AppLovin Shares Jump as Revenue Continues to Surge. Is It Too Late to Buy the Stock?

Core Insights - AppLovin's stock has increased over 500% in the past year and over 30% year-to-date, demonstrating strong market performance [1] - The company has consistently shown significant revenue and profitability growth, despite scrutiny from short-sellers regarding its AI adtech platform [2] Financial Performance - In Q2, AppLovin's revenue surged by 77% to $1.26 billion, with gross margins improving to 87.7% from 82.9% year-over-year [4][5] - Earnings per share (EPS) from continuing operations rose from $0.89 to $2.39, while adjusted EBITDA nearly doubled to $1 billion [6] - The company generated $772 million in operating cash flow and $768 million in free cash flow, reducing net debt from $3.2 billion to $2.3 billion [6] Business Strategy - AppLovin has transitioned to a pure-play adtech company after selling its legacy app business, with the majority of revenue growth coming from its core gaming ad business [4][7] - The company is launching a self-service platform aimed at automating ad generation and giving advertisers more control, with a referral-based opening in October and a global launch planned for the first half of 2026 [8] Market Expansion - AppLovin plans to open its platform to advertisers outside the U.S. for the first time in October, as most of its user audience is international [9] - The company intends to implement a paid marketing campaign next year to attract new advertisers, moving beyond its historical reliance on word-of-mouth growth [9] Future Outlook - For Q3, AppLovin forecasts revenue between $1.32 billion and $1.34 billion, indicating a growth of around 59%, with projected adjusted EBITDA between $1.07 billion and $1.09 billion [10] - The company expects to maintain a revenue growth rate of 20% to 30% annually from gaming, while also exploring expansion opportunities beyond its core market [10] Valuation - Despite a significant stock price increase, AppLovin's stock is considered reasonably priced, trading at a forward P/E ratio of about 40.5 times 2026 analyst estimates and a one-year forward PEG ratio of just 1 [11] - The upcoming year, particularly 2026, is anticipated to be pivotal for the company due to its global platform expansion and self-serve platform launch [12]