Release Date: August 05, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue grew 53% year-over-year to $1.92 billion, with adjusted EBITDA up 58% to $1.61 billion, reflecting strong underlying business momentum.
- Consumer vertical advertiser spend hit a record, finishing 28% above Q4 2025 levels, demonstrating rapid scaling in a seasonally slow quarter.
- Model improvements that landed after Q2 are already live and performing, driving a strong start to Q3 and reaccelerating growth.
- The SEC concluded its inquiry with no recommended action, removing a potential overhang on the stock.
- Free cash flow generation remains robust at $863 million for the quarter, with net leverage at just 0.1 times trailing twelve-month adjusted EBITDA.
Negative Points
- Q2 revenue and adjusted EBITDA came in just below the midpoint and range of guidance, respectively, due to lighter-than-expected model improvements.
- The pace of meaningful model improvement was lighter than normal during the quarter, leading to slower sequential growth of only 4%.
- Higher compute costs for training and new model development pressured margins, with flow-through to adjusted EBITDA at 70% quarter-over-quarter.
- Free cash flow conversion was below normal cadence in Q2 due to timing of international cash tax and interest payments.
- The consumer vertical is not yet large enough to fully smooth out quarterly volatility, as evidenced by the Q2 miss.
Q & A Highlights
Q: Can you expand on the partnership opportunity you see to bring in more customers?
A: Adam Foroughi (CEO): We've done a couple of deals with third-party companies, including one of the larger analytics companies in e-commerce. Going to the source that works with these companies on the advertiser side is a more targeted way to get the right kinds of advertisers onto our platform. Rather than starting with long-tail advertisers, which is harder to make work with where the model evolution is today, we're using these partnerships to get very targeted customers into the platform.
Q: Can you get under the hood of the gaming advertising business and explain the model breakthroughs that didn't happen in the quarter?
A: Adam Foroughi (CEO): Over the last 12 quarters, we've had really good growth, except for Q2 in single digits. Every quarter with outsized growth rates has had improvements to our model. In Q2, we didn't have the same amount of uplift we normally have, but that came right after the quarter ended. That's why Q3 has started really well and why we've guided strong going forward.
Q: Can you provide an update on the progress you saw in the consumer vertical in the second quarter?
A: Adam Foroughi (CEO): Advertiser spend set another record, finishing 28% above Q4 2025 levels, which is the seasonal peak. Growing well past peak season levels in a seasonally slow quarter shows how steep this curve is. The customers we have on the platform are seeing a lot of success, and new advertisers aren't going to drive impact to that growth rate yet.
Q: Are e-commerce advertisers hitting their efficient frontier of ROAS ceilings, and has your perspective on working with larger advertisers changed?
A: Adam Foroughi (CEO): Advertisers haven't reached their maximum amount of spend for the return they're getting. We're a new platform, and these companies manage budgets slowly, usually one to four quarters ahead. Mid-market is the sweet spot right now because they know there's a learning cost to marketing campaigns. As data builds, we have no reason to believe the long tail won't be covered, given in gaming we're able to support any type of game at any level.
Q: Why didn't you get the model uplift you expected in the quarter, and how should we think about the margin profile as compute costs increase?
A: Adam Foroughi (CEO) & Matt Stumpf (CFO): It's R&D there's no guarantee we'll always have lifts in every three-month period. We compound multiple small lifts, but the impact was smaller in Q2, followed by a material uplift in early Q3. On margins, we may see short-term fluctuation, but investors should look at that as positive because we only spend if there's incremental revenue behind it. Over the longer term, we have high confidence we'll be within the low 80% EBITDA margin.
Q: How would you evaluate the performance of your platform onboarding since opening to the public, and should we think of the consumer business as tens of thousands of advertisers or a few that spend a lot?
A: Adam Foroughi (CEO): It's the latter today—few advertisers contributing more. We're targeting mid-market brands first, not the very big or very small. These systems take a long time to build out; it took us 14 years to be fully penetrated in gaming. We're seeing very quick growth because customers on the platform are seeing success, and they're not even at a ceiling of what they can spend.
Q: Can you talk about the funnel for self-service customers and what's working well with the self-service platform now that it's GA?
A: Adam Foroughi (CEO): Creative is the biggest hurdle. We can auto-generate interactive end cards with high efficiency, but we're not at the point where we can get a high-quality 30-60 second video out of the box. Once we can do that or create alternative templates that don't require video, we'll be able to hand advertisers one-click campaign creation. Mid-market and up probably has templates that match our creative needs, but SMBs signing up directly probably don't.
Q: How do you feel about the health of the mobile game ecosystem given reports of CPI inflation and waning ROAS?
A: Adam Foroughi (CEO): The ad-supported market is growing really quickly. The in-app purchasing market has misleading data because analytics providers can't track purchases going off-platform. We drive a lot of the market, especially for Discovery. When we have a quarter where we don't push lifts, that's not great for the category. When we push a model release early in Q3, advertisers will say install rates went up, CPIs went down, and performance improved.
Q: Is the AppLovin brand hurting your ability to acquire advertisers, and do you have the right branding for the next 100,000 longer-tail advertisers?
A: Adam Foroughi (CEO): There's an awareness problem, but we're early in this category. You earn brand loyalty with performance. It took Google a couple of decades to become the de facto standard and Facebook well over a decade. If we continue to compound improvements in technology and templates, customers will find out about our platform over time. Analytics providers also help as they talk to customers and see us performing as a top channel.
Q: How should we think about the incremental investment in tech and compute going forward, and how much visibility do you have into those costs?
A: Matt Stumpf (CFO): We don't expect any departure from the guidance that of the incremental dollar in revenue, we're spending about $0.10 on compute. We're at that level within the guide. We may see variability over the longer term, but today we don't expect any change. Adam Foroughi (CEO) added: If engineers figure out a way to write a more complex model with material revenue uplift, we're not going to hold it back.
Q: Can you talk about the nature of your partnerships and what customers of these partners benefit from having AppLovin?
A: Adam Foroughi (CEO): If you're an attribution company, and we're willing to pay for leads and they benefit from their customers having more complex attribution, it's a win-win-win across the board. Triple Whale is a good example we're iter
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This stock alert was generated using automated technology and GuruFocus financial data to provide readers with timely and accurate market reporting. This content was reviewed by GuruFocus editorial team prior to publication. Please send any questions or comments about this story to [email protected].
