AppLovin Corporation (APP) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates strong financial performance and optimistic guidance, with a focus on growth through self-service platform expansion and generative AI. The Q&A reveals confidence in market position and strategic investments, despite some uncertainties. The positive aspects, such as revenue growth and shareholder returns, outweigh the negatives, suggesting a likely stock price increase.
Key Financial Performance
Revenue (Q4) $1.66 billion, up 66% year-over-year, driven by continued technology advancements to our core mobile gaming business, seasonal strength, and the expanding impact of our e-commerce initiative.
Adjusted EBITDA (Q4) $1.4 billion, up 82% year-over-year, representing an 84% margin. Margins expanded over 700 basis points from the same period last year, demonstrating efficient incremental revenue conversion.
Free Cash Flow (Q4) $1.31 billion, an 88% increase year-over-year, growing the cash balance to $2.5 billion, reinforcing the strength of the balance sheet.
Revenue (Full Year) $5.48 billion, growing 70% year-over-year, driven by strong performance across the business.
Adjusted EBITDA (Full Year) $4.51 billion, up 87% year-over-year, at an 82% adjusted EBITDA margin, showcasing exceptional quality and durability of earnings.
Free Cash Flow (Full Year) $3.95 billion, up 91% year-over-year, highlighting exceptional growth and cash generation.
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Operating Highlights
AI models: The company is leveraging its own AI models to fuel growth and improve operational performance. AI is seen as a key driver for the business, enabling better user engagement and monetization.
E-commerce initiative: The e-commerce initiative is expanding and contributing to revenue growth, alongside the core mobile gaming business.
Mobile gaming market: The company sees no evidence of a decline in mobile gaming and believes casual gaming will continue to meet entertainment needs. AI is expected to lower game creation costs, leading to an explosion of content and increased demand for discovery platforms.
Revenue growth: Revenue for Q4 was $1.66 billion, up 66% year-over-year, and annual revenue reached $5.48 billion, growing 70% year-over-year.
Profitability: Adjusted EBITDA for Q4 was $1.4 billion, up 82% year-over-year, with an 84% margin. Annual adjusted EBITDA was $4.51 billion, up 87% year-over-year, with an 82% margin.
Free cash flow: Free cash flow for Q4 was $1.31 billion, up 88% year-over-year, and annual free cash flow totaled $3.95 billion, up 91% year-over-year.
Share repurchase program: The company repurchased and withheld approximately 6.4 million shares for $2.58 billion in 2025, funded entirely by free cash flow. Remaining share repurchase authorization is $3.28 billion.
AI and competition: The company views competition in AI as a driver for innovation and believes its foundational MAX auction system benefits from increased competition. AI is also expected to enhance game creation and advertising solutions.
Focus on execution and culture: The company emphasizes a culture of execution and efficiency, with revenue per employee among the highest in the world. It aims to focus on long-term value creation despite market skepticism.
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Risk or Challenges
AI and competition: Concerns about how AI and competition will challenge the business. The company acknowledges the market's bearish view that AI could make game creation easier, potentially reducing the value of their ecosystem. However, they argue that AI will increase content creation, making discovery a scarce resource, which their platform is designed to address.
Competitive pressures: The company faces competition in the mediation and advertising space, including from startups and large companies. They emphasize their strong value proposition and network effects but acknowledge the competitive landscape.
Market sentiment vs. business reality: There is a disconnect between market sentiment and the company's actual performance, which could impact investor confidence and stock price.
Mobile gaming trends: While the company sees no evidence of declining mobile gaming, they acknowledge the need to adapt to changing monetization opportunities and user engagement trends.
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Guidance & Outlook
Future Revenue Expectations: For Q1 2026, revenue is expected to be between $1.745 billion and $1.775 billion, representing 5% to 7% sequential growth.
Adjusted EBITDA Projections: Adjusted EBITDA for Q1 2026 is projected to be between $1.465 billion and $1.495 billion, with an adjusted EBITDA margin of approximately 84%.
