AppLovin’s fundamentals remained strong in this earnings report, yet negative sentiment continues to build. There is no material evidence that market concerns are playing out, yet regardless, the market has a new set of concerns around AI-driven ad competitors, following previous concerns on short seller reports and SEC probes.
Sticking to the facts, the company reported very strong growth of 66% YoY and 18% QoQ for revenue of $1.66 billion. On a sequential basis, AppLovin accelerated from 11.6% QoQ last quarter though YoY was down about 230 basis points. Looking into Q1, the company is guiding for growth of 6.2% QoQ on a higher revenue base of $1.66 billion compared to 16% QoQ growth in Q1 last year on a lower revenue base of $999.5 million. The Q1 revenue guide beat estimates by a solid 3.5%.
Adjusted EBITDA margin of 84% was up 700 basis points from last year and up 200 basis points QoQ. This makes for a Rule of 40 of 150, which is higher than Palantir and Cloudflare.
You will be hard pressed to find any issues with the earnings report, yet just as Applovin was beginning to overcome the negative spin from short sellers, a slew of AI-driven competitors launched recently. There were plenty of discussions around Applovin’s positioning, detailed for you below.
AppLovin is a Shark in Sharky Waters:
By definition of being an ad platform, AppLovin is in sharky waters. There is far more competition among advertising platforms than what public investors may realize – the ecosystem is into the thousands
However, AppLovin is top dog (or top shark) in many regards, especially when it comes to gaming for sure, and also when it comes to independent ad platforms. The weak price action as of late is because the waters have become more crowded.
Here is what I had stated last quarter, noting the stock is not for the faint of heart:
“AppLovin operates in shark-infested waters as one of the few companies over the past decade to challenge the walled gardens of Meta and Google. While the company’s fundamentals are exceptional, the presence of an SEC probe—discussed below—adds complexity, contributing to sharp swings in both directions.”
There are three primary developments that complicate AppLovin’s moat, which the market is grappling with. I’ll go in order of least concerning.
Google’s Project Genie 3
Google recently announced Project Genie 3, which offers AI-driven automation for ads by relying on AI agents for campaign setup and optimizations. If we look more closely, Genie is more about workflow automation whereas Applovin emphasizes performance as it’s built on a very large data set of 1+ billion users. The end goal is fundamentally different as Project Genie offers automation of ad operations (so, reducing workforce is the most likely outcome) compared to Applovin’s Axon which is focused on marginal improvements in ad performance by continuously training models to optimize ROAS (return on ad spend) and LTV (lifetime value).
Here is how it was described on the call:
“But right now, we're seeing somewhere around day 30 LTV to cost of user acquisition. So if you think about lead gen models and if you know lead gen models and also if you understand the life of value that we create for advertisers, which is in the many years, to be able to break even on the media buy in 30 days is exceptional. We've got arguably one of the best business models the world has ever seen, and we're seeing the ability to market our platform and small testing at that level.”
For reference, 30 days LTV to CAC (customer acquisition cost) is exceptional as many direct-to-consumer brands consider 3 months as ideal for fast growth and 6 months acceptable.
CloudX:
CloudX is a startup founded by an AI executive heavyweight who previously founded MoPub and MAX (which was later acquired by AppLovin). Rather than competing with Applovin on the demand/advertiser side, this newly launched startup is targeting the publisher/supply side.
As it stands, Applovin works with the world’s largest gaming publishers and is adding e-commerce sites. Where CloudX hopes to attract those publishers is by offering AI agents to offload time-intensive busywork of integrating multiple software development kits (SDKs), mediation layers and custom bidding logic. This level of work represents entire teams on the engineering side, and also can quickly improve time-to-deployment for trying new ad products and demand partners.
On the topic of demand partners, CloudX stated the following in their public announcement: “Four months ago, CloudX launched with three demand partners and a handful of publishers. Today, we're generally available with seven bidders: Meta, Unity, Liftoff, Magnite, InMobi, Mintegral, and Moloco. All competing in the same verified auction. At the same time, we’ve been hard at work adding the publisher features that our first batch of customers have been asking for. We put together a quick demo video to give you an idea of the power of our Monetization as Code and Agentic enabled approach.”Monetization as Code and Agentic enabled approach.”
