AppLovin's Q3: Beyond the Headlines
AppLovin (NASDAQ: APP) just dropped its Q3 CY2025 numbers, and the market's reacting like someone just handed them a winning lottery ticket. Revenue's up 17.3% year-on-year, hitting $1.41 billion and exceeding expectations. GAAP EPS clocked in at $2.45, beating estimates by a sliver – 2.6%, to be precise. But before everyone starts popping champagne, let's dissect these figures with a cool head. I see a lot of green, but I also see some questions that need answering.
Margin Expansion: The Real Story?
The real eye-popper is the operating margin, jumping from 44.6% to a hefty 76.8%. Free cash flow margin mirrored this, surging from 61.3% to 74.7%. On the surface, it screams efficiency. But how sustainable is this level of margin expansion? Did they suddenly discover a magic money tree, or is something else at play? What levers did they pull to achieve this? Cost-cutting? A shift in revenue mix? The report is frustratingly silent on specifics.
And here's the part of the report that I find genuinely puzzling: Sell-side analysts are projecting 26.9% revenue growth over the next 12 months. That's a bold prediction. AppLovin's grown sales at a compounded annual growth rate of 35.2% over the last five years. Their annualized revenue growth over the last two years is about 35%—to be more exact, 34.9%—aligning with that trend. But can they maintain that trajectory in an increasingly competitive market? Or are these analysts baking in some future acquisitions or product launches that haven't been announced yet? AppLovin (NASDAQ:APP) Delivers Impressive Q3, Stock Soars - Yahoo Finance
The Valuation Question
AppLovin's market cap is sitting pretty at $205.9 billion. A hefty sum. Now, let’s play with some numbers. Assuming that 26.9% growth rate, and assuming they can hold onto these expanded margins (a big assumption), what kind of valuation are we looking at a year from now? It’s a complex equation involving discount rates, future cash flows, and a healthy dose of speculation. But does the current valuation fully reflect the risks involved? Or is there a bit of exuberance baked into the app stock price right now?
It’s like watching a high-stakes poker game. Everyone's focused on the cards on the table (the Q3 results), but the real game is about reading the other players – understanding their motivations, their risk tolerance, and their long-term strategy. And in this case, AppLovin's strategy remains somewhat opaque.