Growth Opportunities: The company anticipates continued strength in gaming and scaling of e-commerce and self-service customers, contributing to sequential growth.
AI and Market Trends: AI advancements are expected to lower the cost of game creation, leading to an explosion of content. This will increase the importance of discovery platforms like AppLovin's, which efficiently match users to content.
Mobile Gaming Market Outlook: The company sees no evidence of a decline in mobile gaming and views the market as a long-term opportunity, with potential for improved monetization as models improve.
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Shareholder Return Plan
Share Repurchase Program: During the quarter, AppLovin repurchased and withheld approximately 800,000 shares for $482 million. For the full year, the company repurchased and withheld approximately 6.4 million shares for a total of $2.58 billion, funded entirely by free cash flow. As of the end of the year, there was a remaining share repurchase authorization of approximately $3.28 billion. Over the last four quarters, the company reduced its weighted average diluted shares outstanding from 346 million to approximately 340 million, while simultaneously investing in organic growth and maintaining substantial liquidity. The share repurchase program reflects the company's conviction in the value and durability of its business.
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Key Q&A
Q:What were the key learnings from the self-service e-commerce launch, and can you quantify its contribution to revenue or gross ad spend?
A:The e-commerce business has been live for 1.5 years and is performing well. The self-service platform was opened in Q4 on a referral-only basis, with a GA launch expected in the first half of the year. Current customers saw material increases in spend due to model improvements, and new customers from the referral program showed substantial growth. However, management avoided breaking out e-commerce contributions, stating that the platform operates as a unified system and breaking out verticals could mislead investors.
Q:How far along is the automation curve for optimizing and scaling video asset creation, and what is the outlook for the next 12-18 months?
A:The automation process is still in its early stages. Top gaming companies run tens of thousands of ads, while top e-commerce companies are in the hundreds. Generative AI tools are being piloted with over 100 customers to automate ad creation, including interactive pages and video models. These tools are expected to significantly increase ad counts and competitiveness for e-commerce customers over the next 12-18 months.
Q:What counsel would you provide to investors trying to model e-commerce accounts with your pixel?
A:Management stated that it is difficult to model e-commerce accounts due to the early stage of the business. The platform has only thousands of sites pixeled compared to Facebook's 10 million. They are testing advertising to attract customers and seeing a 30-day LTV to CAC breakeven, which is exceptional. However, they are not ready for GA as they need to optimize the conversion funnel further.
Q:How would your business be affected by a shift to natural language-based agents and LLMs over the next 3-5 years?
A:Management believes LLMs will enable easier game creation and accelerate content production, benefiting their discovery and monetization platforms. They do not foresee a significant impact on their audience, as their games are quick-to-play and relaxing, appealing to an older, female demographic unlikely to shift entirely to chatbots. Increased productivity from LLMs could lead to more time spent on games.
Q:Are you seeing changes in the type and size of customers entering due to the self-service e-commerce launch?
A:Yes, the self-service launch has allowed smaller businesses with lower GMV to join the platform. For example, an Israeli cookware company scaled from $4 million to $16 million in revenue and is projected to reach $80 million this year, with most of their user acquisition spend on the platform. Management emphasized their focus on helping smaller businesses grow.
Q:What is the impact of Meta potentially increasing its presence in the in-game ad environment?
A:Meta has been a long-time partner and bidder on IDFA-based traffic but has not started bidding on no-ID traffic. Management believes their AXON 2 model and strong market position make it unlikely for Meta or any other player to disrupt their dominance. They emphasized that increased competition in the ecosystem has historically improved their market economics.
Q:What is the moat around MAX, and how would you characterize its competitive position?
A:MAX's moat lies in its comprehensive 360 solution, including the best advertising and monetization tools. While other mediations may offer similar performance, MAX's integration with AppLovin's advertising solutions makes it indispensable for publishers. The platform's dominance and continuous innovation make it highly competitive and sticky.
Q:What are your plans for AXON marketing investment in 2026, and what factors influence this?
