AppLovin (NASDAQ:APP) Q4 Sales Beat Estimates, Stock Jumps 26.8%

Kayode Omotosho 2023/02/08 4:33 pm EST

Mobile app advertising platform AppLovin (NASDAQ: APP) beat analyst expectations in Q4 FY2022 quarter, with revenue down 11.5% year on year to $702.3 million. Guidance for next quarter's revenue was $695 million at the midpoint, 2.64% above the average of analyst estimates. AppLovin made a GAAP loss of $79.5 million, down on its profit of $31.4 million, in the same quarter last year.

Is now the time to buy AppLovin? Access our full analysis of the earnings results here, it's free.

AppLovin (APP) Q4 FY2022 Highlights:

  • Revenue: $702.3 million vs analyst estimates of $690.5 million (1.71% beat)
  • EPS: $0.21 vs analyst estimates of $0.05 ($0.16 beat)
  • Revenue guidance for Q1 2023 is $695 million at the midpoint, above analyst estimates of $677.1 million
  • Free cash flow of $136.5 million, down 21.7% from previous quarter
  • Gross Margin (GAAP): 47.4%, down from 66.6% same quarter last year

"For the first quarter of 2023, we see the mobile ad market remaining relatively stable," the company said in the shareholder letter. "Developers continue to closely monitor their overall profitability and advertisers appear to be maintaining overall ad budgets and return on ad spend goals, informing our outlook for the quarter."

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 very strong over the last two years, growing from quarterly revenue of $509.8 million in Q4 FY2020, to $702.3 million.

AppLovin Total Revenue

But this quarter AppLovin's revenue was down 11.5% year on year, which might be a disappointment to some shareholders.

Guidance for the next quarter indicates AppLovin is expecting revenue to grow 11.1% year on year to $695 million, improving on the 3.57% year-over-year increase in revenue the company had recorded in the same quarter last year.

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.

Profitability

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 47.4% in Q4.

AppLovin Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.47 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 Q4 Results

With a market capitalization of $4.78 billion AppLovin is among smaller companies, but its more than $1.08 billion 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.

AppLovin' revenue guidance for the next quarter looks quite a bit better than what the analysts were expecting. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. On the other hand, revenue has declined in absolute numbers and gross margin deteriorated. Overall, this quarter's results decent, considering the state of the market. The company is up 29.7% on the results and currently trades at $16.47 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.