Shares of AppLovin Corporation (NASDAQ: APP) declined 10.2% in the extended trading session on Wednesday, reflecting investors’ disappointment over its weaker-than-expected Q2 results and lower projections for 2022.
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It is worth noting that the shares of this $13.6-billion company rose 12.7% to close at $40.46 in the normal trading session on Wednesday. On Tuesday, the company proposed to acquire Unity Software Inc. (NYSE: U) for $17.5 billion.
What Does AppLovin Do?
AppLovin, a prominent player in the mobile app industry, equips mobile app developers to easily market and monetize their apps through its platforms, which include SparkLabs, MAX, and AppDiscovery. The Palo Alto, CA-based company also offers free-to-play mobile games.
AppLovin’s Q2 Results
Against the consensus expectation of earnings of $0.15 per share, AppLovin’s loss of $0.06 per share in the second quarter of 2022 was discouraging. Also, the result was way below earnings of $0.04 per share reported in the year-ago quarter.
Despite high revenues, an increase in costs and expenses and a surge in interest expenses and provision for taxes on income adversely impacted the company’s net results.
Revenues totaled $776.2 million in the quarter, roughly 7.6% below the consensus estimate of $839.7 million. However, the top line grew 16.1% from the year-ago tally. The increase in the number of website visits in the second quarter underpins the company’s top-line strength.
To be more specific, the total estimated visits to the company’s website advanced 113.9% year-over-year in the second quarter of 2022. Learn how Website Traffic can help you research your favorite stocks.
For the Software Platform segment, revenue surged 118% year-over-year. Software platform enterprise clients (trailing 12 months) grew 141.8% year-over-year to 503, and revenue per client (trailing 12 months) increased 15.3% to $1,823 thousand. However, revenues of the Apps segment declined 12.3% from the year-ago quarter.
Total costs and expenses increased 14% year-over-year in the quarter. Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) grew 46.8% to $269.7 million, while the adjusted EBITDA margin expanded 7.3 percentage points to 34.8% in the quarter.
Capital Deployment by AppLovin
Exiting the second quarter of 2022, AppLovin had cash and cash equivalents of $951.6 million, down compared with $1,520.5 million at the end of 2021. The current cash balance includes the impact of a net cash flow of $75.1 million generated in the first half of 2022.
The company had invested $0.4 million in capital expenditure, $1,294.4 million on acquisitions, and $9.2 million to repay debts. Long-term debt was $3,190 million at the end of the second quarter. Also, the company used $244 million on share buybacks.
AppLovin Lowers Projection for 2022
For 2022, the company anticipates total revenue to be within the $2.84-$3.14 billion range, lower than the $3.14-$3.44 billion stated earlier. The downward revision is mainly due to problems with the App business, which is forecast to generate revenues of $1.7-$1.85 billion versus $2-$1.15 billion expected earlier.
Revenue of the Software Platform segment is maintained in the $1.14-$1.29 billion range.
Adjusted EBITDA is forecast to be $1.2 billion (maintained), while the adjusted EBITDA margin is now forecast to be 37%-40% versus the mid-30% stated earlier.
Is AppLovin Stock a Buy Now?
After considering the strength in the Software Platform business, investments in new initiatives, and efforts to optimize cost structure, AppLovin could look attractive to prospective investors.
The abovementioned tailwinds seem to overshadow the impacts of weakness in the company’s App business (which compelled the company to lower revenue projections for 2022).
On TipRanks, analysts are unanimously optimistic about the prospects of AppLovin, which commands a Strong Buy consensus rating based on 11 Buys. Also, APP’s average price forecast of $63.18 suggests 56.15% upside potential from the current level.
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