Move over Nvidia and Palantir Technologies, AppLovin (NASDAQ: APP) took over as the top-performing artificial intelligence (AI) stock in 2024 thanks to the share price surge that followed the release of its third-quarter results. The price jump puts the stock up about 628% year to date as of Nov. 9.
AppLovin owns a portfolio of gaming apps but its primary business is an adtech solution to help mobile app developers attract users and better monetize their apps. Since the launch of its Axon 2 AI-based advertising technology in the second quarter of 2023, the company has seen explosive growth.
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Let's take a close look at the company's Q3 results and whether the stock is still a buy.
Axon 2 continues to drive growth
Axon 2 has been the source behind nearly all of AppLovin's growth, with its software platform revenue soaring 66% to $835 million. The company's legacy apps business, meanwhile, saw revenue increase 1% to $369 million. Overall revenue climbed 39% to $1.2 billion, topping the $1.13 billion consensus as compiled by LSEG.
The company continues to see a ton of operating leverage in its business as sales climb, with gross margin for the quarter improving to 77.5% from 69.3% a year ago. The revenue surge also came despite the company reducing its sales and marketing spend by 3%. That combination is quite remarkable.
Earnings per share (EPS) surged from $0.30 a year ago to $1.25. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), meanwhile, climbed 72% to $722 million. Software platform adjusted EBITDA jumped 78% to $653 million, while its apps business grew adjusted EBITDA by 19% to $68 million as the company optimized the business's cost structure.
The company produced $551 million in operating cash flow and $545 million in free cash flow. It ended the quarter with $2.9 billion in net debt.
AppLovin guided for fourth-quarter revenue to come in a range of $1.24 billion to $1.26 billion. That would equate to growth of between 30% and 32% and is above the company's long-term goal to grow revenue by between 20% and 30%. It is projecting Q4 adjusted EBITDA to be between $475 million and $495 million, up from $476 million a year ago.
Is the stock still a buy?
AppLovin has proven to be one of the biggest AI winners, as its Axon 2 AI adtech platform has led to soaring revenue with its gaming customers. At the same time, it has seen a ton of operating leverage in its business, being able to realize tremendous growth while not increasing its sales and marketing spend and improving its gross margin.