AppLovin (NASDAQ:APP) is a mobile app marketing business that specializes in the mobile game market. APP has proven to be an incredibly strong stock to own over the last year, with shares now up more than 468 percent on extremely solid revenue and earnings growth.
After such a run-up is it possible that AppLovin may still be undervalued, or has the market run APP up too high to entice investors at its current prices?
Is AppLovin’s 63x Earnings a Problem?
At first glance, it may seem odd to discuss AppLoving as a potentially undervalued stock. Following the bull run the stock has been on, shares of APP trade at 66.3 times earnings, 31.1 times sales, 138.7 times book value and 58.1 times operating cash flow. Though these numbers reflect AppLovin’s strong performance, the stock is priced at very high premiums that go far above sector averages.
Moreover, the stock’s most recent price of $473.74 is just 4.1 percent below the analyst consensus price of $493.19. While analysts remain broadly bullish on the stock with 15 buy ratings out of a total of 20 ratings, this may suggest that APP is approaching full valuation. Some further evidence for this view may be found in the activities of institutional investors, which have been selling slightly more APP shares than they’ve been buying since February.
Stunning Growth In Recent Quarters
What a run AppLovin has been on. Revenue growth has been positive in all but one quarter over the past two years, and the last four quarters have seen growth rates of anywhere between 39 and 83%.
Better still, net income growth rate over the past year has been scintillatingly high. Each of the last five quarters has seen the business’s net income grow by triple-digit percentages on a year-over-year basis, bringing trailing 12-month net totals from just $825 million in Q2 of last year to $2.43 billion as of the end of Q2 2025.
Q2’s earnings report was a standout thanks to revenues for the quarter totaling $1.26 billion, up 77 percent from the year-ago quarter. Net income, meanwhile, rose 164 percent to $820 million. Free cash flow came in at $768 million, up from just $446 million in the year-ago quarter. For Q3, AppLovin expects revenues of $1.32 to $1.34 billion.
Q2 also saw the sale of AppLovin’s app business, a separate segment from its advertising business, for $400 million. Though a major selloff, this decision may allow AppLovin to focus even more heavily on its advertising business going forward and will provide management with significant amounts of extra capital to be invested in the future. The continuing operations of the business generated $772 million of its $820 million in total net income, illustrating how strong the advertising business has become in terms of its contributions to net income.
Impressively, AppLovin has been able to deliver its results without a massive increase to its debt load. Although the business carries $3.51 billion in long-term debt, this number is essentially unchanged from its year-ago level. AppLovin has also managed a roughly similar level of debt since late 2021, suggesting that its obligations aren’t weighing on its business and that AppLovin is able to manage them with minimal difficulty while still delivering strong growth rates.
AppLovin’s share buyback program is worth a laser focus because it included the repurchase of 900,000 shares in Q2 for a total price of $341 million. That’s the 9th straight quarter in which it’s decreased the outstanding share count. In the first half of the year, the business spent $1.27 billion buying back its own shares, up from $752 million during the first half of 2024.
Can AppLovin’s Growth Justify Its Valuation?
Given its current valuation metrics, AppLovin will have to deliver very high growth rates to make it fairly valued or undervalued. Fortunately for APP shareholders, AppLovin’s annualized EPS growth rate over the next 3-5 years is expected to come in at a blistering rate of 53.4 percent. If AppLovin can deliver anything like this kind of earnings growth, it’s likely that shares prices will keep rising in spite of APP’s premium price tag.
Of particular note in AppLovin’s growth picture was the decision to lean into AI to power its advertising business, a move that was already delivering strong results late last year and that has continued to produce solid growth since. Advertising represents a prime use of AI technology, and AppLovin’s investments in it appear to be driving significant growth. In the Q2 earnings call, management outlined its expectations that technological innovation could keep AppLovin growing at a faster pace than the market average. Indeed, management is expecting growth rates of 20-30 percent in the core mobile gaming market alone.
Taking these factors into consideration, AppLovin may have a good chance of justifying the large premiums the market has already priced into its stock. While the business will have to keep growing rapidly to catch up to the high ratios that APP already trades for, the results of the last several quarters and the opportunities AppLovin appears to have in front of it suggest that it may be able to deliver.
So, Is AppLovin Stock Undervalued?
While it’s difficult to say that AppLovin is fundamentally undervalued when it’s trading at such significant premiums, the stock does still appear to be trading in a fair price range when its potential for future growth is considered. If AppLovin can keep driving growth through a combination of technological innovation and steady expansion outside of its core gaming market as expected, APP could prove to be a good stock to own for the long run at a fair price point.
Investors looking at APP as a long-term buy-and-hold stock are also likely to benefit from management’s ongoing share buyback program. Though AppLovin’s repurchase program is comparatively young, management has shown a bias for returning cash to shareholders steadily by buying its own shares. Expect earnings to pop over time as a result.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.