What Happened:
Shares of mobile app advertising platform AppLovin (NASDAQ: APP) jumped 11.6% in the morning session after the company reported third quarter results that exceeded Wall Street's expectations for revenue, adjusted EBITDA, and EPS. 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). Notably, the software division grew 65% year on year and reached a milestone $2 billion run rate. The company also highlighted the strength of its new AI-based advertising technology, AXON 2. The technology was recently integrated into its connected TV business as well as its mobile platform, Applovin Array. This indicated the potential for improved efficiency across the new channels.
On the other hand, CFO Herald Chen announced he is leaving the company to pursue other opportunities. Matt Stumpf, current Vice President of Finance and FP&A, will replace him. Overall, we think this was a fantastic quarter that should have shareholders cheering.
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What is the market telling us:
AppLovin's shares are very volatile and over the last year have had 37 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 biggest move we wrote about over the last year was 3 months ago, when the stock gained 18.5% on the news that 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.
AppLovin is up 297% since the beginning of the year, and at $42.57 per share it is trading close to its 52-week high of $44.01 from September 2023. Investors who bought $1,000 worth of AppLovin's shares at the IPO in April 2021 would now be looking at an investment worth $652.79.
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