Mobile app advertising platform AppLovin (NASDAQ: APP) reported results ahead of analysts' expectations in Q3 FY2023, with revenue up 21.2% year on year to $864.3 million. Turning to EPS, AppLovin made a GAAP profit of $0.30 per share, improving from its profit of $0.06 per share in the same quarter last year.
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AppLovin (APP) Q3 FY2023 Highlights:
- Revenue: $864.3 million vs analyst estimates of $796.7 million (8.5% beat)
- EPS: $0.30 vs analyst estimates of $0.27 (11.2% beat)
- Free Cash Flow of $196.8 million, down 12.9% from the previous quarter
- Gross Margin (GAAP): 69.3%, up from 57.8% in the same quarter last year
“We are thrilled to announce our best quarter ever leading to very strong financial results,” said Adam Foroughi, CEO and Co-Founder of AppLovin.
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 both a mobile game studio and provider of marketing and monetization tools for mobile app developers.
The digital advertising market is large, growing, and becoming more diverse, both in terms of audiences and media. As a result, there is a growing need for software that enables advertisers to use data to automate and optimize ad placements.
As you can see below, AppLovin's revenue growth has been unremarkable over the last two years, growing from $727 million in Q3 FY2021 to $864.3 million this quarter.
This quarter, AppLovin's quarterly revenue was up a very solid 21.2% year on year, above the company's historical trend. On top of that, its revenue increased $114.1 million quarter on quarter, a very strong improvement from the $34.76 million increase in Q2 2023. This is a sign of re-acceleration of growth and great to see.
Looking ahead, analysts covering the company were expecting sales to grow 14.3% over the next 12 months before the earnings results announcement.
Our recent pick has been a big winner, and the stock is up more than 2,000% since the IPO a decade ago. If you didn’t buy then, you have another chance today. The business is much less risky now than it was in the years after going public. The company is a clear market leader in a huge, growing $200 billion market. Its $7 billion of revenue only scratches the surface. Its products are mission critical. Virtually no customers ever left the company. 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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 69.3% in Q3.
That means that for every $1 in revenue the company had $0.69 left to spend on developing new products, sales and marketing, and general administrative overhead. While its gross margin has improved significantly since the previous quarter, AppLovin's gross margin is still poor for a SaaS business. It's vital that the company continues to improve this key metric.
Key Takeaways from AppLovin's Q3 Results
Sporting a market capitalization of $14.22 billion, more than $332.5 million in cash on hand, and positive free cash flow over the last 12 months, we believe that AppLovin is attractively positioned to invest in growth.
We were impressed by AppLovin's gross margin improvement this quarter. We were also excited its revenue, adjusted EBITDA, and EPS outperformed Wall Street's estimates. These results were driven by extremely strong performance in its software platform division, which is also its highest margin segment (hence the gross margin beat). On the other hand, CFO Herald Chen announced he is leaving the company to pursue other opportunities. Overall, we think this was a fantastic quarter that should have shareholders cheering. The stock is up 16.6% after reporting and currently trades at $46.8 per share.
AppLovin may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.