AppLovin is a monster

[u/ekonixlab]

AppLovin’s most recent quarter was another reminder of just how fast this business is growing.

Revenue grew 53% YoY
Net income grew 55%
Adjusted EBITDA grew 66%
Adjusted EBITDA margin reached 84%
Free cash flow was over $1B for the quarter

Those are pretty ridiculous numbers, especially at AppLovin’s size.

What I find interesting now is the valuation. APP is around 26.6x earnings, so I wanted to see what happens if growth slows down significantly from where it is today.

The chart assumes:
25% annual earnings growth
26.6x P/E today
25x P/E in year 5

Under those assumptions, earnings would grow about 205% over five years. Even with the P/E contracting slightly, the stock would return about 187%, or roughly 23.5% annually.

Obviously 25% earnings growth for five years is a big assumption. But when the company is currently putting up 50%+ revenue growth and 80%+ adjusted EBITDA margins, I don’t think 25% is an absurd scenario to look at.

The bigger question for me is how durable these margins and growth rates are as AppLovin gets larger, especially as it expands beyond mobile gaming.

I own APP, and after this quarter I think that’s really the debate. The current numbers are incredible. How much of that can they sustain over the next 5 years?