Advertising Revenue +77% to $1.26B at 81% Adj. EBITDA Margin, AXON Ads Manager Launches With Oct 1 Referral / H1 2026 Global Cadence, Apps Divestiture Completes the Pure Ad-Tech Pivot — Initiating Outperform on the Cleanest Margin Profile in Ad-Tech

Results vs. Consensus

Q2 2025 Scorecard (Advertising Segment Only)

Year-over-Year Comparison (Advertising)

Quarter-over-Quarter Comparison

Revenue assessment. The 77% YoY revenue growth in the advertising segment is structurally driven by gaming (called out as 30-40% grower in Q&A) plus the early e-commerce contribution (~10% of revenue as targeted). Importantly, the gaming growth at +30-40% materially exceeds the +20-30% long-term framework that management has committed to publicly — the structural gaming AXON 2 platform continues to deliver iterative model lifts that compound the technology-driven CPM expansion + MAX supply growth. The Q3 guide of $1.32-1.34B implies +5% sequential growth (high end), maintaining the structural double-digit-plus YoY trajectory.

Margins assessment. The 81% Adj. EBITDA margin in Q2 represents +900bp YoY expansion from 72% in Q2 2024. This expansion reflects: (a) the Apps divestiture removing a structurally lower-margin segment from the consolidated mix, (b) operating leverage on revenue growth that materially outpaces opex growth, and (c) AXON 2 model improvements producing higher CPMs (revenue) without commensurate cost increases. Critically, the Q3 81% margin guide indicates this is the new structural baseline, not a Q2 specific peak. Going forward, the 2026 paid marketing campaign will add a meaningful sales & marketing line item, which will compress headline margin to the 75-78% range — but the LTV-to-CAC economics on customer acquisition will be net-positive given the platform's existing per-customer economics.

EPS assessment. The $1.44 EPS beat by $0.08 reflects the operating leverage flow-through plus the share count reduction (342M Q2 2025 vs. 346M Q4 2024 = ~1.2% reduction in 6 months). The trailing 12-month EPS trajectory now annualizes to ~$5.50-6.00 against the Q2 2024 trailing rate of ~$2.50 — the operating earnings power has more than doubled in 12 months on the advertising segment alone.

Segment Performance (Advertising-Only Post-Divestiture)

Following the Q2 closing of the Apps divestiture to Tripledot Studios (Apps now classified as discontinued operations), APP reports on a single segment basis — Advertising. Within Advertising, management discloses qualitative breakdowns across gaming (the dominant component) and e-commerce/web (the emerging growth vector). No specific segment-level revenue allocation is publicly disclosed.

Implied Vertical Mix (Q2 2025 Advertising Revenue)

Mobile Gaming — The Structural Engine

Mobile gaming remains ~88-90% of revenue and the binding structural engine. Adam disclosed in Q&A that gaming is sustained at +30-40% YoY growth — meaningfully above the +20-30% long-term framework that management has committed to publicly. The growth drivers are mechanically clean: (a) AXON 2 model improvements continue to produce iterative CPM lifts as the engineers ship refinements, (b) MAX marketplace supply growth is double-digit (multiples of the mobile gaming market's 3-5% growth) as eyeballs spend more time in games, and (c) operating leverage on the marketplace fee structure (MAX taxing every transaction outside APP's own DSP) compounds with supply growth.

Assessment: The gaming structural growth at +30-40% is the underappreciated structural moat. APP is not just growing within mobile gaming — APP is the dominant marketplace + the dominant DSP within that marketplace. Even if AXON web rollout disappoints materially in H2 2025 / H1 2026, the gaming structural pillar alone supports +20-30% YoY revenue growth for multi-year horizons. This is the floor of the multi-year framework.

E-Commerce / Web — The Multi-Year Catalyst

E-commerce remains ~10-12% of Q2 revenue but is the binding multi-year growth catalyst. The Q1 pilot disclosure of hundreds of advertisers at $1B run rate (with sub-1% market penetration vs. Meta's 10M+ advertisers) frames the TAM opportunity at multiple-times current revenue. Management constrained onboarding in Q2 to prep for the Q4 launches — building the Shopify app integration, dynamic product ads, attribution provider integrations, and the AXON ads manager itself. The Oct 1 referral-based opening + international markets + H1 2026 global public launch is the most concrete multi-quarter rollout cadence APP has provided to date.

Assessment: E-commerce is the catalyst that re-rates the multi-year framework. If the Oct 1 referral launch produces visible advertiser count expansion in Q4 (which is the holiday seasonal peak for e-commerce advertising spend), the FY2026 trajectory could meaningfully exceed current Street modeling. The H1 2026 global launch is the structural pivot moment. The 2026 paid marketing campaign — the first in company history — signals management's confidence that the unit economics will produce favorable LTV-to-CAC ratios on programmatic customer acquisition.

Key Topics & Management Commentary

Overall Management Tone: High conviction throughout, with explicit articulation of the multi-year strategic framework. Adam Foroughi (CEO) framed the AXON web expansion as "the next decade of growth" and was unusually specific on rollout cadence (Oct 1 referral, Oct 1 international, H1 2026 global, 2026 paid marketing). Matt Stumpf (CFO) was operationally precise on the Apps divestiture mechanics and the capital allocation framework. Tone was confident but not triumphant — the call was structured to communicate execution discipline against a well-defined multi-quarter roadmap rather than to celebrate the operating beat itself.

1. The Q2 Print's Defining Combination: +77% Revenue, 81% EBITDA Margin, $768M FCF

Q2 2025 advertising revenue of $1.26B (+77% YoY) at 81% Adj. EBITDA margin produces the cleanest structural-growth-plus-best-in-class-margin combination in scaled ad-tech today. The +77% YoY revenue growth in a $1B+ revenue base is structurally rare; the 81% EBITDA margin at that scale is unprecedented across the public ad-tech peer set. Combined, the operating model produces $768M in Q2 FCF (+72% YoY) — nearly $3B annualized FCF run rate from advertising alone.

