AppLovin (APP) is making a name for itself in mobile advertising. In fact, the company is going all in. The digital advertiser’s flagship AI platform, AXON, enables auctions at a vast scale and microsecond speed. The platform also matches advertiser demand with publisher supply, helping advertisers maximize the return on their advertising spend. So far, the results have been superb.
Earlier this week, AppLovin published its Q1 2025 earnings, boasting about AXON’s growth and operating leverage. Advertising revenue grew 71% year-over-year to $1.16 billion in the first quarter, with AppLovin going “all in” on digital advertising. Moreover, the tech company recently announced its intention to sell its less profitable and declining mobile gaming business for $400 million in cash, while still maintaining a 20% equity stake. The confluence of factors makes me cautiously bullish on APP stock.
AppLovin’s Strategic Exit from Mobile Gaming
For those unfamiliar, AppLovin’s AXON platform marks an evolution from its mobile gaming origins, leveraging AI to deliver real-time data analysis and highly efficient ad targeting. Unlike traditional ads in newspapers, TV, or billboards, where reach was broad but untargeted, today’s digital landscape enables precise targeting. AXON capitalizes on this shift with predictive algorithms and a self-learning loop that continuously refines its models, creating a flywheel effect: the more data it processes, the smarter and more effective it gets.
Early results show that AXON resonates with customers. In Q1, AppLovin’s advertising segment posted $943 million in adjusted EBITDA, an impressive 80% margin, meaning 80 cents of every dollar flows straight to the bottom line. Free cash flow reached $826 million, a robust 55% margin even by software standards. Further underscoring its pivot, AppLovin sold its mobile gaming business for $400 million, betting big on AXON’s future.
Looking ahead, the company projects sequential growth in Q2, with ad revenue expected to hit ~1.2 billion and an 81% adjusted EBITDA margin. Despite these strong numbers, AppLovin is just starting to grab share in the broader ad market, with plans to expand into web advertising and beyond.
Valuation and Competitive Risks
AppLovin’s stellar numbers have propelled it into the ranks of leading tech players, now boasting a market cap in excess of $100 billion. But with that success comes sky-high expectations. The stock trades at a P/E ratio of 67 — nearly three times the sector median — signaling that investors are pricing in near-flawless execution and continued strong performance. As AppLovin’s market share grows, sustaining its rapid pace will inevitably get tougher.
The company also faces stiff competition in an evolving landscape dominated by heavyweights like Meta (META) and Google (GOOGL), along with challengers such as The Trade Desk (TTD) and Digital Turbine.
In addition, AppLovin must navigate scrutiny over data collection and compliance with platform policies—a tricky balancing act given that some of its biggest rivals, like Google and Facebook, control the very platforms it relies on. Any moves by these giants to restrict AppLovin’s ad-serving capabilities could pose a serious risk to its business.
Is AppLovin a Good Stock to Buy?
According to Wall Street, APP is a Moderate Buy based on 15 Buy, three Hold, and one Sell rating in the past three months. APP’s average price target of $473.06 implies almost 40% upside over the next twelve months.
Earlier this week, Jefferies analyst James Heaney reiterated a Buy rating with a price target of $533. He believes that the company’s “most rapid growth is yet to come,” noting AppLovin has only penetrated 0.1% of its market. Lastly, the analyst believes that AppLovin is less vulnerable to macroeconomic disruptions due to its relatively lower exposure to China-based advertisers than its competitors.
Analyst Matthew Cost from Morgan Stanley also reiterated a Buy rating with a lower price target of $420. He cited AppLovin’s innovative developments, such as its automated ad creative and self-serve dashboard, as major growth drivers in 2025.
AppLovin Leads in Mobile Advertising as Risks Remain
AppLovin’s AXON platform has elevated the company to a leadership position in AI-driven mobile advertising. Strong revenue growth and exceptional adjusted EBITDA margins showcase its powerful operating leverage. As Wall Street analysts note, AppLovin is still in the early stages of tapping its vast addressable market.
That said, the advertising landscape remains highly competitive and unpredictable, making future outcomes hard to call. With its lofty valuation, there’s little room for error — any sign of weakness could pressure the stock. APP is certainly worth watching for growth investors, but a measured approach is wise given the risks and premium pricing. All things considered, I remain tentatively bullish on APP while being cognizant of over-exposure to a risk-on stock.