AppLovin (APP) — Q4 FY25 Earnings Review

StockNovice (Joe) | February 22, 2026

Opening

[GIF: Spanky wave]

First time writing up APP in any formal way, which is embarrassing to admit given the stock has been in wsm007's portfolio for a while now and has been one of the most-discussed names on Saul's board. Better late than never. What pushed me to finally put fingers to keyboard: APP just reported its best quarter in company history while the stock sits 41% off its highs. That tension deserves some honest thinking.

The Bottom Line

AppLovin delivered a genuine beat-and-raise in Q4 FY25. Not a squeak-past, not a "well if you squint." A clean, unambiguous, this-company-is-firing-on-all-cylinders quarter.

Revenue: 1, 658M[Non − GAAP], +661,590M by ~$68M (4.3%)
Adj. EBITDA: $1,399M [Non-GAAP], 84.4% margin. 95 cents of every incremental revenue dollar dropped to EBITDA.
Net Income: $1,102M [GAAP], 66.5% margin. GAAP profitable. Substantially so.
FCF: $1,309M [Non-GAAP], 79% margin
Q1 FY26 Guide: 1, 745 − 1, 775M( 1,760M midpoint), 84% EBITDA margin. That's +52% YoY — decelerating from 66%, yes, but still above $100M in incremental sequential revenue

Full year FY25: Revenue $5.48B (+70%), EBITDA $4.51B (82% margin), FCF $3.95B (+91%). Rule of 40 score: 150. That's not a typo.

This is a beat-and-raise. The guide is strong. The thesis is intact. The stock is down 41% YTD. Let's figure out what's going on.

"Is" vs "Could Be"

This is purely an "Is" company. There's no future promise here carrying the valuation — APP is delivering elite results right now, today, in the current quarter.

Criteria	Assessment
Revenue delivering now?	Yes — $1.66B Q4, 66% YoY
EBITDA margin elite now?	Yes — 84%
GAAP profitable now?	Yes — $1.1B net income
FCF generative now?	Yes — $1.3B Q4 alone
Beat-and-raise habit?	Yes — consistent pattern
SBC dilution contained?	Yes — 5% of revenue, down from 20%

The e-commerce expansion is the "could be" element — it hasn't fully arrived yet. But the core AXON advertising business is a screaming "is." This isn't a story stock hoping its AI will work someday. The AI is working, right now, and printing money.

Key Metrics Table

	Q1 FY24	Q2 FY24	Q3 FY24	Q4 FY24	Q1 FY25	Q2 FY25	Q3 FY25	Q4 FY25
Revenue ($M) [Non-GAAP]	678	711	835	999	1,159	1,259	1,405	1,658
YoY %	91%	76%	66%	44%	71%	77%	68%	66%
QoQ %	—	5%	17%	20%	16%	9%	12%	18%
EBITDA ($M) [Non-GAAP]	—	—	—	848	—	—	1,150	1,399
EBITDA Margin [Non-GAAP]	—	—	—	85%	—	—	82%	84%
Net Income ($M) [GAAP]	—	—	—	599	—	—	747	1,102
Net Margin [GAAP]	—	—	—	60%	—	—	53%	66%
FCF ($M) [Non-GAAP]	—	—	—	695	—	—	1,038	1,309
FCF Margin [Non-GAAP]	—	—	—	70%	—	—	74%	79%
SBC % Revenue	~6%	~5%	~5%	~5%	—	—	5.1%	4.9%

Note: Margins only available in scout brief for quarters where source documents were collected. Gap is a data limitation, not a business one.

Prior Beliefs → Updated Beliefs

No prior Joe analysis exists for APP. First review. Establishing baseline.

Going in (thesis): APP owns the mobile advertising supply-demand marketplace. AXON (demand side, advertising engine) sits on top of MAX (supply side, mobile publisher mediation). The AI model improves continuously with more data. E-commerce expansion into a $100B+ TAM is the next leg. Stock sold off 41% on CloudX competition fears and general AI sentiment rotation.

What I was watching: (1) Did the Q4 revenue beat? (2) Is the EBITDA margin sustaining at 80%+? (3) What did management say about e-commerce progress? (4) Is the CloudX threat real or narrative?