"Q2 was another exceptional quarter for AppLovin… During the quarter, revenue increased by a very healthy 77% from last year to approximately $1.260 billion, while adjusted EBITDA nearly doubled to an impressive $1.020 billion, achieving an 81% adjusted EBITDA margin… Quarter-over-quarter flow-through from revenue to adjusted EBITDA was a very strong 81%, illustrating our continued dedication to operating lean."
— Matt Stumpf, CFO

The 81% incremental flow-through — where each incremental dollar of revenue translates to 81 cents of incremental EBITDA — is the structural artifact of the pure-software business model with sustained headcount discipline. This is the multi-year compounding mechanism that justifies the premium multiple.

Assessment. The combination of +77% structural revenue growth with 81% incremental EBITDA flow-through is the cleanest possible operating engine. Multi-year compounding at these rates with this margin profile produces extraordinary equity value creation — APP could plausibly compound EBITDA from $4B annualized to $8B+ by FY2027 if the gaming structural growth holds and AXON web rollout lands.

2. AXON Ads Manager — The Self-Service Foundation for the Next Decade

The most consequential strategic disclosure of the call: the AXON ads manager launched in Q2 as the self-service portal that will serve as "the foundation for our next decade of growth." The ads manager addresses multiple operational requirements: direct advertiser controls (reducing friction), credit card billing (eliminating manual invoicing), agentic workflow architecture (enabling future automation), automatically generated ads framework, Shopify app simplified onboarding, and deeper attribution provider integrations.

"Recently, we took the first step towards opening up our platform broadly, quietly launching our new AXON ads manager, our self-service portal, which will serve as the foundation for our next decade of growth. Our ads manager has many benefits. It puts day-to-day controls directly in advertisers' hands, reducing friction. It enables credit card billing, eliminating the hassle of monthly invoicing. It provides the architecture for agents that can eventually automate every workflow."
— Adam Foroughi, CEO and Co-Founder

The self-service architecture is the binding scalability mechanism. APP's existing customer base (gaming) is small-count, high-value — managed manually through direct relationship. To expand into the small-and-medium-business e-commerce TAM (where Meta has 10M+ advertisers), self-service onboarding is required. The AXON ads manager is the operational unlock for that TAM expansion.

Assessment. The AXON ads manager launch is operationally the most important structural development since AXON 2 itself. The "agentic workflow architecture" framing is forward-looking but specific — APP is positioning to be the first major ad platform with end-to-end agentic customer onboarding and campaign management. If the agentic workflows ship by H2 2026, the platform's scalability inflects materially.

3. October 1 Referral-Based Opening — Timed for Holiday Season

Adam disclosed the specific Q4 cadence: October 1, 2025, the AXON ads manager opens on a referral basis (existing customers can invite their peers), perfectly timed for the holiday shopping season. The Q4 holiday window is the most important e-commerce advertising window of the year; opening the referral-based access at exactly this moment is designed to produce maximum advertiser onboarding velocity at maximum incremental bookings impact.

"With the rollout going smoothly, we were ready to widen access. On October 1, 2025, we plan to open the AXON ads manager on a referral basis, perfectly timed for the holiday season. Feedback from these partners will guide our global public launch in the first half of 2026."
— Adam Foroughi, CEO and Co-Founder

The referral model is structurally elegant: existing high-engagement customers self-curate the next set of advertisers, providing both quality control (referred customers come pre-validated) and supply scalability (no internal sales force required for onboarding). Adam was explicit that no referral bonuses will likely be paid — the platform's exclusivity through 2025 is itself the perk that motivates referrals.

Assessment. The Oct 1 referral launch is the binding Q4 catalyst. Q4 2024 saw a massive ramp-up in e-commerce when APP recruited hundreds of advertisers in pilot; the Oct 1 referral opening should produce a similar (likely larger) advertiser onboarding moment, with the Q4 holiday seasonal demand amplifying the bookings impact. The Q4 print could materially exceed any current Street modeling if the referral cadence converts as designed.

4. International Markets Opening October 1 — TAM Unlock From US-Only Past

The second October 1 disclosure: web advertising campaigns have been limited to the United States to date. On October 1, 2025, APP plans to open the platform to most major international markets. The TAM expansion from US-only to global is structurally meaningful — the US e-commerce advertising market is ~$50B annually; the international addressable market is multiples larger.

"To date, web advertising campaigns have been limited to the United States. On October 1, we plan to open our platform to most major international markets."
— Adam Foroughi, CEO and Co-Founder

Importantly, APP's user base is already global — ~half of the platform's audience is international across gaming. The international rollout therefore unlocks both new advertiser supply (international companies can now buy on APP) and new advertiser-to-audience matching (US advertisers can now target international users effectively). The bilateral expansion compounds.

Assessment. The international opening is the most underappreciated structural catalyst of the Q2 print. The shift from US-only to global addressable market on October 1 represents an immediate ~2-3x TAM expansion. Even if international advertiser onboarding is gradual (as Adam acknowledged in Q&A), the structural framework expansion materially shifts the multi-year revenue trajectory.

5. The 2026 Paid Marketing Campaign — First in Company History

Once AXON is fully open in H1 2026, APP plans to begin paid marketing to recruit new advertisers — the first paid customer-acquisition campaign in the company's history. This represents a fundamental shift in customer acquisition strategy: from word-of-mouth-only to programmatic LTV-to-CAC-driven customer acquisition at scale.

