What Investors Still Get Wrong About AppLovin
The market still labels AppLovin a mobile gaming company, but the games are gone and what replaced them is generating margins that rival the most profitable software businesses on earth. The question is whether the valuation has caught up to…
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AppLovin (NASDAQ:APP | APP Price Prediction) is now a pure-play, AI-driven advertising platform generating profitability metrics that stand alongside the biggest names in software, even as the market still categorizes it as a “mobile gaming roll-up.”
A Literal Business Pivot
AppLovin sold its entire Apps and mobile-gaming portfolio to Tripledot Studios, closing the deal on June 30, 2025, for roughly $400 million in cash plus an approximately 20% equity stake. The games business is gone from the operating results. What remains is the Axon advertising engine and a balance sheet that looks nothing like a hit-driven app studio.
The Margins Tell the Real Story
In the most recently reported quarter, revenue reached $1.84 billion, up 59% year over year, with operating income of $1.44 billion and an operating margin of 78%. GAAP net margin came in at 65%, and adjusted EBITDA margin hit 85%. These are Big Tech-caliber margins.
CFO Matt Stumpf framed it plainly: “Margins expanded approximately 400 basis points from the same period last year. Quarter-over-quarter flow-through to adjusted EBITDA was 86%, again, reflecting the operating leverage of our model.”
Operating Leverage from the AI Engine
Full-year 2025 revenue landed at $5.48 billion (+16.4% year on year) with net income of $3.33 billion (+111% year on year). In Q2 2025, R&D fell 56% year on year and S&M fell 30%, even as revenue grew 77%. Four consecutive quarterly beats have followed. CEO Adam Foroughi noted: “We continue to grow this business very quickly despite the numbers getting much bigger, and we are doing it while margins keep expanding.”
A Capital-Light Cash Machine
Q1 free cash flow of $1.29 billion was generated on just $413,000 in capital expenditures. The company returned $1.0 billion via buybacks (2.2 million shares) in the quarter alone, with roughly $2.3 billion remaining under authorization.
Investors curious about the broader shift in AI-adjacent software winners can see our related research at 7 Stocks Powering the AI Boom (That Aren’t Chipmakers).
The Risks of a Premium Platform
Shares trade at a trailing P/E of 38 and a beta of 2.48. The stock is down 33.4% year to date to $448.98, against a 52-week range of $343.00 to $745.61. FY2025 also included a $188.9 million goodwill impairment tied to the pivot. Analyst consensus target is $654.60.
Retail is catching on. A February 2026 Reddit thread titled “$APP Has Gone from Overvalued to Now Cheap?” drove sustained bullish sentiment. The category-leader thesis remains intact; the stock simply needs the market to update its label.
This article is for informational purposes only and does not constitute investment advice.
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Trey has been an editor and author at 24/7 Wall St. for more than a decade, where he has published thousands of articles analyzing corporate earnings, dividend stocks, short interest, insider buying, private equity, and market trends. His comprehensive coverage spans the full spectrum of financial markets, from blue-chip stalwarts to emerging growth companies.
Beyond 24/7 Wall St., Trey has created and edited financial content for Benzinga and AOL's BloggingStocks, contributing additional hundreds of articles to the investment community.
Trey's editorial expertise extends across multiple publishing environments. He served as production editor at Dearborn Financial Publishing and development editor at Kaplan, where he helped shape financial education materials. Earlier in his career, he worked as a writer-producer at SVE. His freelance editing portfolio includes work for prestigious clients such as Sage Publications, Rand McNally, the Institute for Supply Management, the American Library Association, Eggplant Literary Productions, and Spiegel.
Outside of financial journalism, Trey writes fiction and has been an active member of the writing community for years, moderating workshop sessions at regional conventions.
