AppLovin reported second-quarter revenue of $1.92 billion, a 53% year-over-year increase, slightly below market expectations; net profit reached $127 million, up 55% year-over-year. Due to revenue and third-quarter guidance falling short of expectations, the stock initially plunged by approximately 20%.

Article author and source: Wall Street Journal

On August 5, mobile marketing software giant AppLovin held its second-quarter earnings call. Following the earnings release, despite strong net profit performance, AppLovin's stock plunged by approximately 20% due to revenue falling short of expectations and a somewhat weak guidance for the third quarter.

Financial results showed that AppLovin's second-quarter revenue was $1.92 billion (a 53% year-over-year increase), slightly below the analyst expectation of $1.94 billion; adjusted earnings per share were $3.76, slightly above the expected $3.75; net profit reached $1.27 billion, up 55% year-over-year. For the third quarter, the company expects revenue to range between $2.055 billion and $2.085 billion (median $2.07 billion), also below the market expectation of $2.08 billion.

On the earnings call, AppLovin’s CEO Adam Foroughi and CFO Matt Stumpf directly addressed the disappointing results. Adam Foroughi was straightforward and unflinching: “This quarter, we fell short of that standard.” He immediately emphasized: “What’s important is that we understand what happened, and we’ve already fixed it.”

The culprit behind the performance gap: the time lag in model upgrades

This is the issue of greatest concern to the market in today's conference call.

Faced with Wall Street’s concerns about slowing revenue, CEO Adam Foroughi did not avoid the issue. He acknowledged that the company has always aimed to exceed expectations, but this time it fell short.

Foroughi's explanation points to a core logic: the growth of AppLovin's gaming advertising business is fundamentally driven by the continuous iteration of AI model performance—model improvements → higher advertiser ROAS → natural budget increases.

"Games remain our primary source of revenue, and the single largest driver of its growth is model performance. When our models improve, advertisers can allocate more budget profitably, and the budget naturally increases," said Foroughi.

He admitted that the issue in the second quarter was timing: "Ultimately, this quarter came down to timing. Our meaningful model improvements during the quarter progressed more slowly than usual, and the next major leap in model performance simply landed after the quarter ended."

He emphasized that the company has not observed any weakening in advertiser demand or changes in the competitive landscape. Advertising revenue from the MAX publisher platform grew by double digits quarter-over-quarter, and the company’s share of publisher ad waterfall remained stable. "With these improvements now live and as we enter a more seasonal period, the business is regaining momentum."

In response to analysts' follow-up question about why the model upgrade had not arrived as scheduled, Foroughi gave a more candid answer:

This is research and development—there’s no guarantee of improvement in every three-month cycle. The team is constantly testing, and sometimes we see significant gains with month-over-month increases of 12%, 13%, or 15%, while other periods show no substantial improvement.

Facing profit margin concerns: "This is a trade we're willing to make every day."

In addition to revenue falling short of expectations, AppLovin’s adjusted EBITDA for the second quarter ($161 million) was slightly below the company’s guidance range, sparking market concerns over elevated costs. Management attributed this to significant investments in underlying technology.

“These incremental investments have been fully directed toward where we believe they should go—our technology,” Foroughi explained, noting that the company is making fundamental changes to its architecture to build more sophisticated models that will benefit more significantly from additional training compute.

Regarding this type of hash power investment that consumes part of short-term profits, Foroughi is resolute:

We are willing to make this trade every day when increased computing power generates substantially higher revenue through improved model performance. These higher training and inference costs have already been factored into our guidance for next quarter.

CFO Matt Stumpf also added that the company manages its business based on absolute dollar amounts of EBITDA and free cash flow, rather than deliberately targeting profit margin percentages. “If we identify opportunities to generate more revenue, we will continue to invest.”

Future potential: The rise of e-commerce verticals with a long-term growth rate of 30%

Beyond its core gaming business, the market is closely watching AppLovin’s progress in expanding its consumer business. With the public release of AppLovin Ads Manager, this is seen as a key step for the company to break through the limitations of the gaming industry.

Foroughi revealed that the consumer business performed strongly in the second quarter, with advertiser spending reaching a new high, 28% above the level seen in the fourth quarter of 2025 (typically a peak advertising season).

Growing well beyond seasonal peak levels during what is typically a seasonal low quarter demonstrates just how steep this growth curve is.

However, he also cautioned the market that ramping up the new business will take time:

As we mentioned last quarter, we don’t expect a public launch to transform the business overnight. We will strategically prioritize mid-market advertisers... just as we did when building our gaming business, where the long tail will gradually unlock as we accumulate more data.

When discussing the company’s long-term moat and growth ceiling, Foroughi presented an extremely optimistic vision:

The speed and scale at which we grew our gaming business far exceeded our expectations, and our consumer business has provided us with an even longer runway. We run the same auction system across multiple advertising categories, and every new category we introduce expands the opportunities ahead of us. In the long term, as we continue to improve our gaming business and expand our consumer business, we believe this segment can achieve an annual compound growth rate of approximately 30%.

Additionally, CFO Matt Stumpf clarified at the meeting that the previously reported inquiry by the U.S. SEC (U.S. Securities and Exchange Commission) into the company has been closed with a “no recommendation to take any action.”

Revenue slightly missed, profits remained strong, and the midpoint of Q3 guidance was below expectations.

The financial report showed that AppLovin generated revenue of $1.92 billion in the second quarter, a 53% year-over-year increase, but slightly below the midpoint of its own guidance and also below the analyst consensus estimate of approximately $1.94 billion. Adjusted EBITDA was $1.61 billion, up 58% year-over-year, with adjusted EBITDA margin expanding by approximately 300 basis points, though still slightly below the previously provided guidance range.

Net profit remained strong at $1.27 billion, representing a year-over-year increase of approximately 55% (compared to $820 million in the same period last year). Adjusted earnings per share came in at $3.76, in line with analyst expectations. Free cash flow amounted to $863 million.

CFO Matt Stumpf noted that the free cash flow conversion rate in the second quarter was below the usual pace, primarily due to the timing of international cash taxes and interest payments. "This is a timing issue, not a change in the company's profitability," he said. He expects the free cash flow conversion rate to improve in the third quarter, with the full-year free cash flow conversion rate returning to approximately 75% of adjusted EBITDA.

The earnings report provided a revenue guidance range of $2.055 billion to $2.085 billion for the third quarter, representing year-over-year growth of 46% to 48% and quarter-over-quarter growth of 7% to 8%. The midpoint of the guidance is approximately $2.07 billion, slightly below analysts’ previous expectation of $2.08 billion. Adjusted EBITDA guidance is set at $1.71 billion to $1.74 billion (year-over-year growth of 48% to 50%), with an adjusted EBITDA margin of approximately 83%, also below Wall Street’s expectation of around $1.76 billion.

CFO Matt Stumpf specifically noted that the Q3 guidance incorporates "model improvements already launched and operational" and "higher training and inference computing costs," but does not include assumptions regarding additional model releases that have not yet been deployed.

CEO Adam Foroughi expressed optimism about the start of Q3: "The quarter began strongly, and our business is back on track as expected."