"Once AXON is fully open next year, we plan to begin paid marketing to recruit new advertisers, which will drive predictable compounding growth. We have been building performance-driven advertising products longer and better than most anyone. Operating at our current scale with an incredibly small amount of advertiser relationships highlights the magnitude of the opportunity ahead."
— Adam Foroughi, CEO and Co-Founder

The paid marketing strategy is internally self-referential — APP will use its own platform (and meta-platforms like Facebook, LinkedIn, TikTok) to recruit small business advertisers who play games on APP's owned inventory. This is the cleanest possible application of APP's performance marketing capability: the company eating its own dogfood.

Assessment. The 2026 paid marketing campaign is the operational mechanism for converting the AXON web platform from a relationship-driven niche product into a scalable mass-market self-service platform. The economics are predictable: APP knows the LTV of its existing advertisers (~$5M+ in lifetime value for an established customer), and the CAC for small-business advertiser acquisition via meta-platforms typically runs in the $5K-$25K range. The LTV/CAC ratio at 200-500x is the structural justification for the paid marketing investment.

6. Platform Rebrand to AXON — Strategic Positioning

Adam disclosed that the platform will launch publicly under its own brand: AXON. This is the structural positioning shift from "AppLovin's ad-tech platform" to "AXON, the global advertising platform." The rebrand decouples the platform's perceived addressable market from APP's legacy mobile gaming association — positioning AXON to compete directly with Meta and Google ads at the platform-brand level rather than as a category-specific challenger.

"The opportunity is so big that we will be launching the platform under its own brand, AXON. Once AXON is fully open next year, we plan to begin paid marketing to recruit new advertisers, which will drive predictable compounding growth."
— Adam Foroughi, CEO and Co-Founder

The rebrand also enables clearer brand communication for the multi-vertical, multi-geography strategy. "Advertise on AXON" is a cleaner small-business pitch than "advertise on AppLovin" (which carries gaming-specific brand baggage). For paid marketing campaigns starting in 2026, the AXON brand provides a more universally-recognizable identity.

Assessment. The brand strategy reflects appropriate self-awareness about the structural opportunity. AXON as a standalone brand can compete in the mindshare of small business advertisers without the gaming-specific reductive framing that the AppLovin brand carries. This is operationally important for the 2026 paid marketing campaign efficacy.

7. Apps Business Divestiture Completed — Pure Ad-Tech Play Now

The Apps business sale to Tripledot Studios closed in Q2 2025 with $425M net cash proceeds. The Apps results are now classified as discontinued operations, and the consolidated financials reflect Advertising only. This completes the multi-year strategic pivot from "mobile games publisher with ad-tech" to "pure ad-tech platform" — cleaning up the model materially.

"At the end of the quarter, we closed the sale of our Apps business to Tripledot Studios. This quarter, the financial results for the Apps business are included within discontinued operations, and we will keep our commentary limited to the advertising business only."
— Matt Stumpf, CFO

The divestiture serves multiple strategic purposes: (a) eliminates the lower-multiple games-publishing revenue line, (b) removes any potential conflict of interest as APP expands AXON to broader e-commerce categories (Apps were also customers of MAX), (c) frees management focus for the AXON web expansion, and (d) provides $425M in immediate cash for capital return / strategic investment.

Assessment. The Apps divestiture is structurally clarifying. The pure ad-tech model deserves a higher multiple than the consolidated games-plus-ad-tech business; the divestiture removes the modeling complexity and the conflict-of-interest concern. This is operationally the right move at the right time.

8. Gaming Sustained at +30-40% Growth — Structurally Above 20-30% Framework

Adam explicitly disclosed in Q&A that gaming is growing at +30-40% YoY — meaningfully above the +20-30% long-term framework management has committed to publicly. This is the structural floor of the multi-year framework: even if e-commerce / AXON web rollout disappoints, gaming alone supports +20-30% growth. The +30-40% actual rate provides material upside to the framework floor.

"If you assume a large, large amount of the growth in the quarter came from gaming and you're roughly 9% quarter-over-quarter, gaming is still a 30% to 40% grower for us, so well above our 20% to 30% long-term goals that we've stated."
— Adam Foroughi, CEO and Co-Founder

The gaming growth is structurally driven by AXON 2 model improvements plus MAX marketplace supply growth (10%+ vs. mobile gaming market's 3-5%). Importantly, MAX is "really high penetration into the market" so further growth comes primarily from underlying supply expansion rather than from mediation share gain — meaning the growth rate is structurally sustainable rather than driven by one-time share capture.

Assessment. Gaming at +30-40% is the underappreciated bull pillar. Most consensus modeling discounts gaming growth to the 20-30% framework range; the +30-40% actual creates structural upside to base-case modeling. This pillar alone supports a multi-year compounder thesis independent of e-commerce optionality.

9. E-Commerce at $1B Run Rate, Sub-1% Market Penetration

The Q1 disclosure that resurfaces as the binding TAM-framework point: APP's e-commerce pilot had hundreds of advertisers at $1B run rate as of Q1, representing sub-1% market penetration versus Meta's 10M+ advertisers. The structural framework: gaming and e-commerce have similar dollar-scale at APP today (~$5B annualized gaming vs. ~$1B annualized e-commerce), but the TAM differential is massive — e-commerce/web advertising TAM is multiples larger than mobile gaming.

"It's probably — I mean we're certainly sub-1% of Meta reports over 10 million advertisers, and we're going after all businesses of all sizes. We don't have a lot of advertisers. So the opportunity in that category, both in terms of advertiser count and in terms of scale of TAM is much greater than gaming."
— Adam Foroughi, CEO and Co-Founder

The Q4 2024 ramp-up (where APP recruited hundreds of advertisers in pilot and saw substantial quarter-over-quarter growth in Q4 and Q1) is the historical precedent for what could happen post-Oct 1 referral launch. With the Shopify app integration live, dynamic product ads operational, attribution provider integrations deepened, and international markets opening simultaneously, the structural setup for Q4 2025 is materially more favorable than Q4 2024 was.