However, performance parity is not guaranteed as AppLovin has a formidable dataset – in fact, it’s likely the most attractive dataset outside of Big Tech with over 1 billion users. CloudX has a lot to prove, especially given AppLovin can provide a 30-day LTV to CAC.
Here is what was stated about CloudX on the call:
“So in a world where Cloud X becomes a start-up that comes into the space, you have to talk about like what are they walking into? How is the world different today versus what it was? The moat around our mediation is not because of the mediation. We're very good. We've got the most bid density. In any mediation A/B test, if you talk to publishers, you'll hear MAX does better. But we don't blow it out of the water. We're a few percentage points better than other mediations. If someone wanted to pay a bonus to cover that, they could potentially pay a bonus to cover that.
Where it gets really expensive for the publisher and where we're really locked in is that we have the best advertising solutions on the market. In fact, for a lot of these publishers, we're over 50% of all their user acquisition spend. They can't go get that anywhere else. If they go off MAX, that decays. And so they're left in a world where they have the best buying tools. They have the best monetization tools. It becomes a really strong 360 solution and their growth depends on it.
And then the MAX ecosystem is not growing slow, as we've talked about in prior calls, this is a double-digit, very strong growing category where these publishers are seeing their businesses improve because of the improvement in our technology. When you've got that in the foundation and you've got a really strong moat with technologies that no one else can replicate or have, then you end up with a sticky solution, and we're very confident our solution is just that.”
Meta:
The I/O Fund has been quite vocal about Meta’s strength among the Mag 7 given Advantage+ is reporting a $60 billion annual run rate. Conversely, the market is concerned that Meta’s capex-fueled push into AI-driven ad automation will breach Applovin’s moat. There has not been a formal announcement that Meta is focused on gaming inventory or no-ID inventory, yet analysts are growing concerned this is inevitable given the company’s aggressive push to integrate more AI features into ad optimization and targeting.
In November, Meta announced they had optimized campaigns for 29% higher return on ad spend (ROAS) compared to a 12% improvement earlier in the year. The press release stated, “the gaming sector shows particularly strong adoption” with many of the top global gaming studios commenting on the improvements.
Meta received most of the analyst questions given they pose a more substantial threat in terms of data and budget for AI initiatives, plus more direct overlap given their Audience Network ad platform is aimed at attracting publishers.
There were many questions about Meta, but this one was the most important, in my opinion:
“Five years ago, when Meta was really big in the space, and I think this is what's throwing people off. People recall a time Meta was half the space. They think it's going to be half the space again. Meta has been on IDFA-based and Google ad ID-based traffic since that no IDFA change. Nothing has changed for them. What's changed in the marketplace is that the other ad platforms that are built for this category, Unity, Liftoff, Moloco, et cetera, have gotten better.
Now we've got the best. AXON 2 was the biggest breakthrough in a model in this category period, and we were able to end up becoming the #1 by a lot. AXON 2 didn't exist five years ago. So there's no world where Meta is going to end up becoming that kind of a dominant player in the face of this competition. In fact, I don't see a world anyone else can because they're going up against that dominance. And these models, as they build more data, it's a closed-loop model that's continuously reinforcing itself and getting smarter.
Our model is so far into getting smart for this niche. The niche isn't that small, and we've got such a strong position. It's highly unlikely that someone else is going to come in and materially disrupt it. So a long way of saying, again, no, we don't see what people are so afraid of. We think psychologically, people just index on numbers from five years ago and think, oh, Meta is going to ramp to that. But just ask the customers you talk to, what's the share of wallet between us to them and to everyone else on IDFA-based traffic, and that will give you an indicator of how good we are.”
Financials
By Royston Roche
Q4 Revenue Growth of 66%
AppLovin’s Q4 revenue grew by a stellar 65.9% YoY and 18% QoQ to $1.66 billion, beating estimates by 2.9%. The strong revenue growth was primarily driven by continued strength in the gaming advertising revenue, seasonal strength, and the contribution of e-commerce revenue. Management has guided Q1 revenue of $1.745 billion to $1.775 billion, implying a YoY growth of 51.9% YoY and 6.2% QoQ at the midpoint. The Q1 revenue guide beat estimates by a solid 3.5%.
