AppLovin Corp (NASDAQ: APP), a provider of a comprehensive suite of solutions for mobile app developers encompassing marketing, monetization, and analytics, recently announced robust first-quarter results and a strategic divestiture. For Q1, the company reported adjusted earnings per share of $2.38 on revenue of $1.48 billion, exceeding analyst expectations of $1.96 EPS on $1.38 billion revenue.
In a significant strategic move, AppLovin will sell its mobile gaming business to Tripledot Studios for $400 million in cash. As part of this deal, AppLovin will also acquire an approximate 20% ownership stake in Tripledot Studios.
AppLovin’s strong performance in recent quarters has been significantly driven by the success of its AI-powered ad search engine, AXON. This technology was a key factor in the company’s substantial stock rally last year, which saw gains of 700%. Following the positive Q1 earnings report, the stock price further increased by 15% in after-hours trading. Now, if you are looking for an alternative with steadier growth than an individual stock, you might consider the High-Quality Portfolio, which has delivered over 91% returns since inception and has outperformed the S&P 500. Separately, see – Google’s $1 Trillion Problem: Stock To Crash 40%?
The company’s Q1 revenue of $1.48 billion represents a substantial 40% year-over-year increase. This growth was primarily fueled by a 71% surge in advertising revenue to $1.2 billion. In contrast, revenue from its app business declined by 14% to $325 million. The growth in advertising revenue is attributed to AXON, which enhances and automates various aspects of advertisers’ operations – including marketing, user engagement, and revenue optimization.
AppLovin also achieved a significant improvement in its profitability, with the adjusted EBITDA margin rising to 68% in Q1 2025, up from 52% in the same period last year. This combination of increased revenue and margin expansion resulted in earnings per share of $1.67, a substantial improvement from the $0.67 reported in the prior year. Looking ahead, AppLovin anticipates Q2 2025 revenue to be approximately $1.21 billion, with an expected EBITDA margin of 81%.
Where Does AppLovin Stock Go From Here?
Given the ongoing macroeconomic uncertainties stemming from recent tariffs, a key question around APP stock is whether it will underperform the S&P 500 over the next 12 months (something it did in 2022), or if it will sustain its strong performance through 2025. Currently, APP stock trades at a premium valuation, with a price-to-sales (P/S) ratio of 24x – significantly higher than its four-year average of 10x.
While this valuation may appear high, AppLovin’s exceptional growth in both revenue and profitability could justify a premium multiple. The company has demonstrated strong revenue expansion, and with a projected compound annual growth rate (CAGR) exceeding 20% in the coming years, it presents a compelling growth narrative. Even if its P/S ratio normalizes over time, the anticipated increase in earnings potential – outpacing its already impressive sales growth – suggests further upside driven by strong underlying business fundamentals rather than solely multiple expansion. Notably, the average analyst price target of $450 also indicates a substantial potential upside of nearly 30% from its current trading price.
Despite its impressive surge over recent years, APP stock has exhibited significant volatility. The stock’s annual returns have fluctuated considerably, with a 45% gain in 2021, a sharp 89% decline in 2022, a strong rebound of 278% in 2023, and an exceptional 713% increase in 2024. Notably, the stock has seen an 11% decrease so far this year – largely influenced by reports from short sellers questioning the efficacy of its AI-powered AXON advertising software.
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