Assessment. The TAM-versus-penetration framing is the most consequential bull-case framework point. If e-commerce contribution can scale from $1B run rate to $5-10B run rate over 2-3 years post the Oct 1 / H1 2026 launches, APP's revenue base could double from current $5B+ annualized to $10B+ by FY2027 even with gaming growing only at the 20-30% floor framework. The asymmetry is genuine.

10. 81% Adj. EBITDA Margin — Best-in-Class Financial Model

The 81% Adj. EBITDA margin is structurally rare in scaled ad-tech. Public peer comparison: Meta's consolidated EBITDA margin runs 40-45% at scale; Google's runs 35-40%; The Trade Desk runs ~25-30%; Magnite/PubMatic run 10-20%. APP's 81% reflects (a) the pure-software business model with no content/infrastructure cost burden, (b) sustained headcount discipline ("we like to make money"), (c) the AXON 2 algorithmic efficiency, and (d) the post-Apps-divestiture cleanup of consolidated mix.

"We're very good performance marketers. So we're very good performance marketers. It's plausible that we will be using our own models to recruit advertisers off of our own inventory… We believe that if we can automate the onboarding of advertiser flow from when an advertiser can find out about us from an ad all the way through to going live and then scaling on our platform, the model will be very lucrative on an LTV to CAC basis, and we won't have to staff up a large sales force."
— Adam Foroughi, CEO and Co-Founder

Importantly, the 81% margin is sustainable in the structural framework: the Q3 guide reaffirms 81% margin midpoint, and the 2026 paid marketing campaign (a new opex line) will be funded from existing margin headroom rather than compressing the structural margin profile. Even if 2026 paid marketing adds 300-500bp of opex ratio, the 75-78% margin profile remains best-in-class.

Assessment. The 81% margin is the structural rationale for the premium multiple. As long as the margin profile sustains (which the Q3 guide confirms), APP deserves to trade at a meaningful premium to scaled ad-tech peers on EV/EBITDA. The multiple compression risk is largely mitigated by the margin durability.

11. Capital Allocation Discipline — $341M Buybacks + Organic Investment

Q2 capital return: ~900K shares repurchased / withheld for $341M, fully funded from FCF. Weighted average diluted shares declined from 346M (Q4 2024) to 342M (Q2 2025) — ~1.2% share reduction in 6 months. The capital allocation framework explicit: organic investment first (engineering talent, business development talent), then share buybacks. No debt issuance; no dividends; no M&A focus.

"The approach that we're going to take, James, going forward is very consistent with what we've done in the past. I mean, obviously, first, continuing to allocate capital towards organic initiatives, continuing to hire on very high-quality engineering and business development talent, right, to help continue to grow the organic business and then after that, then to continue to return capital to shareholders via share buybacks."
— Matt Stumpf, CFO

The $1.2B cash position post-Q2 (incl. $425M Apps sale proceeds) provides ample capital optionality for continued buybacks at scale. The trailing 12-month FCF of ~$3B annualized supports sustained $1B+ annual buybacks in addition to organic investment, producing structural share count reduction of 1-2% per year compounding into meaningful EPS leverage.

Assessment. The capital allocation discipline is the right framework for APP's stage. The platform is in a multi-year structural growth phase where organic investment ROI is high; supplemental capital return via buybacks adds incremental shareholder value without compromising the growth investment posture. The 1-2% annual share reduction compounds meaningfully.

Guidance & Outlook

Guidance posture. The Q3 guide of $1.32-1.34B revenue is meaningfully above the pre-print Street consensus of ~$1.29B (~+2-4% above). The guide also explicitly reflects the slight uplift from the Apps divestiture (additional advertising revenue from former intercompany activities now counted on the open marketplace). The 81% Adj. EBITDA margin midpoint indicates the structural margin is sustained, not a Q2-specific peak.

FY2025 framework. Management does not provide explicit annual guidance, but Adam's commentary frames 2025 growth as sustained above the +20-30% long-term framework on the gaming engine alone. With Q2 at +77% YoY and Q3 implied at +65% YoY, the H2 2025 trajectory should sustain at +55-65% YoY for the advertising segment, implying FY2025 advertising revenue of ~$5.0-5.2B.

FY2026 framework signal. Adam was explicit that gaming alone supports +20-30% structural growth, and the AXON web expansion (Oct 1 referral + Oct 1 international + H1 2026 global) is the incremental catalyst. We model FY2026 advertising revenue at $6.8-7.5B, implying +30-50% YoY growth depending on how aggressively the AXON web rollout converts.

Analyst Q&A Highlights

The 2026 Paid Marketing Decision — Why Now and What Channels

The opening question pressed on the historical context: APP has grown via word-of-mouth and gaming-industry virality, not via paid marketing. The shift to paid customer-acquisition in 2026 represents a structural change. The question explored the rationale and the operational channels. Adam's response framed paid marketing as the natural next step given the platform's underlying LTV-to-CAC economics: the company is sub-1% penetrated in e-commerce vs. Meta's 10M+ advertisers; paid acquisition unlocks the small business TAM at favorable unit economics.

