
So there's going to be a lot of fun moment — moments for us and our customers in this e-commerce or web-based category that will set sort of a new baseline for that business. And then obviously, then we will go through hopefully another inflection when we really truly open up the platform and try to get into a state where we're more stable long term.”
Quick Note on 2026-2027:
Although further out, there was talk that lower fees on the App Store should become a tailwind for Applovin 4-8 quarters out: “So no impact yet. And I would guess it will probably take 2 to 4 quarters from some impact. And by 4 to 8 quarters, you're going to get pretty material impact in pricing on our platform.”
Conclusion:
I’ve never been one that needs the market to agree with me, and I am afraid on this one the market and I will have to agree to disagree as the price is down after hours. This was a stellar report with all fundamental boxes ticked, a team that has proven to execute, and incoming catalysts that are quite well-timed to where the market is selling the stock while we maybe have two quarters (or less) to wait for an inflection.
Of course, this requires some speculation as consensus will not reflect management commentary until there are material results. But after all, that’s where the real money is made. Let's hope the formula of "believe what you see" works for us again as the growth, historic margins and the ability to print cash all point toward a solid stock while management hints they have more in store for shareholders around year-end.
Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in APP at the time of writing and may own stocks pictured in the charts.
Recommended Reading: