Adam Foroughi, CEO of AppLovin.
CNBC
AppLovin Shares rose 45% Thursday after the online gaming and advertising company issued guidance that was well above estimates and reported better-than-expected earnings and revenue.
The stock jumped to over $245 in early afternoon trading. They are now up 515% this year, far outpacing all other technology companies valued at $5 billion or more, according to FactSet data. This rise has brought AppLovin's market capitalization to more than $80 billion.
Revenue in the third quarter rose 39% to $1.2 billion, beating the average estimate of $1.13 billion, according to LSEG. Earnings per share of $1.25 beat the average estimate of 92 cents.
For the fourth quarter, AppLovin expects revenue in the range of $1.24 billion to $1.26 billion, which represents growth of about 31% in the middle of the range. Analysts had expected about $1.18 billion.
Founded 12 years ago, AppLovin went public in 2021, riding on the wave of Covid-era excitement in online gaming. Now, the company's gaming unit is seeing relatively slow growth, but its online advertising business is buzzing with advances in artificial intelligence that have improved ad targeting.
AppLovin attributes much of its growth to its AI-based advertising engine called AXON, especially since launching the updated version 2.0 last year. The technology helps place more targeted ads on the company's mobile game apps, and it works with other studios that license the software.
Software platform revenue in the quarter increased 66% to $835 million, driven by improvements in Axon's models, the company said.
“As we continue to improve our models, our advertising partners can successfully spend at a greater scale,” the company said in a letter to shareholders.
While revenues are growing at a rapid rate, Wall Street is most attracted to AppLovin's profitability. Net income in the quarter rose 300% to $434.4 million, or $1.25 per share, from $108.6 million, or 30 cents per share, a year earlier. The software platform achieved an adjusted profit margin of 78%.
“AppLovin continues to impress with outsized revenue growth and impressive EBITDA conversion,” analysts at Wedbush wrote in a report Thursday. They recommend buying the stock and increasing their price target from $170 to $270.
AppLovin CEO Adam Foroughi, whose net worth swelled Thursday by more than $2 billion to about $7.4 billion, gave an update on the company's e-commerce pilot project. The technology allows companies to deliver targeted advertising in games.
“In all my years, this is the best product I've ever seen come out of us, the fastest growing, but it's still in beta,” Furuji said on the earnings call. E-commerce “looks so strong that we think it will have a financial impact on businesses in 2025 and then over the longer term.”
— CNBC's CJ Haddad contributed to this report
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