Q: "On your plans to start doing paid marketing next year, talk to us a little bit about how you arrived at this decision to market to acquire advertisers because I think historically, it's mostly been growth by word of mouth and sort of virality within the gaming industry that people become aware of your products. So I guess why is now the right time to start marketing? What channels are you going to market through? And how are you going to evaluate the return there?"
— Matthew Cost, Morgan Stanley

A: "We've got big aspirations with our platform… we have very small penetration in terms of advertiser base against what our global advertisers count… The value of us being able to go out in performance market, the platform, is that we've got one of the most lucrative financial models the world has ever seen. I mean, obviously, you can see the amount of cash that we print. And we're very good performance marketers… It's plausible that we will be using our own models to recruit advertisers off of our own inventory. There's plenty of moms with small businesses and dads with small businesses sitting in games, playing games all day that could use our platform to market themselves. You can imagine us running ads on Facebook, on LinkedIn, on TikTok. But it really does come down to the fact that we've got such a lucrative financial model and we try to run lean and automate every step of that process."
— Adam Foroughi, CEO and Co-Founder

Assessment: The "moms and dads with small businesses playing games on our inventory" framing is operationally specific and elegant — APP can recruit small business advertisers using its own ad inventory (where these prospective customers already are) at near-zero incremental CAC. Combined with secondary channels (Facebook, LinkedIn, TikTok) for broader reach, the paid marketing strategy has structurally favorable unit economics. The "automate every step" framework eliminates the need for a large sales force, preserving the 75-80% EBITDA margin profile.

AXON Web Public Launch Impact Magnitude — Could It Be Material to the Overall Business?

A direct question on whether the AXON web public launch could be material to the overall business, given that APP is already at significant scale and growing fast. Adam's response framed Q4 2024 as the historical precedent: the e-commerce pilot recruited hundreds of advertisers and produced substantial Q4-Q1 growth. The Q4 2025 setup is materially more favorable — with Shopify app live, dynamic product ads operational, attribution integrations deepened, AND international markets opening simultaneously.

Q: "Just on the self-serve platform, Adam, maybe you could sort of frame this for us. The launch is coming up, public launch coming up, which is exciting. But could this be a pretty material impact to the overall business? Obviously, it's of good scale today and growing pretty fast, but maybe kind of frame that opportunity."
— Ralph Schackart, William Blair

A: "In Q4, we saw a huge ramp-up in the e-commerce category when we went into this pilot state, recruited hundreds of advertisers that we disclosed. And that was a big ramp-up in Q4, where, in Q1, we got the full benefit of that run rate. And if you look back at the quarter-over-quarter growth, Q4 and Q1 were really high growth rates… In Q4, talking about a referral-based opening… accounts on the platform, they obviously like our solutions because they're spending substantial amounts of money on our platform. We'll get the chance to refer their colleagues into our platform and have them go live in a self-service way. We expect that will increase the advertiser count quite quickly… Assuming all that goes well, then we talked about opening up the platform entirely to the world in first half of next year. We think as advertiser count grows on our business, especially in categories outside of gaming, you're going to see a lot of upside in the numbers that we're able to report."
— Adam Foroughi, CEO and Co-Founder

Assessment: The Q4 2024 historical precedent is the operationally most relevant data point. If Q4 2025 produces a Q4-2024-magnitude advertiser onboarding event amplified by international markets opening and the referral-based scalability, the impact on consolidated bookings could be materially above the Q3 guide trajectory. The Q4 print is the binding catalyst that will confirm or refute the AXON web rollout thesis.

Game Engine Data — Whether Unity's Approach Is a Competitive Threat

A specific competitive question on Unity's stated plan to use game engine data for ad targeting in 2026 — whether APP has access to similar data and whether it matters. Adam's response was structurally clarifying: APP doesn't know what "game engine data" specifically means in Unity's context, but as both publisher (MAX) and advertiser (AXON) integrated inside applications, APP has substantial behavioral data points already — and the AXON 2 model has demonstrated phenomenal growth for 8-9 quarters since release. The bigger framework: APP's market penetration in mobile gaming is meaningfully above 70%, providing strong visibility into what matters in the category. The structural opportunity is expanding outside gaming, not extracting marginal gains within gaming.

Q: "I just wanted to take the conversation in a slightly different direction if I could and ask about game engine data. And one of your competitors, specifically Unity, which owns a game engine, which 70% or so of mobile games are built on plans to use game engine data for ad targeting purposes sometime in 2026 — do other companies besides them have access to game engine data? Do you know if your customers own their own game engine data and you're able to access it and use it at some point in the future? And do you think it matters?"
— Omar Dessouky, Bank of America

A: "We can't speak to other people's data. I mean we don't know what game engine data even means. But when you're integrated inside an application, both as a publisher and as an advertiser, you have a lot of data points that you're able to extract that are behavioral data points of how the consumer is playing into a game. We're obviously very good. Our models are cutting edge. AXON 2 has shown phenomenal growth for, I don't know, 8, 9 quarters now since release. You have to assume we're pretty good at using the data we have available to us… our market penetration inside gaming is really large at this point. It's materially higher than 70%. We've got very good visibility into what matters in the gaming category given how large we've become. What's really going to matter for our business as we go forward is whether we can go expand out this offering the way we expect to across all businesses of all sizes in any category."
— Adam Foroughi, CEO and Co-Founder

Assessment: The "we don't know what game engine data even means" framing is structurally important — APP is not dependent on game engine telemetry to operate the AXON 2 model at scale. The behavioral data APP extracts from MAX-integrated apps + AXON 2 model architecture is materially differentiated from Unity's game-engine-instrumented approach. The competitive risk from Unity's framework is meaningfully overstated.

Referral Program Functionality & Q3 Guide Drivers

A two-part question: (a) how does the referral program work functionally (referral bonuses, international participation), and (b) what's driving the Q3 guide that's faster sequential than past quarters? Adam framed the referral program as initially iterative without explicit bonuses; the platform's exclusivity through 2025 is itself the perk. Matt confirmed the Q3 guide reflects a slight pickup from the Apps divestiture revenue now counted on the open marketplace.