A:Management plans to scale AXON marketing investment cautiously, focusing on optimizing tools like generative AI for content creation before going GA. They are seeing a 30-day LTV to CAC breakeven in testing, which is promising, but they are not in a rush to scale until the tools are fully ready.
Q:What are the most effective channels for acquiring customers for AXON?
A:It is too early to determine the most effective channels, but partnerships with measurement companies and brand advertising have shown promise. Google search ads and building brand recognition are also part of their strategy.
Q:How does the e-commerce model compare to the gaming model in terms of reinforcement learning and data penetration?
A:The e-commerce model is in its early stages with much less data penetration compared to gaming. While the gaming model has matured with extensive data, the e-commerce model is improving through team efforts and increasing customer data. Management is confident that as data penetration grows, the e-commerce model will become more competitive.
Q:What is the outlook for MAX market growth through 2026?
A:MAX is growing rapidly, driven by strong platform performance and increasing demand. The market is not zero-sum, and other players like Unity and Moloco are also growing. Management expects continued double-digit growth, supported by improvements in conversion rates and advertiser diversity.
Q:What is the potential impact of self-service e-commerce on the business once it reaches GA?
A:The self-service e-commerce platform is expected to build over time and contribute to growth, but it is unlikely to have an immediate major impact on overall numbers due to the scale of the business. It will be noticeable in the numbers as it ramps up.
Q:What gives you confidence in the e-commerce model's ability to scale and compete?
A:Management is confident because the e-commerce model is already competitive with other top-of-funnel discovery channels. As data penetration increases, the model will improve further, creating better predictions and value for customers.
Q:What are the key factors influencing the Q1 guide of 5-7% sequential growth?
A:The Q1 guide reflects a strong exit rate from Q4, driven by mobile gaming performance, e-commerce growth, and the prospecting model. This is partially offset by seasonal weakness and fewer days in Q1 compared to Q4.
Q:What are the priorities for cash use and capital structure?
A:The primary focus is on organic growth initiatives, including talent retention and engineering investments. Excess cash is being used for share repurchases, and management plans to continue this strategy.
Q:Review of Unclear Management Responses
A:Management avoided directly answering questions about breaking out e-commerce contributions to revenue or gross ad spend, citing the unified nature of their platform and the potential for misleading information. They also did not provide specific details on the most effective channels for AXON customer acquisition, stating it was too early to assess.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AAA game
AI competition
AI cost
AI disconnect
AI game
AI potential
CFO information
Form Welcome
MAX auction
PC gaming
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advertising tool
app game
attention today
attention winner
auction competition
auction economics
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bid density
bidder value
capability evidence
capability result
case bid
case value
category market
combination peer
company competition
company network
competition AI
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competition gaming
content
creation
culture
ecosystem MAX
impression
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value proposition
APP Transcript
AppLovin Corporation (APP) Q4 2025 Earnings Call Transcript
Positive2-11
The earnings call summary indicates strong financial performance and optimistic guidance, with a focus on growth through self-service platform expansion and generative AI. The Q&A reveals confidence in market position and strategic investments, despite some uncertainties. The positive aspects, such as revenue growth and shareholder returns, outweigh the negatives, suggesting a likely stock price increase.
AppLovin Corporation (APP) Presents at 53rd Annual Nasdaq Investor Conference Transcript
Neutral12-9
AppLovin Corporation (APP) Presents at UBS Global Technology and AI Conference 2025 Transcript
Neutral12-2
AppLovin Corporation (APP) Q3 2025 Earnings Call Transcript
Positive11-5
The earnings call summary and Q&A indicate strong financial performance with expected growth in gaming advertising and the launch of AXON ads manager. Despite some unclear management responses, the company's strategic initiatives, such as expanding international markets and optimizing ad tools, are promising. The focus on high-quality advertisers and a unified auction platform supports positive sentiment. However, the lack of immediate impact from direct payments and unclear expansion timelines slightly temper the outlook. Overall, the positive aspects outweigh the negatives, suggesting a likely stock price increase.
APP Slides
APP Report
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