Bear (PaulWBryant) | 2026-02-22
| Metric | Prior Belief | Actual | Verdict |
|---|---|---|---|
| Q4 Revenue | ~$1,570–1,600M (guide midpoint $1,600M) | $1,658M | Beat — 4–6% above midpoint |
| EBITDA Margin | 82–83% — plateau expected | 84.4% | Beat — margin expansion continues |
| Net Income | ~$900–950M | $1,102M | Substantial beat |
| FCF | ~$1.0–1.1B | $1,309M | Material beat — 79% margin |
| E-commerce | Growing but limited visibility | 57% go-live, 30-day LTV breakeven, prospecting "fantastic" | More concrete than expected |
| Growth trajectory | Deceleration beginning | Q4 66% YoY — still decelerating from 77% peak | Confirmed |
| Q1 FY26 guide | ~55–60% YoY | ~52% YoY | Below what I'd hoped — first quarter sub-60% |
I didn't have formal prior beliefs written down for APP going into Q4 — I haven't written about this company specifically before. That's on me, given the position size. Applying my framework to what I would have expected: the results were better than a conservative reading of the guide warranted.
The theory on APP is simple: AXON is the most accurate mobile performance advertising engine ever built, and e-commerce is the next TAM unlock after mobile gaming. Fourteen years of first-party transaction data at 1B+ DAU scale is a genuine moat. The question I keep asking is whether the numbers confirm this.
Q4 FY25 answer: yes, but with conditions.
Revenue: 1, 658M[Non − GAAPandGAAPequivalent—singlesoftwaresegment]YoYgrowth : +65.9QoQgrowth : +18.0253M) EBITDA margin [Non-GAAP]: 84.4% — expanded from 82% a year ago Op margin [GAAP]: 76.9% FCF: $1,309M (78.9% margin) Rule of 40: 150 (CFO's words — and he's right)
For a company doing $1.66B in a single quarter, 66% YoY growth with 84% EBITDA margin is... I struggle to find a parallel. The 95% incremental EBITDA flow-through Heaney cited — meaning 95 cents of every new revenue dollar drops to EBITDA — is what you'd expect from a software platform with near-zero marginal cost. That's the model working as designed.
| Q1_FY23 | Q2_FY23 | Q3_FY23 | Q4_FY23 | Q1_FY24 | Q2_FY24 | Q3_FY24 | Q4_FY24 | Q1_FY25 | Q2_FY25 | Q3_FY25 | Q4_FY25 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue ($M) | 355 | 406 | 504 | 576 | 678 | 711 | 835 | 999 | 1,159 | 1,259 | 1,405 | 1,658 |
| QoQ % | — | 14.5% | 24.2% | 14.3% | 17.7% | 4.8% | 17.5% | 19.7% | 16.0% | 8.6% | 11.6% | 18.0% |
| YoY % | — | — | — | — | 91.2% | 75.1% | 65.6% | 73.4% | 70.8% | 77.0% | 68.2% | 65.9% |
Trajectory note: YoY has trended from 91% → 65% → 77% → 66% — not a clean deceleration, which reflects e-commerce ramping against a mobile gaming base that was growing fast. The Q1 FY26 guide at ~52% YoY is the first meaningful step down. The numbers can do the math: at 1.76Bguidedrevenue, YoYpercentagedropssimplybecausethecomparisonbase(1.16B Q1 FY25) is now large.
| Q4_FY24 | Q4_FY25 | YoY Change | |
|---|---|---|---|
| Gross Margin [GAAP] | 84.7% | 88.9% | +420bps |
| Op Margin [GAAP] | 62.9% | 76.9% | +1,400bps |
| EBITDA Margin [Non-GAAP] | ~78% | 84.4% | +~640bps |
| FCF Margin | ~73% | 78.9% | +~590bps |
| Net Margin [GAAP] | ~52% | 66.5% | +~1,450bps |
Operating leverage at this scale is extraordinary. SBC as a percentage of revenue has fallen from 21% (Q1 FY23) to 5% (Q4 FY25). The business is getting more efficient as it grows.