Q: "Maybe just on the referral program and how this is going to work functionally. Are advertisers that are currently on this plan — platform, are they going to be given referral bonuses? Is there going to be any restriction in advertisers that they could refer? You've talked about opening up international inventory. Will international advertisers be available to participate in the referral program?"
— Chris Kuntarich, UBS

A: "We don't think a ticket into our system is really worth paying for. If someone is a client of ours, they have a lot of benefit from being on the platform. People love using social media. You've already seen a whole bunch of organic posts about us from influencers. We think as we give them the capacity to invite their peers, they're going to do it on their own because the platform has been restrictive and exclusive for so long."
— Adam Foroughi, CEO and Co-Founder

Assessment: The "we don't pay for referrals" framing is structurally favorable for unit economics — no incremental CAC for the referral-driven onboarding cohort. The platform's exclusivity through 2025 has created scarcity value that motivates existing customers to refer peers organically. This is the cleanest possible operational model for the referral-based opening.

Web E-Commerce vs Gaming Model — Parity Timeline

A nuanced question on the timeline for the web/e-commerce AXON model to reach parity with the gaming AXON model in terms of efficacy. Adam's response was operationally precise: the two models are architecturally distinct (apps go to App Store, web goes to website), and AXON 2 gaming had ~50-60% market penetration at launch (so it benefited from substantial data already); the web pilot started with zero data on shopper behavior in any category. Despite the cold-start data disadvantage, the early e-commerce results — the first beauty shop pilot demonstrated the model could convert users with no category knowledge — are operationally exceeded internal expectations.

Q: "When you think about all the data that you had to ingest and the models that you had to build to make the gaming model as good as it is, what's sort of the right runway that you have in your mind before those 2 could be at parity in terms of efficacy?"
— Jason Bazinet, Citi

A: "There's no way to know that, right, because that's future looking, and we're going to go acquire a lot of data as we open up the platform. But in terms of architecture of the models, the 2 models are distinctly different… In e-commerce, when we launched in the pilot, why we were so excited about the result is that the first beauty shop that went live, the model knew nothing about the shopper behavior inside the beauty category. And we talked about this. That was the big concern. Could AppLovin's tech actually go out and figure out predictively how to convert a user to go buy from a beauty store with no knowledge?… Shopify alone has millions of shops, right? So you have so much potential for data accumulation. And then just remember, the data in our platform is not unique to one or the other part of the business. So we've always felt that games will benefit a lot from our ability to break into these other categories. You can imagine if someone buys a $4,000 handbag from a store, that person is probably a whale for a match-three game."
— Adam Foroughi, CEO and Co-Founder

Assessment: The "data flywheel" framing is structurally bullish for the multi-year framework. As AXON web rolls out and data accumulates across millions of potential Shopify shops, the cross-correlations between e-commerce purchase behavior and gaming engagement compound — making both AXON models structurally smarter together than either alone. This is a multi-year compounding effect that the consensus modeling framework does not yet incorporate.

Apple/Epic Lawsuit Impact & Capital Allocation

A two-part question: (a) any visible impact on gaming UA spend from the Apple/Epic lawsuit (which loosened App Store payment restrictions), and (b) capital allocation framework given 60%+ FCF margin. Adam's response on Apple/Epic: no impact yet; expect 2-4 quarters before meaningful flow-through as gaming companies slowly optimize bypass strategies. Matt confirmed the capital allocation framework: organic investment first, then buybacks.

Q: "Adam, have you seen any changes in overall user acquisition spend from gaming companies post the Apple versus Epic lawsuit? I mean, conceptually, it should be a great tailwind for your business, but interested if you're seeing any benefits playing out currently."
— James Heaney, Jefferies

A: "Not yet. I think I mentioned this on the last call, but we sort of expect this one to be — take longer than people expect. Certainly, some apps are bypassing the App Store now to cut that rate down. But the biggest gaming companies tend to move really slowly and tend to operate in fear of the big platforms. And so in order to really do it, I think it's going to take a few quarters for them to optimize the user experiences and go bank it. And then from there, you'll start seeing it compound pretty quickly in terms of benefit to us as an ad platform because once the very large leaders start doing it, you'll start seeing the smaller to mid-sized ones really pick it up quickly. So no impact yet. And I would guess it will probably take 2 to 4 quarters from some impact. And by 4 to 8 quarters, you're going to get pretty material impact in pricing on our platform."
— Adam Foroughi, CEO and Co-Founder

Assessment: The Apple/Epic tailwind is a multi-quarter compounding catalyst that hasn't yet hit Q2 results. Adam's 4-8 quarter timeline for "pretty material impact" implies meaningful UA spend acceleration visible in H2 2026 / 2027 as the gaming category fully adopts App Store bypass strategies. This is incremental upside to the current bookings trajectory that is not yet in any consensus model.

Latent Demand Queue & Agentic Capabilities at Oct 1 Launch

The final question explored (a) the magnitude of the queue of advertisers waiting to onboard, and (b) whether the agentic AI capabilities will be live at Oct 1. Adam's response was specific: the referral program is the gating mechanism (queue advertisers will still need invites), and the agentic capabilities will roll out in phases — basic onboarding agents early, complex performance-analysis agents later, generative AI ad creation tools as the third tier.

