AppLovin (NASDAQ:APP) Exceeds Q4 Expectations, Stock Jumps 13%

Full Report / February 14, 2024

Mobile app advertising platform AppLovin (NASDAQ: APP) beat analysts' expectations in Q4 FY2023, with revenue up 35.7% year on year to $953.3 million. It made a GAAP profit of $0.49 per share, improving from its profit of $0.25 per share in the same quarter last year.

AppLovin (APP) Q4 FY2023 Highlights:

  • Revenue: $953.3 million vs analyst estimates of $928 million (2.7% beat)
  • EPS: $0.49 vs analyst estimates of $0.35 (39.3% beat)
  • Q1 2024 revenue guidance of $965 million at the midpoint vs analyst estimates of $926 million (4.2% beat)
  • Q1 2024 adjusted EBITDA guidance of $485 million at the midpoint vs analyst estimates of $437 million (11.1% beat)
  • Free Cash Flow of $350.3 million, up 76.1% from the previous quarter
  • Gross Margin (GAAP): 71.3%, up from 55% in the same quarter last year
  • Market Capitalization: $15.39 billion

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.

AppLovin combines a mobile ad network, developer tools, and a portfolio of hundreds of free to play mobile games it has assembled through acquisitions and partnerships with game studios.

Today’s app developer journey has three key steps – make, market, and monetize. The ‘make’ step has never been easier, but developers still face key challenges in marketing and monetizing their apps. Because of the ease of creation, there are millions of apps on Apple and Google’s appstores, which creates discovery and marketing challenge for mobile app developers. A further issue is even after a user downloads an app, developers must compete for user engagement and screen time. Most mobile games rely on in-app purchases (IAPs) and in-game advertising for monetization, which present hurdles on how to price IAPs appropriately while navigating the mobile ad ecosystem is difficult for individual developers.

AppLovin solves for these issues through its unique business model. Originally a provider of marketing tools for mobile game developers, AppLovin altered its strategy in 2018 and began acquiring and partnering with game studios to launch its own mobile gaming apps. The data and insights generated from the hundreds of in-house mobile gaming apps generated a virtuous cycle which improved its marketing software’s pricing and advertising recommendations for its customers, enabling developers to improve their discovery, monetization, and engagement.

Advertising Software

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.

AppLovin’s competitors can be broken into two groups: mobile game developers and mobile ad networks. On the gaming side, rivals include Zynga (NASDAQ:ZNGA), Playtika (NASDAQ: PLTK), and Roblox (NYSE: RBLX). Competitors in its ad network business are The Trade Desk (NASDAQ: TTD) and Unity Software (NYSE:U).

Sales Growth

As you can see below, AppLovin's revenue growth has been unremarkable over the last two years, growing from $793.5 million in Q4 FY2021 to $953.3 million this quarter.

AppLovin Total Revenue

This was a standout quarter for AppLovin with quarterly revenue up 35.7% year on year, above the company's historical trend. However, its growth did slow down compared to last quarter as the company's revenue increased by just $89.01 million in Q4 compared to $114.1 million in Q3 2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.


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 71.3% in Q4.

AppLovin Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.71 left to spend on developing new products, sales and marketing, and general administrative overhead. Despite improving significantly since the last quarter, AppLovin's gross margin is still lower than that of a typical SaaS businesses. Gross margin has a major impact on a company’s ability to develop new products and invest in marketing, which may ultimately determine the winner in a competitive market. This makes it a critical metric to track for the long-term investor.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. AppLovin's free cash flow came in at $350.3 million in Q4, up 115% year on year.

AppLovin Free Cash Flow

AppLovin has generated $1.06 billion in free cash flow over the last 12 months, an eye-popping 32.6% of revenue. This robust FCF margin stems from its asset-lite business model, scale advantages, and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a healthy cash balance.

Key Takeaways from AppLovin's Q4 Results

It was great to see AppLovin beat and guide above expectations. Revenue and adjusted EBITDA beat. Guidance for Q1 2024 revenue and adjusted EBITDA were both convincingly ahead as well. Overall, we think this was a really good quarter that should please shareholders. The stock is up 13% after reporting and currently trades at $53 per share.

Is Now The Time?

When considering an investment in AppLovin, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

There are several reasons why we think AppLovin is a great business. First off, its . Additionally, its bountiful generation of free cash flow empowers it to invest in growth initiatives, and its very efficient customer acquisition hints at the potential for strong profitability.

AppLovin's price-to-sales ratio based on the next 12 months is 4.2x, suggesting the market is expecting more steady growth, relative to the hottest tech stocks. Looking at the tech landscape today, AppLovin's qualities really stand out. We'd argue more mature tech businesses are sometimes underestimated because they aren't growing quite as quickly as the hottest stocks, and we really like the stock at this price.

Wall Street analysts covering the company had a one-year price target of $50.54 per share right before these results (compared to the current share price of $53.00).

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