This is the crux of the thesis. E-commerce was ~10% of FY25 revenue per the Q1 FY25 disclosure (management did not update this figure on the Q4 call — I'd like to hear it directly). Here's what the Q4 call revealed about e-commerce that I found useful:
Positive signals:
Concerns:
The theory requires e-commerce to become 30%+ of revenue within 2–3 years to support the current valuation. At 10%+ of 5.5BFY25, we′reat 550M+ currently. Needham is modeling $1.45B for FY26 (~18–20% of revenue). That's a plausible path if self-service GA lands in H1 2026 as guided. I could be wrong — execution risk is real.
At 407shareprice(approximatepost − selloff), marketcap 137.5B. TTM revenue $5.48B.
| Metric | Current | Notes |
|---|---|---|
| P/S [TTM] | 23.7x | Down from ~60x at peak |
| P/E [ann. Q4] | ~31x | At $4.40/share annualized EPS |
| EV/TTM FCF | ~35x | FCF $3.95B TTM |
| EV/Rev/Growth | ~0.38x | vs META 0.53x — cheaper growth-adjusted |
I'll be direct: the stock has repriced dramatically. It was uninvestable at $500+ with a 50–60x P/S. At 23–24x P/S with 66% growth and 79% FCF margins, it's a very different conversation. The stock is down 41% YTD on narrative — short-sellers, CloudX competition, AI disruption fears — not on fundamentals.
If APP delivers Q1 FY26 at $1.76B midpoint and maintains 84% EBITDA margins, TTM revenue by Q1 FY27 would be roughly $7.5B+ (assuming continued sequential growth). At 20x P/S that's $150B market cap — not far from today's. The value has to come from the e-commerce TAM playing out, not from multiple expansion.
Every business is a sell at some price. At current levels, APP is not at that price — but it's not a screaming bargain either. It requires the theory to play out.
| Flag | Status |
|---|---|
| Billings decelerating vs revenue | N/A — advertising model, no billings metric |
| Missing own guidance | No — beat Q4 by ~4–6% |
| Customer adds plateauing | Not disclosed (post-apps, no DAU reported) |
| NRR / DBNRR declining | Not reported (transactional ad model) |
| Story not matching numbers | No — numbers exceeded story in Q4 |
| Guidance step-down | Yes — Q1 guide ~52% YoY, first below 60% |
The guidance step-down is the one flag I'm watching. Foroughi said this directly: "Real disconnect between market sentiment and reality." I believe him on Q4. Q1 FY26 is where the market will get its next data point.
| Flag | Status |
|---|---|
| Revenue beat + raised guidance | Beat Q4; Q1 guidance $1.76B is +6% above Q4 absolute |
| First profitability / margin inflection | Op margin 77% — past inflection, compounding |
| Market selling indiscriminately | Yes — -41% YTD on narrative vs record results |
| FCF quality | $3.95B TTM FCF at 72% margin [Non-GAAP] |
| Buyback at depressed prices | $481.7M in Q4, $3.28B authorization remaining |
From this call:
The OpenAI ad monetization partnership rumored post-earnings (Feb 21) would be a different magnitude catalyst if confirmed. I won't trade on rumors.
I hold APP at 6.8% common + 6.4% LEAPS (Jan '28 $450C) in wsm007 portfolio. That's 13.2% combined exposure — meaningful.
At 41% YTD selloff on a business with record fundamentals, the question isn't whether to hold. The question is whether to add. My hesitation:
My action: Hold — no trim, no add until Q1 FY26 results confirm e-commerce self-service is gaining traction. The LEAPS at $450C with Jan '28 expiry give me two full years for the e-commerce thesis to materialize. That's the right instrument for the risk profile.
I could be wrong. If e-commerce self-service GA slips and gen AI creative underdelivers, the 52% Q1 guide could become a trend, not a floor. At 23x P/S, that matters.
The numbers matched the theory in Q4. The forward guide introduces the first meaningful test. E-commerce GA in H1 2026 is the pivotal next data point.
Bear