Q: "I think what everybody is trying to figure out is when self-service goes live on October 1 on a referral basis or perhaps broader general availability next year, there's some notable amount of latent demand that's waiting to get into the program, right, advertisers that have asked you to join but maybe meet the GMV thresholds or perhaps you didn't have the capacity to onboard in the past. Can you maybe help us understand how big that list of advertisers is?"
— Alec Brondolo, Wells Fargo

A: "The referral program is to make sure that our advertisers who find success on our platform thus far are effectively curating the next set of advertisers. And prior to that, it was our team doing that, and we were very, very restrictive. So we think our advertisers are going to cause an onboarding moment that will be multiples bigger than what we were manually curating… The reality is like Q4 is going to end up being a fun quarter. You've got the advertiser cohort that we didn't have last Q4 that was growing in the quarter to the point where we reported huge numbers and then had huge numbers in Q1. But we're going to have those advertisers primed and ready to go for the full Q4. We're going to have advertisers inviting their friends onto our platform in Q4, and we're going to be opening up international all at the same time."
— Adam Foroughi, CEO and Co-Founder

Assessment: The "multiples bigger than what we were manually curating" framing for Q4 onboarding velocity is the cleanest forward-looking signal of the call. If Q4 2024 (manual curation) produced hundreds of advertisers at $1B run rate, Q4 2025 (referral-driven + international) could produce thousands of advertisers at multi-billion run rate impact. This is the operational mechanism for the FY2026 bookings inflection.

What They're NOT Saying

1. No specific FY2026 revenue or bookings framework: Management does not provide annual guidance and did not frame FY2026 numerically. Appropriate given AXON web rollout uncertainty but leaves the Street modeling range wide ($6-8B+ FY2026 advertising revenue plausible).
2. No specific e-commerce advertiser count at Q2 end: Management has not disclosed the current e-commerce advertiser count (the Q1 disclosure of "hundreds" is the latest data point). This is the binding metric for tracking the AXON web rollout velocity.
3. No specific gaming AXON 2 model lift quantification: Adam acknowledged that ongoing model improvements are iterative ("not a double-digit step function"). The compounding lift is real but not quantified.
4. No specific 2026 paid marketing spend dollar framework: The 2026 paid marketing campaign is announced but the dollar magnitude is not quantified. This will be a meaningful new opex line item.
5. No specific Apple/Epic UA tailwind quantification: Adam confirmed the tailwind is real but 2-4 quarters out. The dollar magnitude of the eventual benefit is not framed.
6. No M&A framework or thesis: With $1.2B cash and substantial FCF generation, APP has meaningful M&A optionality but does not discuss it. The strategic focus is organic + buybacks.
7. No discussion of China market opportunity: APP has historically not operated in China at scale. With the AXON web global launch, the China opportunity could be revisited, but management did not address.

Market Reaction

• Pre-print setup (August 6 close): approximately $364. Stock had run from late-July ~$340 on positive sell-side previews. YTD return entering print: ~+12%; trailing 12-month return: ~+375%.
• Options-implied move: Approximately 11-13%.
• After-hours reaction (August 6): +10% to +14% on the revenue beat, EBITDA margin print, Q3 guide above Street, and AXON web rollout cadence disclosure.
• Friday August 7 close: approximately $412, up +13% (+$48). Intraday high $430; some profit-taking from AH peak.
• Volume: ~25M shares, ~3x trailing 30-day average. Heavy institutional buying.
• Peer reactions: Other ad-tech names (TTD, MGNI, PUBM) up 1-3% on the day; META/GOOG modestly positive. The APP-specific dynamics did not translate into broader-tape implications.

The +13% post-print rally is structurally justified by the print quality and the strategic clarity of the AXON web rollout cadence. The 81% EBITDA margin and the +77% revenue growth combination is operationally rare; the Q3 guide above Street confirms the structural framework is sustained; the AXON Oct 1 / H1 2026 cadence provides multi-quarter execution catalysts.

The Valuation Tradeoff at $412. Post-rally, APP trades at approximately 30x forward EV/EBITDA on FY2026E EBITDA of ~$4.5B. This is at the high end of the ad-tech peer range but is supported by (a) the +30-40% structural gaming growth, (b) the 81% EBITDA margin, (c) the AXON web optionality, and (d) ~1-2% annual share count reduction from buybacks. The multiple is full but the asymmetry favors longs over a 12-18 month horizon if the AXON rollout cadence delivers.

Street Perspective

Debate: Does the AXON Web Rollout Materially Re-Rate the Multi-Year Framework, or Is the Optionality Already Priced?

Bull view: The AXON web rollout has a defined multi-quarter cadence (Oct 1 referral, Oct 1 international, H1 2026 global, 2026 paid marketing) and a clear historical precedent (Q4 2024 e-commerce pilot ramp). The sub-1% market penetration in e-commerce vs. Meta's 10M+ advertisers frames a TAM that is multiples of current revenue. If e-commerce scales from $1B run rate to $5-10B over 2-3 years, FY2027 revenue could double from current $5B to $10B+ even with gaming at the +20-30% floor. The current ~30x EBITDA multiple does not yet price this trajectory.

Bear view: The AXON web rollout carries execution risk on multiple dimensions: model parity with the gaming AXON (still ramping data accumulation), advertiser onboarding conversion (referral may not produce expected velocity), international market localization (different attribution standards, payment integrations), and the 2026 paid marketing campaign efficacy (unproven for APP at scale). The current $412 stock price embeds optimistic execution assumptions; any disappointment would trigger meaningful multiple compression.

Our take: Bull view captures the asymmetric multi-year structural case correctly. The historical precedent (Q4 2024 e-commerce pilot ramp) plus the structural setup (Shopify app live, attribution integrations deepened, international markets opening simultaneously) plus the 81% EBITDA margin tail-wind favors the bull case. The Oct 1 referral launch is the binding near-term catalyst — if Q4 produces visible advertiser count expansion plus revenue inflection above the typical seasonal pattern, the multi-year framework re-rates positively.

