Applovin Stock: Buy or Sell?

SUMMARY

Parkev Tatevosian, CFA, analyzes AppLovin's recent financial performance, highlighting significant revenue and profit growth alongside a sharp stock price decline. The discussion covers management's aggressive share repurchases, valuation metrics, and a reiterated buy rating with medium conviction.

MAIN POINTS

• AppLovin reported 53% revenue growth and 55% net income growth for the quarter ending June 30, 2026, but the stock price fell nearly 20%. [0:00]
• The company demonstrated strong cash flow metrics and repurchased $551 million in stock, using over half of its quarterly cash flow from operations. [1:00]
• AppLovin issued moderate forward guidance, forecasting slight increases in revenue and adjusted EBITDA, which may have disappointed investors. [2:00]
• The balance sheet remains strong with $3 billion in cash and $3.5 billion in long-term debt, and cash flow from operations rose to $2.16 billion in the first half of 2026. [3:02]
• Management has repurchased $1.5 billion in stock over six months, totaling $2.8 billion since last year, as the stock trades near its lowest forward price-to-earnings ratio. [4:00]
• A discounted cash flow analysis suggests the stock is undervalued, leading to a reiterated buy rating with medium conviction. [5:00]

DETAILED ANALYSIS

AppLovin delivered robust financial results for the quarter ending June 30, 2026, with revenue reaching $1.9 billion, a 53% increase from the previous year, and net income rising by 55%. Despite these strong figures, the company's stock price experienced a sharp decline of nearly 20%, contributing to a 50% year-to-date drop. The business model remains asset-light, as evidenced by the minimal difference between cash flow from operations ($869 million) and free cash flow ($863 million), indicating limited capital expenditure requirements.

The company also showcased a high net profit margin, exceeding 50%, and a strong cash flow to sales ratio.

AppLovin's management demonstrated confidence in the company's valuation by repurchasing $551 million worth of Class A common stock in the quarter, representing over half of the cash generated from operations. Over the first half of 2026, total share repurchases reached $1.5 billion, and when combined with the previous year's activity, amounted to $2.8 billion. This aggressive buyback strategy suggests that management views the current share price as undervalued.

Looking forward, AppLovin provided guidance for modest growth, projecting $2.06 billion in revenue and $1.7 billion in adjusted EBITDA for the next quarter. While these figures represent increases, they are less pronounced than in previous periods, which may have tempered investor enthusiasm. The company's balance sheet remains healthy, with $3 billion in cash and equivalents against $3.5 billion in long-term debt, giving it the flexibility to manage liabilities or pursue growth opportunities.

Valuation metrics further support the case for investment. The stock is trading at a forward price-to-earnings ratio of 15.7, near historic lows last seen in mid-2025 and 2024. A discounted cash flow analysis yields a fair value estimate of $452 per share, compared to the current market price of $337, reinforcing the view that the stock is undervalued. Based on these factors, a buy rating is reiterated, albeit with medium conviction given the tempered growth outlook.

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