Analysis
AppLovin Jumped 22% After Hours on an 84% Margin
AppLovin rose about 22% after hours on Wednesday after revenue grew 55% to $2.18 billion and it guided fourth-quarter sales to $2.37 billion to $2.40 billion, above the $2.25 billion expected.
AppLovin had already risen 10.7% to $271.75 in Wednesday's rally before it reported. Then it rose again. Revenue for the third quarter was $2.185 billion, up 55% from $1.405 billion a year earlier and above the $2.08 billion estimate cited by Investing.com, and earnings were $4.30 a diluted share against a consensus of $4.04. The shares gained 21.9% in extended trading, and Binance's tokenised version touched $347.05 within half an hour of the release, 27.7% above the close.
The margin is what sets the company apart. Adjusted EBITDA rose 59% to $1.842 billion, or 84% of revenue, about 1.9 percentage points higher than a year earlier, and net income rose 72% to $1.44 billion. Free cash flow was $1.4 billion, 77% of adjusted EBITDA, up from 53% in the second quarter. AppLovin's business is software that decides which ad to show to whom inside mobile games and, increasingly, on the wider web; once the models and servers are paid for, each extra dollar of ad spending running through them costs little to serve.
The guidance extended the pattern. For the fourth quarter AppLovin forecast revenue of $2.365 billion to $2.395 billion, with a midpoint of about $2.38 billion against a $2.25 billion consensus, and adjusted EBITDA of $1.995 billion to $2.025 billion, a margin of 84% to 85%. It also spent $1.4 billion buying back 4.1 million shares during the quarter and added $3.2 billion to its repurchase authorisation, which now stands at $3.6 billion.
There is a slower number inside the forecast. The fourth-quarter range implies sequential growth of roughly 8% to 10%, against about 14% from the second quarter to the third, one analysis noted. For a company valued on how fast it grows, a deceleration that still beats consensus is a mixed signal, and the after-hours price already assumes the beat continues. On the tokenised market the first 15-minute candle after the release carried 821 trades and swung from $262.43 to $321.03 before the peak, then the price drifted back to about $326 overnight, a reminder of how quickly a first reaction is repriced.
The result is a clean example of operating leverage: revenue up 55%, adjusted EBITDA up 59% and net income up 72% in the same quarter, because most costs did not grow with sales. The same mechanism works in reverse when revenue slows, which is why the market will watch the first quarter's guide in February as closely as this one. For now, Thursday's open will show whether a gain of more than 20% on top of a 10.7% day holds once regular-hours buyers set the price.