Applovin(US:APP) The Motley Fool·2025-02-18 02:26Core Viewpoint - AppLovin has experienced significant stock price appreciation, with shares increasing over 900% in the past year, driven by strong earnings and growth in its adtech platform [1][2]. Financial Performance - AppLovin's advertising segment revenue surged 73% to $999.5 million, while overall revenue increased 44% to $1.37 billion, exceeding the consensus estimate of $1.26 billion [3]. - The company's gross margin improved to 76.7% from 71.3% a year ago, and sales and marketing expenses were reduced by 4%, contributing to faster growth in profitability metrics compared to revenue [4]. - Earnings per share (EPS) rose from $0.49 to $1.73, surpassing the consensus of $1.24, while adjusted EBITDA increased 78% to $848 million [5]. - Operating cash flow was $701 million, and free cash flow was $695 million, with a net debt of $2.8 billion at year-end [6]. Future Outlook - AppLovin forecasts first-quarter revenue between $1.355 billion and $1.385 billion, indicating growth of 28% to 31%, and adjusted EBITDA is expected to range from $855 million to $885 million [6]. - The company plans to sell its app business for approximately $900 million, which will allow it to focus solely on its adtech operations and develop self-service capabilities for advertisers [7]. - AppLovin has seen early success in the e-commerce sector and anticipates it will be a significant contributor by 2025, although the timing remains uncertain [8]. Valuation Considerations - The stock's forward price-to-earnings (P/E) ratio is over 65 times 2025 analyst estimates, which raises questions about its valuation despite strong growth prospects [9]. - Long-term revenue growth from the gaming vertical is projected to be between 20% to 30%, and the shift to self-service capabilities is expected to further enhance revenue growth [10]. - The divestiture of the app portfolio is seen as a positive move to spotlight the adtech business, potentially reducing debt and improving revenue growth [11].