What actually happened:

Metric	Expected	Actual	Verdict
Q4 Revenue	~$1,590M (guide mid)	$1,658M	Beat by 4.3%
EBITDA Margin	~82-83%	84.4%	Exceeded
Net Income	~$950M	$1,102M	Substantial beat
FCF	~$1.1B	$1,309M	Beat
Q1 FY26 Guide	~$1.7B	$1,760M midpoint	Strong
E-commerce progress	Some update	57% go-live, 30-day LTV breakeven, "fantastic" prospecting	Better than expected
CloudX threat	Real concern	CEO: competition expands pie, APP charges 5% on competitor wins	More nuanced than feared

Updated belief: Everything I was watching went in the right direction or exceeded. E-commerce is further along than the stock price implies. CloudX appears to be a market-expanding event, not a share-taking threat.

Management Credibility

Adam Foroughi has earned a lot of trust. Here's the record:

Built and sold two prior companies before APP
AXON pivot (from gaming diversification to pure AI advertising platform) was the right call, executed well
SBC: brought from 20% of revenue in FY23 to 5% in FY25. That's meaningful owner-operator behavior.
Beat-and-raise: has delivered this consistently. Q4 FY25 continues the pattern.
Buybacks: 2.58BrepurchasedinFY25at 403 average. That's capital discipline.
Muddy Waters short report: contested without obvious financial desperation. CapitalWatch allegations retracted.
CloudX response on the call: calm, confident, data-driven. "We charge 5% on impressions that go to competitors." That's a moat with teeth.

One flag: no full-year FY26 guidance. Management cited "uncertainty in the macro environment." Fair enough, but worth watching whether this becomes a pattern of narrowing visibility.

Verdict on management: High credibility. Watch for any guide-down or miss — the first one matters more for high-trust management because the bar is higher.

The Stock Disconnect

APP is down 41% from its highs while reporting the best quarter in company history. Here's how I'm thinking about it:

Why the stock dropped:

CloudX fear — Applovin launched CloudX GA on Feb 4, 2026. The narrative: competitors now have access to what was proprietary. The reality: CEO says competitors winning impressions generates a 5% fee to APP. Market may have over-rotated.
Growth deceleration — 66% YoY in Q4, guiding ~52% YoY in Q1. That's real deceleration. But in absolute dollars, Q4 added $253M sequentially — the largest quarterly dollar addition in company history.
AI sentiment rotation — Everything AI-adjacent got sold when DeepSeek caused a rethink. APP caught collateral damage.
Short-seller overhang — Muddy Waters report remains unresolved (allegations retracted by CapitalWatch, but MW hasn't closed out publicly).
Valuation — APP peaked at insane multiples. Even after the 41% haircut, 25x EV/Rev and 35x EV/FCF aren't cheap. But growth-adjusted (PEG 0.38x vs META 0.53x), it's arguably the better deal.

Why I think the market is wrong short-term:

Rule of 40 of 150 is among the best metrics I've ever seen for a company this size
95% incremental EBITDA flow-through means growth is pure profit growth, not revenue growth with margin sacrifice
E-commerce is in the early innings (57% go-live, 1% → 5% conversion opportunity)
Buyback machine at $3.28B authorization, $4B+ annual FCF
18 analysts Strong Buy, zero Sells, consensus PT ~705vs 407 current

Is the stock "cheap"? Not by traditional metrics. But for a business printing $4B+ in FCF per year with 80%+ margins and a new TAM (e-commerce) still largely untapped? The downside case requires believing something breaks that isn't broken.