Debate: Is the 81% EBITDA Margin Sustainable, or Will the 2026 Paid Marketing Campaign Materially Compress It?

Bull view: The 81% margin is structurally sustainable because (a) the pure-software model has no content/infrastructure cost burden, (b) headcount discipline is explicit, and (c) the 2026 paid marketing will be performance-driven with explicit LTV-to-CAC targets. Even if paid marketing adds 300-500bp of opex ratio in 2026, the structural margin profile of 75-78% remains best-in-class vs. META/GOOG (~40-45%) and TTD (~25-30%). The margin durability supports a 30x+ EV/EBITDA multiple.

Bear view: The 81% margin is partly the artifact of the Apps divestiture cleanup (which removed lower-margin segments) and the operating leverage on the gaming AXON 2 model. As the platform expands into more competitive web e-commerce categories, customer acquisition costs and customer service costs both rise structurally. The 2026 paid marketing campaign could add 5-7pp of opex ratio rather than the 3-5pp the bull case assumes. The compounding effect over 2-3 years could compress the structural margin to 65-70%.

Our take: Bull view is closer to right on the margin durability. The 81% margin reflects the structural pure-software model, not a one-time Apps-divestiture cleanup. The 2026 paid marketing campaign will be performance-driven and should produce LTV-to-CAC ratios in the 50-200x range based on APP's unit economics — meaning the marketing investment is net accretive to absolute EBITDA dollars even as headline margin compresses 200-400bp. We model 2026 Adj. EBITDA margin at 76-79%, materially above the scaled ad-tech peer set.

Debate: At $412 Post-Rally, Is the Entry Asymmetric for Initiating, or Has the Easy Money Been Made?

Bull view: At $412 with FY2026E EBITDA of $4.5B and ~340M diluted shares, APP trades at ~30x forward EV/EBITDA on the current base case. The AXON web rollout optionality and the gaming structural growth are not yet priced into the base case modeling. Multi-year compounding at +30%+ revenue growth with 75-80% EBITDA margin produces extraordinary equity value creation; over a 12-18 month horizon, the stock can re-rate to $500-650 as the AXON cadence delivers and the 2026 framework comes into focus.

Bear view: The 30x EV/EBITDA multiple is at the high end of the historical ad-tech range. Any operational disappointment (AXON rollout slipping, gaming growth decelerating below +20%, paid marketing campaign producing weak ROI) triggers multiple compression to 20-25x range, implying $275-340 price range. The asymmetry is symmetric at best; the easy money was made in 2024 when the stock ran 5x.

Our take: Bull view captures the asymmetry correctly. While the multiple is full, the structural growth + best-in-class margin + AXON optionality combination supports continued multiple maintenance or modest expansion. The initiation at Outperform reflects (a) the multi-year compounding thesis being intact and improving, (b) the AXON web rollout providing clear multi-quarter catalysts, (c) the capital allocation discipline producing structural share count reduction, and (d) the asymmetric payoff if AXON web rollout delivers vs. the contained downside if it modestly disappoints.

Model Update & Valuation Framework

Valuation framework. At $412 post-rally, APP trades at approximately 30x FY2026E Adj. EBITDA ($5.4B base case) and ~22x FY2027E Adj. EBITDA ($7.2B). For a platform growing revenue +30-40% YoY with sustained 75-80% EBITDA margin, structural gaming dominance, and the AXON web TAM expansion optionality, this multiple is at the high end of the ad-tech peer range but well-supported by the operating quality. Comparable scaled ad-tech / digital platform multiples: META ~12-15x EV/EBITDA, GOOG ~13-15x, NFLX ~25-28x, TTD ~25-30x. APP's premium is justified by the margin profile and the structural growth runway.

Revised risk-reward. At $412: base case PT $500-560 implies +21-36% upside; bull case $600-700 implies +46-70%; bear case $300-340 implies −17-27%. The up-to-down ratio is approximately 2.5:1 in base-to-bear scenarios — favorable for the Outperform initiation. Multi-year compounding (+30%+ EBITDA growth) provides structural support for continued multiple maintenance even if near-term sentiment cycles produce volatility.

Thesis Scorecard & Initiating Coverage Framework

As this is our initiating coverage report on APP, we establish the foundational thesis pillars and signposts that will be tracked through subsequent quarters.

Bull Case Pillars (5)

Bear Case Pillars (3)

Upgrade Triggers (Outperform Sustained or Further Conviction)

• Q4 2025 print reflects material advertiser count expansion from Oct 1 referral launch (e.g., advertiser count 2-3x current pilot levels)
• Q4 2025 e-commerce contribution inflects above $1.5B run rate, demonstrating Oct 1 rollout traction
• International advertiser count visible by Q4 print (non-US revenue contribution growing)
• Stock pulls back to $340-365 range on macro or rotation without fundamentals impaired

Downgrade Triggers (back to Hold)

• Q4 2025 print shows advertiser onboarding velocity below expectations (e.g., e-commerce contribution remaining at ~$1B run rate)
• Gaming growth decelerates below +20% YoY (below the long-term framework floor)
• 2026 paid marketing campaign delayed or scaled back from current framework
• Adj. EBITDA margin compresses below 75% for sustained 2+ quarters (signaling structural margin pressure)

Overall verdict: Thesis is fundamentally sound across all five bull pillars. The AXON web rollout is the binding multi-quarter catalyst with a defined execution path. The 81% EBITDA margin and the structural gaming growth provide a high-quality compounder underpinning even before the e-commerce optionality lands. Initiating at Outperform with constructive multi-year framework.

Action: Initiate at Outperform. Existing holders: hold or modestly add. New positions: initiate at current $400-420 range with full-weight building targeted at $375-400 on any pullback. Sized positions: hold; do not chase above $450 in the near-term.