Applovin (NASDAQ:APP) Reports Strong Q3, Gross Margin Improves

Jabin Bastian /
2021/11/10 4:17 pm EST
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Mobile app advertising platform AppLovin (NASDAQ: APP) announced better-than-expected results in the Q3 FY2021 quarter, with revenue up 90.4% year on year to $726.9 million. Applovin made a GAAP profit of $142 thousand, improving on its loss of $89.9 million, in the same quarter last year.

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Applovin (APP) Q3 FY2021 Highlights:

  • Revenue: $726.9 million vs analyst estimates of $697.8 million (4.17% beat)
  • EPS (GAAP): $0.00
  • Free cash flow of $122.9 million, up from negative free cash flow of $1.51 million in previous quarter
  • Gross Margin (GAAP): 65%, up from 57.2% same quarter last year

“We are proud to report another record quarter and strong performance across all our businesses that really highlight the impressive scale and accelerating growth of our ML-based software platform,” 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 a provider of marketing and monetization tools for mobile app developers and also operates a portfolio of mobile games.

AppLovin benefits from human attention and consumption shifting to mobile devices, most notably in video games. This sea change in human behavior means businesses must use tools like AppLovin to advertise to consumers, acquire customers, and drive retention.

Sales Growth

As you can see below, Applovin's revenue growth has been incredible over the last year, growing from quarterly revenue of $381.7 million, to $726.9 million.

Applovin Total Revenue

This was another standout quarter with the revenue up a splendid 90.4% year on year. But the growth did slow down a little compared to last quarter, as Applovin increased revenue by $58.1 million in Q3, compared to $64.9 million revenue add in Q2 2021. So while the growth is overall still impressive, we will be keeping an eye on the slowdown.

Analysts covering the company are expecting the revenues to grow 31.5% over the next twelve months, although estimates are likely to change post earnings.

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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 65% in Q3.

Applovin Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.65 left to spend on developing new products, marketing & sales and the general administrative overhead. While it improved significantly from the previous quarter this would still be considered a low gross margin for a SaaS company and we would like to see the improvements continue.

Key Takeaways from Applovin's Q3 Results

Sporting a market capitalization of $38.5 billion, more than $1.04 billion in cash and with positive free cash flow over the last twelve months, we're confident that Applovin has the resources it needs to pursue a high growth business strategy.

We were impressed by the exceptional revenue growth Applovin delivered this quarter. And we were also glad to see the improvement in gross margin. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The company is up 3.69% on the results and currently trades at $99.5 per share.

Applovin may have had a good quarter, so should you 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.

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