E-Commerce: The Tryout Becoming a Starter

The e-commerce expansion is the most important forward-looking element and the one hardest to assess:

What we know:

57% of e-commerce customers "live" (43% breakage)
30-day LTV breakeven achieved (this is the key unlock — advertisers don't need to wait months for ROI)
Prospecting campaigns described as "fantastic"
Customers who have been live ("lappers") showed "material spend increases"
Self-service GA expected H1 2026 (removes $10K/day GMV minimums, opens SMB market)
Needham estimates $1.45B in e-commerce revenue for FY26 (18-20% of projected revenue)

What we don't know:

The 43% breakage: how much is gen AI tools fixing this, and how fast?
Whether the SMB segment shows same economics as large advertisers
Whether Amazon, Meta, and Google's e-commerce advertising advantages limit APP's ceiling

My take: The 30-day LTV breakeven disclosure is more important than the headline metrics. That means the feedback loop works for advertisers — spend money, see ROI inside a month, increase spend. That's what creates sustainable e-commerce advertising relationships. The question is scale-up speed. I'd put e-commerce at "tryout converting to starter" — the numbers are real, the potential is large, but we haven't seen the scale yet.

Position Sizing Thoughts

wsm007 carries APP at 6.8% common + 6.4% LEAPS (Jan'28 $450C). That's meaningful. After reviewing this quarter, I wouldn't reduce — the thesis is intact and arguably stronger. The question is whether to add on weakness.

Here's how I'm thinking about sizing:

The stock is at ~$407 vs consensus $705. That's a 73% implied upside if analysts are even close to right.
FCF at $4B+ annualized against a $137B market cap = 2.9% FCF yield. That's not a value stock, but the growth justifies it.
LEAPS at Jan'28 $450C give time for e-commerce to prove out. If e-commerce self-service goes GA in H1 2026 and the numbers hold, those calls could be significantly in the money by late 2026.
The Muddy Waters overhang is a real risk I can't quantify. It's a reason to not max-size here.

Sizing verdict: APP earns starter status at current allocation. Not adding until either (a) the MW situation resolves cleanly, or (b) e-commerce self-service GA launches and shows early numbers. The LEAPS provide the asymmetric upside exposure if things go right.

Red Flags to Monitor

Growth deceleration cadence — If Q2 FY26 guidance comes in below 45% YoY, we need to reassess the trajectory seriously. 52% → 40% in one step would concern me more than 66% → 52%.
E-commerce breakage not improving — If the 43% breakage rate doesn't meaningfully improve in 1-2 quarters after gen AI tools roll out, that's a product problem.
Muddy Waters — If new allegations surface or existing ones gain traction, that changes things. Keep watching.
EBITDA margin — 84% is extraordinary. If it compresses meaningfully (below 78%) as e-commerce scales, I want to understand why.
No full-year guide — If they continue to withhold annual guidance in Q1 FY26, that's a signal worth noting.

Green Flags Confirmed This Quarter

✓ Beat-and-raise (clean, not squeaky)
✓ 95% incremental EBITDA flow-through
✓ SBC below 5% of revenue — owner-operator discipline
✓ $2.58B buybacks in FY25 — capital returned at scale
✓ E-commerce: 30-day LTV breakeven, "lappers" spending more
✓ CEO calm and data-driven on competitive question
✓ Rule of 40 = 150

What to Watch Next Quarter (Q1 FY26)

Revenue vs $1,760M midpoint — Does the beat-and-raise habit continue?
E-commerce self-service GA date — Any firmer timing than "H1 2026"?
Breakage rate update — Is gen AI creative tooling reducing the 43%?
Q2 FY26 guide level — Does deceleration steepen or stabilize?
Muddy Waters resolution — Any development (positive or negative)?
New verticals — Fintech, insurance, lead-gen were mentioned as "coming months"

Conclusion

APP just reported the best quarter in its history while the stock is -41% from highs. The business is an "is" — delivering elite results now, not promising them in the future. Beat-and-raise habit intact. EBITDA margins at 84%. FCF approaching $4B annually. E-commerce expansion is early but showing real evidence (30-day LTV breakeven, lapper acceleration). The stock disconnect is real, driven by legitimate concerns (deceleration, CloudX, Muddy Waters) that don't match the operational reality of this quarter.

Thesis: Intact and strengthening on the fundamentals. The market is pricing in concerns that haven't shown up in results.

Action: Hold current allocation (6.8% + 6.4% LEAPS). Await Q1 FY26 and e-commerce self-service GA before adding.

Conviction: High — this is a starter, and it deserves to stay one.

As usual, thanks for reading.