AppLovin’s Algorithmic Moat Is Vulnerable, Says Investor: Why $1.9B Quarterly Revenue Isn’t Enough to Justify a Buy
AppLovin prints $1.9 billion quarters and 84% margins, yet two disciplined investors studied the model and walked away. Their reason cuts to the heart of what separates a durable moat from a very good algorithm.
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Shares of AppLovin (NASDAQ:APP | APP Price Prediction) closed at $319.05 on September 2, marking a 52.7% year-to-date decline for a stock that spent late 2025 above $656. On the September 3, 2026, episode of The Investor’s Podcast Network’s We Study Billionaires, hosts Kyle Grieve and Shawn O’Malley devoted a full teardown to the mobile ad platform. Grieve framed the show as “TIP843: AppLovin (APP): The 30-Bagger Down More Than Half.” After walking through the model, both hosts passed.
An Ad Platform Bigger Than Pinterest, Snap, and Reddit Combined
The scale is the first thing that lands. Grieve noted that “the advertising spend on AppLovin is more than Pinterest, Snapchat’s and Reddit’s combined revenue.” That comparison puts the AXON 2 engine in context for readers outside ad tech. AppLovin runs a marketplace where mobile game publishers and, increasingly, e-commerce brands bid for user attention through the company’s recommendation algorithm.
Asset-light in this context means the platform monetizes traffic without owning the audience: no content studio, no consumer app, minimal capex. O’Malley pointed to “over 79% over the last 12 months” adjusted EBITDA margins and $7.6 million in revenue per employee as evidence of that model. Q2 2026 revenue reached $1.92 billion, up 52.82% year over year, with an 84% adjusted EBITDA margin, per AppLovin’s Q2 2026 8-K exhibit filed with the SEC.
Founder Who Said No to a Billion Dollars
Grieve recounted CEO Adam Foroughi’s 2015 decision to turn down an acquisition offer: “He walked away hoping for a valuation closer to a billion dollars. To give you an idea of how big a mistake that would have been, the company is now valued at a little over a hundred billion dollars today.” AppLovin’s market cap stands near $107.2 billion as of September 3, 2026. The anecdote set up the hosts’ capital-allocation debate.
Where the Two Hosts Diverged on Capital Allocation
Grieve graded the buyback program highly. AppLovin repurchased 1.1 million Class A shares for $551.3 million in Q2 2026 and 6.4 million shares for $2.58 billion across full-year 2025. O’Malley took a more skeptical view of overall capital allocation, citing prior M&A history that included studio acquisitions later divested. The company recorded a $188.9 million goodwill impairment and a $99.4 million loss from discontinued operations in FY 2025. Grieve graded buybacks well; O’Malley graded the full record as average. Both positions stayed on the table.
Why Both Investors Passed
Grieve’s core concern was the durability of an algorithmic moat: “There’s just something I don’t really like about a business whose core advantage is a really good algorithm, because it feels like another business can just write a better algorithm and then poof, there goes your business model.” He layered on saturation risk, noting roughly 55% of top mobile games are already on Max.
O’Malley framed the same worry through platform economics. With Google and Meta, “it’s sort of transcended just the algorithm” because network effects anchor the business regardless of which quarter’s ranking model wins. AppLovin looks more like a pure technology bet in his framing.
The hosts invoked a circle-of-competence argument, the Warren Buffett idea that investors should only underwrite businesses they can accurately model. Both said ad-tech algorithms sit outside theirs, echoing their earlier caution on Trade Desk (NASDAQ:TTD). Grieve’s base case used a 17% revenue CAGR, 77% EBITDA margins, and a 13x EV/EBITDA multiple to reach a $480 price target implying a 9% CAGR. His verdict: “My thoughts on this business are that it’s a pass. While it certainly offers upside, I just don’t think I could find myself getting comfortable enough with the business to ever have it in the intrinsic value portfolio or my personal account.”
What Investors Should Take From Two Careful Passes
Foroughi is running the buyback aggressively, and Q3 2026 guidance calls for revenue of $2.055 billion to $2.085 billion at roughly 83% adjusted EBITDA margin. The CEO’s conviction is expressed in capital returns. Grieve and O’Malley’s restraint is a reminder that two disciplined investors can pass on one of the best businesses either of them has ever modeled without predicting a break. Readers weighing AppLovin after the drawdown should decide whether an algorithm is the kind of moat they are willing to hold through a competitive shock.
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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. He previously oversaw the 24/7 Climate Insights site, managing editorial operations and content strategy, and currently oversees and creates content for My Investing News.
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, overseeing a long-running critique group and moderating workshop sessions at regional conventions. He lives with his family in an old house in the Midwest.
