Is AppLovin a Buy Today?

AppLovin (NASDAQ: APP) stock has had a roller-coaster 2025, reaching an all-time high before being cut in half after it came under scrutiny in a short-seller report. Since then, the stock has recovered most of those losses after the advertising tech company posted blowout earnings and made a bold move to publicly bid on acquiring TikTok.

Let's examine the recent news and determine whether the stock is overhyped or if its lofty valuation is justified.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

AppLovin's growth demands attention

AppLovin recently reported its results for the first quarter of 2025, and the company did not disappoint. Total revenue rose 40% year over year to $1.48 billion, driven by its advertising segment, which matches advertisers and app publishers via auctions at a large scale and microsecond speeds.

The mobile tech company has accelerated its revenue by shifting its primary focus from gaming advertising to the broader global advertising economy, which opens up an opportunity for 10 million advertisers globally, according to management. During the first quarter, the company's advertising revenue increased to $1.16 billion, representing a 71% year-over-year rise.

Meanwhile, AppLovin generated $826 million in free cash flow, a key profitability metric, representing a 114% year-over-year increase. With its positive free cash flow, management has elected to repurchase its stock aggressively rather than pay down its $3.2 billion in net debt. Specifically, the company spent $1.2 billion in the first quarter, nearly $400 more than the company generated in free cash flow. Over the past three years, management has reduced its share count by 9.3%, which not only increases existing shareholders' ownership stake, but also suggests management is bullish on the company's long-term prospects.

In other developments, AppLovin sold its declining mobile gaming division to Tripledot Studios for $400 million in cash, along with an estimated 20% equity stake. The deal is expected to close as early as Q2 2025, further signaling management's confidence in its strategic pivot to advertising.

Enter TikTok

The most headline-grabbing move of 2025, however, wasn't AppLovin's earnings report or the sale of its gaming division; it was when the company disclosed that it is prepared to make a serious offer to acquire TikTok's global operations, should regulatory pressure force a divestiture. The bid would allow Chinese investors to retain a stake in TikTok, while AppLovin would manage its global operations. In CEO Adam Foroughi's words, AppLovin can offer a "much stronger bid than others" thanks to its technical infrastructure, monetization expertise, and real-time ad marketplace.

The price tag would likely be costly for the social media platform, with a reported 1.6 billion global users generating an estimated $23 billion in revenue in 2024. It could also be a lengthy and politically fraught acquisition process. Still, the possible move is exciting for investors to dream about and could spur the next phase of growth for AppLovin, which had a recent market capitalization of $140 billion.

Image source: Getty Images.

The short report and the AppLovin CEO's response

Of course, fast-growing tech companies often attract critics, and AppLovin is no exception. Recent short reports, including one from the investigative investment company Muddy Waters Research, accused AppLovin of violating the terms of service of key platform partners, resulting in an observed 23% client churn rate in the first quarter of 2025.

In an open-letter rebuttal, Foroughi addressed the claims head-on, arguing that "a few nefarious short-sellers are making false and misleading claims aimed at undermining our success." Furthermore, Foroughi called the report "littered with inaccuracies and false assertions," and emphasized that the company operates in full compliance with App Store policies, stressing that "there has been no churn" among its advertising clients.

For investors, it's important to understand that companies publishing short reports typically hold short positions in the companies they investigate. This means they are financially incentivized to release negative research -- whether or not it's fully substantiated. Notably, AppLovin's stock dropped nearly $66 to $261.70 per share after the report was published in March, but has since recovered and then some to over $414 per share as of this writing.

Is AppLovin a buy, sell, or hold?

Before buying any stock, it's essential to consider its valuation -- especially with high-growth tech companies, which often trade at premium levels due to their long-term potential. AppLovin is no exception, currently trading at 56.6 times its trailing-12-month free cash flow of $2.5 billion. However, that premium appears more reasonable given that free cash flow has grown nearly 80% year over year. The stock is also trading about 33% below its peak price-to-free-cash-flow multiple, suggesting a slight discount for new investors.

For growth investors who think long-term and believe in the power of scalable software and monetization, AppLovin remains a buy, regardless of whether or not TikTok is involved.

Should you invest $1,000 in AppLovin right now?

Before you buy stock in AppLovin, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and AppLovin wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $669,517!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $868,615!*

Now, it’s worth noting Stock Advisor’s total average return is 792% — a market-crushing outperformance compared to 173% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 2, 2025

Collin Brantmeyer has positions in AppLovin. The Motley Fool has positions in and recommends AppLovin. The Motley Fool has a disclosure policy.