The company’s co-founder, Adam Foroughi, said in the earnings call, “Our performance, our business is executing extremely well. We continue to grow very quickly despite the numbers getting much bigger. We delivered strong growth in Q4. And despite typical seasonality where Q1 should be softer than Q4, we are guiding to meaningful sequential growth. That reflects both continued strength in gaming and the scaling of our e-commerce and our self-service customers.”
Full year 2025 revenue grew by 70% YoY to $5.48 billion. Looking ahead, analysts expect revenue to grow 43.7% YoY to $7.87 billion in 2026 and 28.1% YoY to $10.08 billion in 2027.
Q4 Operating Margin of 77%
AppLovin’s margin expansion is truly outstanding, primarily driven by strong operating leverage. The company’s AI-powered advertising engine, AXON 2.0, launched in Q2 2023, serving as a game-changer that drove strong revenue and profits.
- Q4 gross profits grew by 74.3% YoY to $1.47 billion with a gross profit margin of 88.9%. The gross profit margin was up 420 basis points YoY and 130 basis points sequentially.
- Q4 operating income grew by 103% YoY to $1.275 billion, driven by solid operating leverage. The company’s operating margin improved by 1400 basis points YoY and 10 basis points sequentially to 76.9%.
- Q4 net income grew by 84.9% YoY to $1.10 billion. Net profit margin improved by 690 basis points YoY to 66.5%.
- Adjusted EBITDA grew by 81.7% YoY to $1.40 billion with an adjusted EBITDA margin of 84%, up by a solid 700 basis points YoY and 200 basis points sequentially. Management Q1 adjusted EBITDA guide is 84%, up 300 basis points YoY and flat QoQ.
- 2025 operating margin improved to 75.8%, from 59.3% in 2024.
- Net profit margin improved to 62.6%, from 49.3% in 2024.
- Adjusted EBITDA margin improved to 82%, from 75% in 2024.
GAAP EPS grew by 88% YoY
Q4 GAAP EPS grew by 88.4% YoY to $3.24 primarily driven by strong operating leverage. The EPS beat the analysts estimates by a solid 10.1%. Analysts expect strong growth to continue with Q1 EPS expected to grow by 97.9% YoY to $3.30 and Q2 EPS to grow by 49.2% YoY to $3.57.
Looking ahead, analysts expect 2026 EPS to grow by 59.3% YoY to $15.53 and by 26.6% YoY to $19.65 in 2027.
Q4 Free Cash Flow Grew by 88%
The company has an exceptionally strong cash flow margin profile, primarily driven by strong profits.
- Q4 operating cash flows grew by 87.4% YoY to $1.314 billion with a margin of 79.2%, up 910 basis points YoY.
- Q4 free cash flows grew by 88.3% YoY to $1.31 billion with a margin of 79%, up 1370 basis points YoY.
- The company’s cash improved to $2.49 billion, up from $1.67 billion at the end of the previous quarter. While debt remained the same at $3.51 billion.
- The company repurchased and withheld 800,000 shares, valued at $482 million. For the full year, the company repurchased about 6.4 million shares for $2.58 billion, funded entirely by free cash flows. Over the last four quarters, the company reduced the outstanding shares from 346 million in Q4 2024 to 340 million. The remaining share repurchase authorization is $3.28 billion at the end of Q4 2025.
Conclusion:
In terms of number of competitors, Applovin operates in the sharkiest arena across the tech sector. Concerns around Meta, CloudX and IDFA dynamics are narratives that are not showing up in the fundamentals. What Applovin offers is performance at scale and a real data advantage that only Meta can rival. Even with Meta rivaling Applovin across many publishers, Applovin contends they have the gaming category cornered and are now expanding into e-commerce. The most likely end result is that most publishers will use both.
In the Top 15 report, I led with the cautionary sentence that “AppLovin is a stock that needs a strong technical analysis overlay” as App’s fundamentals argue there is real staying power, but the stock will continue to demand patience and disciplined timing.
Royston Roche, Equity Analyst at I/O Fund contributed to this analysis.
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.
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