AppLovin (APP)

Mobile app technology company AppLovin (NASDAQ:APP) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 17.3% year on year to $1.41 billion. Its GAAP profit of $2.45 per share was 2.6% above analysts’ consensus estimates.

Company Overview

Sitting at the crossroads of the mobile advertising ecosystem with over 200 free-to-play games in its portfolio, AppLovin (NASDAQ:APP) provides software solutions that help mobile app developers market, monetize, and grow their apps through AI-powered advertising and analytics tools.

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 competes with large technology companies that offer mobile advertising solutions including Meta (NASDAQ:META), Alphabet (NASDAQ:GOOG), and Unity Software (NYSE:U). In the mobile gaming space, its competitors include Activision Blizzard (NASDAQ:ATVI), Take-Two Interactive (NASDAQ:TTWO), and Tencent (OTC:TCEHY).

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, AppLovin’s sales grew at an excellent 35.2% compounded annual growth rate over the last five years. Its growth surpassed the average software company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. AppLovin’s annualized revenue growth of 34.9% over the last two years aligns with its five-year trend, suggesting its demand was predictably strong.

This quarter, AppLovin reported year-on-year revenue growth of 17.3%, and its $1.41 billion of revenue exceeded Wall Street’s estimates by 4.5%.

Looking ahead, sell-side analysts expect revenue to grow 26.9% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is admirable and suggests the market sees success for its products and services.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

AppLovin is extremely efficient at acquiring new customers, and its CAC payback period checked in at 2.8 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give AppLovin more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

Software is eating the world. It’s one of our favorite business models because once you develop the product, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.

AppLovin’s gross margin is one of the best in the software sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and sales during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an elite 85.5% gross margin over the last year. Said differently, roughly $85.47 was left to spend on selling, marketing, and R&D for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. AppLovin has seen gross margins improve by 23.6 percentage points over the last 2 year, which is elite in the software space.

This quarter, AppLovin’s gross profit margin was 87.6%, up 10.1 percentage points year on year. AppLovin’s full-year margin has also been trending up over the past 12 months, increasing by 3.9 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

AppLovin has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 59.9%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, AppLovin’s operating margin rose by 24.1 percentage points over the last two years, as its sales growth gave it operating leverage.

In Q3, AppLovin generated an operating margin profit margin of 76.8%, up 32.2 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

If you’ve followed StockStory for a while, you know 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 has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 60.7% over the last year.

AppLovin’s free cash flow clocked in at $1.05 billion in Q3, equivalent to a 74.7% margin. This result was good as its margin was 28.7 percentage points higher than in the same quarter last year. Its cash profitability was also above its one-year level, and we hope the company can build on this trend.

Over the next year, analysts’ consensus estimates show they’re expecting AppLovin’s free cash flow margin of 60.7% for the last 12 months to remain the same.

AppLovin reported $1.67 billion of cash and $3.51 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.16 trillion of EBITDA over the last 12 months, we view AppLovin’s 0.0× net-debt-to-EBITDA ratio as safe. We also see its $147.1 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

Both revenue and EPS beat Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 6.6% to $658.07 immediately after reporting.

Updated: December 4, 2025 at 9:21 PM EST

Are you wondering whether to buy AppLovin or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

There are multiple reasons why we think AppLovin is an elite software company. To begin with, its revenue growth was impressive over the last five years, and its growth over the next 12 months is expected to accelerate. On top of that, its bountiful generation of free cash flow empowers it to invest in growth initiatives, and its efficient sales strategy allows it to target and onboard new users at scale.

AppLovin’s price-to-sales ratio based on the next 12 months is 31.5x. A lot of good news is certainly baked in given its premium multiple, but we’ll happily own what we believe is one of the best businesses in our coverage. It’s often wise to hold investments like this for at least three to five years, as the power of long-term compounding negates short-term price swings that can accompany high valuations.

Wall Street analysts have a consensus one-year price target of $728.25 on the company (compared to the current share price of $690.04).