AppLovin has been a huge AI winner this year.
Move over Nvidia and Palantir Technologies, AppLovin (APP 17.64%) took over as the top-performing artificial intelligence (AI) stock in 2024 thanks to the share price surge that followed the release of its third-quarter results. The price jump puts the stock up about 628% year to date as of Nov. 9.
AppLovin owns a portfolio of gaming apps but its primary business is an adtech solution to help mobile app developers attract users and better monetize their apps. Since the launch of its Axon 2 AI-based advertising technology in the second quarter of 2023, the company has seen explosive growth.
Let’s take a close look at the company’s Q3 results and whether the stock is still a buy.
Axon 2 continues to drive growth
Axon 2 has been the source behind nearly all of AppLovin’s growth, with its software platform revenue soaring 66% to $835 million. The company’s legacy apps business, meanwhile, saw revenue increase 1% to $369 million. Overall revenue climbed 39% to $1.2 billion, topping the $1.13 billion consensus as compiled by LSEG.
The company continues to see a ton of operating leverage in its business as sales climb, with gross margin for the quarter improving to 77.5% from 69.3% a year ago. The revenue surge also came despite the company reducing its sales and marketing spend by 3%. That combination is quite remarkable.
Earnings per share (EPS) surged from $0.30 a year ago to $1.25. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), meanwhile, climbed 72% to $722 million. Software platform adjusted EBITDA jumped 78% to $653 million, while its apps business grew adjusted EBITDA by 19% to $68 million as the company optimized the business’s cost structure.
The company produced $551 million in operating cash flow and $545 million in free cash flow. It ended the quarter with $2.9 billion in net debt.
AppLovin guided for fourth-quarter revenue to come in a range of $1.24 billion to $1.26 billion. That would equate to growth of between 30% and 32% and is above the company’s long-term goal to grow revenue by between 20% and 30%. It is projecting Q4 adjusted EBITDA to be between $475 million and $495 million, up from $476 million a year ago.
Image source: Getty Images.
Is the stock still a buy?
AppLovin has proven to be one of the biggest AI winners, as its Axon 2 AI adtech platform has led to soaring revenue with its gaming customers. At the same time, it has seen a ton of operating leverage in its business, being able to realize tremendous growth while not increasing its sales and marketing spend and improving its gross margin.
The company expects consistent growth of between 20% and 30% from its gaming customers, but it has also just started piloting the platform with e-commerce. It has said early results are tracking above expectations and that it thinks this vertical can scale next year and start being a strong contributor. Moving beyond gaming is a huge potential opportunity for the company.
With its stock up about 628% year to date, the company’s forward price-to-earnings (P/E) ratio has risen to 47 based on 2025 analyst estimates. Its price/earnings-to-growth (PEG) ratio now sits at 1.28. A PEG ratio of under 1 is considered undervalued and growth stocks will often command multiples well above 1.
Data by YCharts.
I’ve written favorably about AppLovin several times this year, going as far back as April, while in June I listed it as one of two stocks that I thought could go parabolic. While the stock and its valuation have greatly increased since then, I think there could still be more upside ahead.
If AppLovin can continue to grow revenue at a 30% pace while keeping expenses in check, its valuation is reasonable. Meanwhile, if it is able to move beyond gaming with Axon 2, the sky remains the limit.
While I think it is prudent for investors with big gains to take some profits, I’d still be holding onto the stock even after this incredible run in its share price.
Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AppLovin, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.
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