Adam Foroughi, CEO of AppLovin.
CNBC
AppLovin shares resumed their historic rally on Thursday after the ad-tech company reported better-than-expected earnings for the second quarter.
The stock popped 12% and is now up 35% for the year after soaring more than eightfold in 2024. Wall Street has piled into the company due to its growth from artificial intelligence technology that’s given advertisers more ways to target users in mobile games.
CEO Adam Foroughi suggested on the earnings call that another wave of growth is likely on the way due to the legal saga between Apple and Epic Games.
In April, a judge in Oakland found that Apple had violated the court’s original order from a case that was originally decided in 2021, which forced the iPhone developer to make limited changes to its linking out policy under California law.
In June, Apple was dealt a blow in the U.S. Court of Appeals for the Ninth Circuit, as a panel of judges denied the company’s emergency application to halt changes to its App Store that resulted from the legal battle.
Foroughi, who founded AppLovin in 2012 and took it public nine years later, was asked on Wednesday if gaming companies have changed the way they spend money to acquire users due to the Epic case. Foroughi said the company hasn’t seen an impact yet, and that it will “take longer than people expect,” with a big benefit coming within four to eight quarters.
The idea is that developers are no longer being forced to pay Apple’s 15%-30% take because purchases can be paid outside the App Store, so they’ll be willing to spend more on advertising to find new users. That plays into AppLovin’s market.
“You’ll start seeing it compound pretty quickly in terms of benefit to us as an ad platform,” Foroughi said on the call with analysts. “Once the very large leaders start doing it, you’ll start seeing the smaller to mid-sized ones really pick it up quickly.”
For the time being, results appear good enough for investors when it comes to the present. Net income more than doubled to $819.5 million, or $2.39 a share, from $310 million, or 89 cents a share a year earlier. Earnings sailed past analysts’ estimates of $2.03, according to LSEG.
Revenue increased 77% to $1.26 billion, with that growth figure excluding last year’s revenue from the company’s gaming business, which it sold in June. Analysts expected revenue of $1.27 billion.
While AppLovin’s stock has been a Wall Street darling in recent years, multiple firms don’t believe the story and have been public in their criticism.
In March, a third short-selling firm raised concerns about the company’s digital ad technology and claimed that it is breaking app store rules. That report, from Muddy Waters Research, said that AppLovin’s ad tactics “systematically” violate app stores’ terms of service by “impermissibly extracting proprietary IDs from Meta, Snap, TikTok, Reddit, Google, and others.”
A month earlier, Fuzzy Panda Research and Culper Research critiqued AppLovin’s AXON software, which drove its earnings growth and stock surge. A
fter the initial short reports were published, Foroughi wrote a blog post, defending his company’s technology and practices, and taking aim at those trying to profit from AppLovin’s decline, calling them “nefarious short-sellers” who were “making false and misleading claims aimed at undermining our success, and driving down our stock for their own financial gain.”
Analysts at Wedbush still recommend buying the shares and wrote in a report after the latest results that the fallout of the Apple-Epic case will likely become “a tailwind for AppLovin next year.”
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