Syeda Seirut Javed
During his October 1 review of the third quarter’s S&P 500 laggards on Mad Money, Jim Cramer discussed AppLovin Corporation (NASDAQ:APP). He commented:
On the first day of a brand new quarter, October 1, you need a compass. You know what provides you the best compass? What can navigate you the best? Last quarter… We all use S&P 500 as our benchmark in this business. Now, the index finished up 2.03% for the third quarter. Not bad, not great… Okay, now how about the worst performers? The ones that really did not help… AppLovin, once a favorite of the momentum crowd for its ability to connect advertisers with the right audiences. Had the field of in-app advertising all to itself until Android came in and wrecked the story, leading the stock to fall 44%. Now, it’s still a $94 billion company. That’s just way too much market cap for me.
Cramer previously explained what he thinks broke AppLovin’s story and why the stock is declining.
Advertising Growth Still Produces Substantial Cash
AppLovin Corporation (NASDAQ:APP) continued to expand in the second quarter despite its stock-market performance. Revenue increased 53% year-over-year to approximately $1.92 billion, while net income from continuing operations rose 64% to approximately $1.27 billion. Adjusted EBITDA increased 58% to approximately $1.61 billion.
The advertising platform generated $869 million in operating cash flow and $863.3 million in free cash flow. It also spent $551.3 million on share repurchases and tax-related share withholding during the quarter. Management’s third-quarter forecast calls for revenue of $2.055 billion to $2.085 billion and an adjusted EBITDA margin of 83%. These figures show a profitable business with substantial cash generation, even as investors reassess its growth prospects.
Model Delays And a Dispute With Unity
AppLovin Corporation’s (NASDAQ:APP) recent operating difficulties extend beyond the competitive explanation offered by Cramer. At its latest earnings call, management said improvements in its advertising models were smaller than usual during the second quarter, with a further improvement arriving just after quarter-end. Revenue of approximately $1.924 billion fell below the approximately $1.94 billion consensus but remained within management’s guidance. Adjusted EBITDA was approximately $1.614 billion, missing the lower end of the company’s forecast.
A separate dispute concerns rival Unity. Dow Jones reported on October 2 that a California judge had denied AppLovin’s request for a temporary restraining order over Unity’s alleged use of advertising-auction data. The company accused Unity of using protected information to compete against it. Those allegations remain unresolved; the ruling addressed the request for temporary relief.
