AppLovin Reports Solid Earnings. The Stock Is Down.

AppLovin’s main market is mobile app developers, mostly gaming studios. (Gabby Jones/Bloomberg)

Digital advertising company AppLovin reported Wednesday afternoon that it beat second-quarter earnings expectations. Its shares were down in after-hours trading.

AppLovin sold its apps in the second quarter to focus on its faster-growing adtech segment, which is the quarterly revenue number that analysts are looking at. That reached $1.26 billion—up 77% since the year-ago period and above the consensus estimate of $1.22 billion.

Advertising adjusted earnings before interest, taxes, depreciation, and amortization was $1.02 billion, up 99% since the second quarter of 2024, and ahead of Wall Street projections.

While adjusted earnings before interest, taxes, depreciation, and amortization were strong, free cash flow came in a little soft, at $768 million. That may have been why share buybacks were low in the quarter, at $341 million, down from $1.2 billion in the first quarter. But the diluted share count continues to decline, down 0.8% from the first quarter.

Guidance for third-quarter revenue and adjusted Ebitda and revenue came in above expectations.

AppLovin stock fell as much as 6.9% in late trading following the release. Shares were down 0.7% at 5:20 p.m. Eastern.

AppLovin’s main market is mobile app developers, mostly gaming studios. It provides a two-sided service for its customers to advertise their apps to drive user growth, and also to serve up ads within the apps. While game studios remain its core customers, nongaming app revenue is ramping quickly.

AppLovin’s success hinged on serving a new growing niche in digital ads. But a niche necessarily has a ceiling, and AppLovin’s strategic response was to find another new niche to serve. Though still a small part of its revenue, AppLovin has a new adtech product, Wurl, for streaming video on connected TVs. It is set up as a separate brand, distinct from AppLovin.

“We are confident we can sustain 20 to 30% year over year growth driven by just gaming,” said CEO Adam Foroughi on the second-quarter earnings call. “However, what gets us more excited now than ever in our history before is the opportunity to really expand outside our core market.”

“If the model works this well at this small amount of penetration,” he added, “what happens when we can really open it up and go service all the small businesses in the world?”

On average, analysts have a rating of Overweight and a price target of $485.

Write to Adam Levine at adam.levine@barrons.com