Applovin Corp (APP)

Conclusion

AppLovin is a Palo Alto company that sells AI-powered advertising software to advertisers, agencies and app publishers, and it also runs its own apps. At 391.22 USD on 2026-11-06 it has a market capitalisation of 119.6 billion USD and an enterprise value of 120.1 billion USD.

The verdict is overvalued. The fair value band runs from 243.32 to 364.98 USD with a midpoint of 304.15 USD, giving a margin of safety of -22.3% at the current price. The DCF gives 215.66 USD per share at a discount rate of 17.4%, while the fair value from historical multiples is 392.64 USD. Against their own ten-year medians, EV/EBITDA (21.6 against 29.4) and P/FCF (26.6 against 35.7) are lower, but P/S (17.5 against 11.6) and P/B (37.8 against 17.0) are higher. The reverse DCF implies growth of 25.6% a year, against revenue growth of 30.5% a year over five years and free cash flow per share growth of 62.4% a year over five years.

What holds the case up is the return on invested capital of 129.8% against a WACC of 17.0%, free cash flow conversion of 102.0% over the last twelve months, and eight earnings beats in eight quarters. What would break it is the rising share count, with a five-year compound increase of 9.7% a year, the price-to-book multiple of 37.8, and estimates for next year that were cut by 7.3% over 90 days.

Financial health

Financial strength is green, held up by four measures: a current ratio of 4.30, net debt to EBITDA of 0.08x, interest coverage of 26.4x and an Altman Z-score of 18.09, which sits in the safe zone. The quick ratio is 4.17 and debt to equity is 1.11. The Altman model was designed for manufacturers, and AppLovin is not one, so the zone is a rough guide only. Insolvency risk is low, about 0.1% by the estimate of the Ohlson model over one to two years. The balance sheet carries little pressure from debt, but the company's cash position still depends on the free cash flow it generates, as discussed below.

Earnings quality

Earnings quality is yellow. Piotroski scores 9 of 9, the Beneish M-score of -2.55 is in the unlikely range for manipulation, and free cash flow conversion is 102.0% over the last twelve months and 153.8% over five years. The accrual ratio is -9.7%. Stock-based compensation is 4.1% of revenue, and free cash flow after it is 4.22 billion USD. The one weak point is dilution: the share count has grown at 9.7% a year over five years. The company beat earnings estimates in all eight recent quarters, with an average surprise of 9.4%. Estimate revisions are negative, with the current year down 2.6% over 90 days and next year down 7.3%.

Profitability

Profitability is green. The gross margin of 88.5% compares with a ten-year median of 78.2%, the operating margin of 77.4% with a median of 30.8%, and the net margin of 64.6% with a median of 6.6%. Operating margin has been stable, with a stability value of 0.92. ROIC of 129.8% stands against a WACC of 17.0%, and the given ROIC minus WACC value is 1.1277. The five-year median ROIC is 17.1%. The DuPont split shows a net margin of 60.8%, an asset turnover of 0.76 and an equity multiplier of 3.40, so the return on equity of 139.4% is inflated by leverage. The tax rate is 13.2%.

Growth

Growth is green. Revenue compounds at 24.8% over three years and 30.5% over five years, and it grew in six of seven comparable years. Free cash flow per share compounds at 118.3% over three years and 62.4% over five years. A compound growth rate for earnings per share is not available. Analysts expect earnings per share to grow 20.2% next year, which is the growth the market will test against the reverse DCF figure of 25.6%.

Valuation

Valuation is red. Against ten-year medians, EV/EBITDA is 21.6 against 29.4 (a premium of -26.5%) and P/FCF is 26.6 against 35.7 (-25.6%), while P/S is 17.5 against 11.6 (+50.8%) and P/B is 37.8 against 17.0 (+122.1%). The P/E of 27.1 has no median available. The DCF gives 215.66 USD per share at a discount rate of 17.4%, with 20% growth in the first stage and 2.5% terminal growth; the terminal value makes up 34.7% of it. The reverse DCF implies 25.6% growth against the 30.5% revenue CAGR delivered. These figures are an order of magnitude built on fixed assumptions, a 5% equity risk premium and capped growth, not a price target. The company pays no dividend, and the free cash flow yield is 3.8%.

Risks

The main risk is per-share dilution: a share count rising 9.7% a year erodes value for existing holders even if total cash generation holds. The price-to-book multiple of 37.8 leaves little room if returns on equity fall from their current level. Negative estimate revisions, with two downgrades against one upgrade in the last 30 days for next year, suggest the outlook is being cut. The beta of 2.498 means the share price is likely to move sharply with the market. The reverse DCF requires growth of 25.6%, close to the historical pace but still a demanding assumption. Not available: a P/E median, an EPS growth rate, a debt maturity schedule and revenue by segment. This analysis rests on a fixed model and cannot account for these gaps.