Position Record
AvoidMedium convictionLapsed

Applovin Corp

APPNASDAQ

Avoid at $692. Exceptional business, priced for roughly 34% growth in perpetuity. Interested below $350.

Thesis
The market is capitalizing AXON's data flywheel as permanent. The mechanism is real: more advertisers bring more publishers, which generates more install data, which improves targeting, and it has produced genuinely exceptional results: 80% ROIC against a 20% WACC, 66% net margins, and a 9/9 F-score. My disagreement is that the price requires this compounding never to decay. A reverse DCF implies a sustained rate of 34.17%, which sits above even the sell-side's optimistic forecasts and which no ad-tech business has held through a full cycle (see TTD). The near-term optics are also flattered by the 2025 studio divestiture, which removed a segment that was 31% of 2024 revenue and not growing, mechanically lifting margins and growth without the advertising business improving. I am not arguing APP is expensive on next year's earnings; PEG is roughly average versus the industry. I am arguing that the market has extrapolated a near-term rate into perpetuity and that PEG is precisely the metric that conceals this.
Key assumption
That AXON's marginal returns to additional data flatten before the multiple assumes they do. If the flywheel compounds indefinitely, the premium is justified, and I am wrong.
What would prove me wrong
Revenue per advertiser continuing to rise rather than converging on underlying ad-spend growth, indicating the flywheel is still compounding. Web and non-gaming advertising becoming a material, separately disclosed revenue line rather than an early-stage effort. Organic advertising growth holding above 30% once the studio divestiture laps in 2026, showing the reported acceleration was operational rather than compositional.
Entry$691.96
Price at lapse$321.60
Price move−53.5%not a position
Benchmark+11.0%S&P 500
Worth avoiding+64.6 ppagainst holding the index
Stood9 months
Download Markdown
  • AI-powered advertising solutions for businesses to reach, monetize and grow their audience. They also operate a portfolio of owned mobile apps.
  • Runs real-time “auctions” matching advertised demand with publisher supply. MAX = monetization with in-app biding technology. Adjust = analytics platform. Wurl = TV platform that distributes ads in streaming content (CTV) like Roku that is highly targeted
  • AppLovin sold its portfolio of game studios and apps in 2025 for $400 million in cash, and $400 million in equity (20% of acquirer Tripledot).
  • Added to the S&P500 in September 2025. Bid to purchase U.S. subsidiary of TikTok (2025), also offered to merge with Unity in 2022.
  • SEC is investigating AppLovin for committing ad fraud and illegally tracking children and serving them sexual ads (October 2025).
  • AppLovin connects publishers and marketers, and uses AXON to automatically bid on those ad slots for marketers in real time, based on how likely the user is to install. AXON is based on AI machine learning.
  • Regulatory barriers in EU could hinder growth plans. Intense competition and AI bubble also present other external threats.
  • Monetizes through subscription for insights. More importantly is that advertisers pay when a user installs an app and AppLovin takes a cut of this. When the ad is per impression, AppLovin keeps a portion of the revenue.
  • Financial strength (6): below average in debt metrics, particularly weak in debt-to-equity, average vs history. However, interest coverage and debt-to-EBITDA are strong vs history. 9/9 F-Score and very strong Z-Score, so debt is not an issue. ROIC surpasses WACC significantly (80%, 20%) indicating strong returns on debt.
  • Growth (10): excellent revenue and EBITDA growth rate. Excellent FCF growth rates. Estimates indicate strong future growth rates.
  • Momentum (10): overvalued RSI figures, strong momentum %.
  • Liquidity: excellent liquidity ratios vs industry.
  • Dividend and buy back: very strong 3Y average share buyback ratio vs industry and history at 3.2%, weaker shareholder yield %.
  • Profitability (7): excellent margins vs history and industry. Likely boosted by AI. This is the major selling point. I would score it a 10, not sure on the GF value on profitability given by the site. Only weak point is their 3Y ROIIC% which is -2038%, signifies new investments are not generating sufficient returns. I think this may because of the sale of the gaming studio assets.
  • Valuation (1): very high PE ratio, forward also pretty high vs industry. PEG ratio is average vs industry. PS ratio is insane. PB ratio is even more insane at 159.07. EV ratios are also in the bottom 5% of the industry. Average earnings and FCF yield and strong forward rates of return.
  • Revenue is rising significantly, debt is steadily higher than cash. Cash flows are improving rapidly, partly due to the sale. Share outstanding decreased significantly in 2023 (9%) (repurchasing after IPO) while no significant change in 2024.
  • Advertising made 69% and apps 31% of revenue in 2024. 57% of revenue from the US. Apps segment was not growing in terms of revenue, while advertising growing strongly, explains the sale.
  • EPS and EBITDA growth has been significant. Book value slightly downward trend since 2022, does not matter as much considering the industry.
  • Correlations suggest N/A signaling massive disconnect.
  • Even at a 20% EPS growth rate significantly overvalued (>100%), same with FCF. Reverse DCF growth rate is 34.17%, which is practically impossible.
  • Not much insider selling or buying.
  • There is scrutiny from short sellers. Web advertising model is in its early stages and reported to be quite poor. It is also facing challenges in non-gaming app advertising.
  • Summary: poor at current valuation. Very strong in all other aspects. Very bullish long term. Valuation must come down to reality.

Updates (1)

The note above is unedited. Anything that changed goes below it, dated.

Applovin price correction prices it for a 16.46% EPS growth rate

Reverse DCF at $321.60 now implies 16.46% EPS without NRI growth, down from the 34.17% that justified the avoid at $692. The required rate now sits below what the business is delivering, since Q3 is guided to 46 to 48%, rather than above the sell-side’s optimistic case. That removes the valuation leg of my original argument, but 16.46% held for a decade is still roughly double what any ad-tech business has sustained through a full cycle, so the stock is plausible rather than cheap and neutral is the right label. The live question is composition, not the multiple: installs fell 2% while revenue per install rose 58%, so the implied 16% currently rests on price, and Q3 volume is the datapoint that decides whether it is reachable.