AppLovin: Is It Time to Buy the Stock as Revenue Continues to Surge?

Despite the past scrutiny of short-sellers, AppLovin (NASDAQ: APP) shows no signs of slowing down, with revenue once again surging when the adtech company recently reported its Q3 results. While the stock didn't see a lift from its strong report, it's still up more than 80% year to date, as of this writing.

Let's take a closer look at the company's results to see if now is a good time to buy the stock.

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Strong growth continues

AppLovin's fortunes changed for the better when it introduced its artificial intelligence (AI) adtech platform Axon 2.0 back in 2023, and that momentum hasn't let up one bit. In the third quarter, its revenue soared 68% to $1.41 billion.

The company also continues to improve its gross margins and lower its operating costs. In Q2, its gross margins improved to 87.6% from 85.5% a year ago, while it lowered its operating costs by 16%, including reducing its sales and marketing expenses by 23%. As such, profitability metrics are growing even faster.

Earnings per share (EPS) from continuing operations nearly doubled from $1.25 a year ago to $2.45, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) soared 79% year over year to $1.16 billion.

The company is also producing a significant amount of cash. In the quarter, it generated $1.05 billion in both operating cash flow and free cash flow. It ended the quarter with $1.8 billion in net debt, down from $2.8 billion to start the year, following the sale of its app business. The company used some of its free cash flow to buy back stock, repurchasing 1.3 million shares for $571 million. It also increased its buyback authorization by $3.2 billion during the quarter.

AppLovin credited its strong sales growth to model updates in its core gaming advertising business. It also highlighted the early success of its new self-serve platform, which has been seeing about 50% week-over-week growth since its launch on Oct. 1, which was after quarter-end.

In addition, it sees a new potential opportunity in AI-driven ad generation, as it said that a lot of customers, particularly retailers, have come onto its platform but don't have the best creative adapted for its platform. The reason for this is that its ad viewership tends to be much longer than that found on social media. As such, it sees a big opportunity in being able to help these customers create better ads for its platform through AI.

Looking ahead, AppLovin forecasted Q4 revenue to be between $1.57 billion and $1.6 billion, representing growth of between 57% and 60%. It guided for adjusted EBITDA to come in between $1.29 billion and $1.32 billion.

Is it time to buy the stock?

Despite its huge gains over the past couple of years, AppLovin's stock remains reasonably priced. While it trades at a forward price-to-earnings (P/E) ratio of nearly 42 times 2026 analyst estimates, its one-year forward price/earnings-to-growth (PEG) ratio is just 0.94, with 1 being the threshold of whether a stock is considered undervalued.

Meanwhile, 2026 could shape up to be another very strong year of growth. AppLovin's self-service platform is already showing good early growth indications, while its core gaming ad platform continues to just chug along, and non-gaming advertising has a boatload of potential. The planned introduction of gen-AI tools to help customers from non-gaming verticals create better ads for its platform is a smart idea that could really help kick-start adoption.

As such, I think investors can still buy AppLovin's stock for the long term.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.