AppLovin (NASDAQ:APP) Misses Q3 Sales Targets, Stock Drops

Petr Huřťák /
2022/11/09 4:35 pm EST

Mobile app advertising platform AppLovin (NASDAQ: APP) missed analyst expectations in Q3 FY2022 quarter, with revenue down 1.9% year on year to $713 million. Guidance for the next quarter also missed analyst expectations with revenues guided to $692.5 million at the midpoint, or 12.5% below analyst estimates. AppLovin made a GAAP profit of $23.6 million, improving on its profit of $142 thousand, in the same quarter last year.

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AppLovin (APP) Q3 FY2022 Highlights:

  • Revenue: $713 million vs analyst estimates of $728.1 million (2.07% miss)
  • EPS: $0.06 vs analyst expectations of $0.07 (18.9% miss)
  • Revenue guidance for Q4 2022 is $692.5 million at the midpoint, below analyst estimates of $791.6 million
  • Free cash flow of $172.3 million, up 61.5% from previous quarter
  • Gross Margin (GAAP): 57.7%, down from 65% same quarter last year

Co-founded by Adam Foroughi who was frustrated with not being able to find a good solution to market his own dating app, AppLovin (NASDAQ:APP) is a provider of marketing and monetization tools for mobile app developers and also operates a portfolio of mobile games.

The digital advertising market is large, growing and becoming more diverse, both in terms of audiences and media. This as a result drives a growing need for a software that enables advertisers to use data to automate and optimize ad placements.

Sales Growth

As you can see below, AppLovin's revenue growth has been exceptional over the last two years, growing from quarterly revenue of $381.7 million in Q3 FY2020, to $713 million.

AppLovin Total Revenue

But this quarter AppLovin's revenue was down 1.9% year on year, which might be a disappointment to some shareholders.

AppLovin is guiding for revenue to decline next quarter 12.7% year on year to $692.5 million, a further deceleration on the 55.6% year-over-year decrease in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 14.7% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. AppLovin's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 57.7% in Q3.

AppLovin Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.57 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and it has been going down over the last year, which is probably the opposite direction shareholders would like to see it go.

Key Takeaways from AppLovin's Q3 Results

With a market capitalization of $5.62 billion AppLovin is among smaller companies, but its more than $943.5 million in cash and positive free cash flow over the last twelve months give us confidence that AppLovin has the resources it needs to pursue a high growth business strategy.

We struggled to find many strong positives in these results. On the other hand, it was unfortunate to see that AppLovin's revenue guidance for the full year missed analysts' expectations and revenue growth was quite weak. Overall, it seems to us that this was a complicated quarter for AppLovin. The company is down 7.93% on the results and currently trades at $12.64 per share.

AppLovin may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.