What Happened:
Shares of mobile app advertising platform AppLovin (NASDAQ: APP) jumped 18.5% in the morning session after the company reported second quarter results that exceeded analysts' expectations for revenue, adjusted EBITDA, and earnings per share, driven by the successful roll-out of its new AI-based advertising engine, AXON 2.0. At 44%, this is the highest adjusted EBITDA margin the business recorded over the past five years and a testament to the success of the upgrade of its advertising platform from AXON 1 to AXON 2. Looking ahead, revenue and EBITDA guidance for the next quarter blew past analysts' expectations.
Overall, it was a strong quarter for the company, with the results highlighting the success of its AI-based ad engine.
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What is the market telling us:
AppLovin's shares are very volatile and over the last year have had 50 moves greater than 5%. But moves this big are very rare even for AppLovin and that is indicating to us that this news had a significant impact on the market's perception of the business.
The previous big move was three months ago, when the stock gained 12.3% on the news that the company reported first-quarter revenue, gross profit, adjusted EBITDA, and free cash flow ahead of analysts' estimates. Software Platform revenue beat convincingly by roughly 15%, with management highlighting "stabilization in the mobile app ad market and continued improvements in our core advertising technology resulting in higher revenue per install from our advertising solutions" as drivers.
Additionally, revenue and adjusted EBITDA guidance for the next quarter came in ahead of Consensus, the latter beating by nearly 10%. Year-to-date through May 8th, the company also repurchased $202 million of common stock--rare among faster-growing SaaS companies--with another $210 million remaining under authorization. Overall, it was a decent quarter highlighting several improvements. The strong guidance was also encouraging considering an uneven macro backdrop.
AppLovin is up 238% since the beginning of the year, but at $36.27 per share it is still trading 10.4% below its 52-week high of $40.46 from August 2022. Investors who bought $1,000 worth of AppLovin's shares at the IPO in April 2021 would now be looking at an investment worth $556.75.
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