APP AppLovin
Elite ad engine sold off on sentiment; e-commerce execution, not peak margins, decides the upside.
The story
AppLovin runs one of the strongest performance-ad engines in mobile. Its AXON machine-learning model, sitting on its own MAX mediation and supply data, turns ad spend into measurable returns for advertisers, and that has produced software-like margins near 79% after it sold the apps business. The company is in a high-growth expansion phase: gaming advertising is maturing, while e-commerce and web advertisers are the next leg of reinvestment. That leg is unproven at scale and faces privacy, platform and regulatory scrutiny.
Most drivers are unchanged from 2026-09-23 because the operating facts have not changed. TTM revenue of 6.83B and growth are on track with the story. The share price fell about 18%, but that is sentiment, not new fundamentals. I nudged the target margin from 62% to 65% (a 5% relative move) because TTM margin rose to 79.3% with minimal capex, though competition and advertiser take-rate pressure should still pull it down from the peak. Beta stays at 1.4 and the horizon at 10 years, reflecting a strong but platform-dependent moat rather than a 15-year franchise.
Value drivers
| Revenue growth (Y1) | 35.0% |
| Terminal growth | 3.5% |
| Forecast horizon | 10y |
| Target operating margin | 65.0% |
| Years to target margin | 6 |
| Sales-to-capital | 3.00 |
| Beta | 1.40 |
| Failure probability | 3.0% |
| Cost of capital (WACC) | 11.4% |
| Terminal WACC | 9.6% |
Valuation bridge
| PV of explicit FCFF | 68.36B |
| PV of terminal value | 96.62B |
| Equity value | 159.03B |
| ÷ shares → per share | $473.40 |
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 9.22B | 35.0% | 76.9% | 6.16B | 796.73M | 5.36B | 4.82B |
| 2 | 12.12B | 31.5% | 74.5% | 7.85B | 968.03M | 6.88B | 5.55B |
| 3 | 15.52B | 28.0% | 72.2% | 9.72B | 1.13B | 8.59B | 6.22B |
| 4 | 19.32B | 24.5% | 69.8% | 11.71B | 1.27B | 10.44B | 6.79B |
| 5 | 23.38B | 21.0% | 67.4% | 13.68B | 1.35B | 12.33B | 7.20B |
| 6 | 27.47B | 17.5% | 65.0% | 15.51B | 1.36B | 14.14B | 7.41B |
| 7 | 31.31B | 14.0% | 65.0% | 17.68B | 1.28B | 16.40B | 7.72B |
| 8 | 34.60B | 10.5% | 65.0% | 19.53B | 1.10B | 18.44B | 7.79B |
| 9 | 37.02B | 7.0% | 65.0% | 20.90B | 807.37M | 20.09B | 7.63B |
| 10 | 38.32B | 3.5% | 65.0% | 21.63B | 431.94M | 21.20B | 7.23B |
Key risks
- E-commerce/web ad expansion fails to scale, leaving growth tied to a maturing mobile gaming market
- Apple/Google privacy or platform policy changes degrade targeting and attribution
- Regulatory or short-seller scrutiny of data practices leads to fines, consent restrictions or advertiser flight
Catalysts
- Self-serve e-commerce ad platform opening broadly with disclosed advertiser cohort and spend growth
- Sustained buybacks funded by roughly 4B+ of annual free cash flow at the lower share price