AppLovin (NASDAQ: APP) just gave Wall Street a reason to love its stock even more. The advertising technology company delivered stronger-than-expected third-quarter results, a bullish holiday-quarter outlook, and another multibillion-dollar boost to its share repurchase program. Investors responded by sending shares sharply higher.
The appeal is easy to understand. AppLovin helps advertisers find customers, and its latest numbers suggest that improving its technology is paying off. Revenue is climbing, profits are growing even faster, and the business is producing substantial cash. Even better, management says the technology upgrades behind some of that growth are only partly rolled out.
That gives investors something more interesting than a strong quarter: a reason to wonder what comes next.
A Quarter That Delivered the Goods
AppLovin reported third-quarter revenue of $2.18 billion, up 55% from a year earlier and above the roughly $2.07 billion analysts expected. Diluted earnings reached $4.30 per share, beating the $4.03 consensus estimate. Adjusted EBITDA rose 59% to $1.84 billion, topping expectations of $1.73 billion. But investors don’t have to rely on adjusted figures to find something encouraging. Net income increased 72% to $1.44 billion. Its net income margin reached 66%, compared with 59% a year earlier.
Fueling growth, AppLovin uses artificial intelligence to help match ads with people likely to respond. Better predictions can help advertisers attract customers while meeting their profitability goals. Imagine a retailer spending $100 on ads. Getting plenty of clicks might feel encouraging, but clicks alone don’t pay the bills. The retailer wants purchases. If better targeting produces more sales from that budget, increasing spending becomes easier to justify.
CEO Adam Foroughi credited a partial rollout of AppLovin’s next generation of advertising models with helping drive the quarter’s performance. Importantly, he said the transition remains unfinished and declined to promise a completion date. According to management, the newer technology could be particularly useful where customer data is limited, including newer advertisers and emerging categories.
The Holiday Outlook Adds to the Excitement
AppLovin’s fourth-quarter forecast suggests management expects the momentum to continue.
The company projects revenue between $2.365 billion and $2.395 billion. The $2.38 billion midpoint exceeds analysts’ roughly $2.25 billion expectation. Adjusted EBITDA guidance ranges from $1.995 billion to $2.025 billion.
Holiday shopping should help consumer advertisers, but management also pointed to technology improvements already operating on the platform.
Meanwhile, AppLovin generated approximately $1.42 billion in quarterly free cash flow, the cash remaining after capital spending.
That gives the company room to invest and return capital to shareholders.
During the quarter, AppLovin spent $1.4 billion repurchasing and withholding 4.1 million shares, including shares withheld for employee tax obligations. Its board subsequently added $3.2 billion to a repurchase authorization, bringing the available total to $3.6 billion at October’s end. An authorization doesn’t guarantee those purchases will happen immediately. Still, it provides flexibility to reduce the share count over time.
A Strong Quarter Still Needs a Strong Follow-Up
There are reasons to keep expectations grounded. For starters, management cautioned that improvements to its advertising models won’t arrive on a predictable quarterly schedule. Holiday strength also brings a seasonal wrinkle: a busy fourth quarter can be followed by a softer first quarter.
Connected television offers another potential expansion opportunity, but Foroughi said investors shouldn’t expect its early pilot campaigns to contribute meaningfully anytime soon.
His belief that the business can grow roughly 30% annually over the long term is an ambition, not a guarantee.
For now, AppLovin has delivered a persuasive combination of growth, profitability, and cash generation. The next challenge is turning this strong performance into a repeatable pattern.
Investors clearly liked the latest results. Keeping them interested will require the next round of technology improvements to deliver for advertisers, too.
