A month has gone by since the last earnings report for AppLovin (APP). Shares have lost about 6.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is AppLovin due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its latest earnings report in order to get a better handle on the important catalysts.
AppLovin Q2 Earnings Beat Estimates
AppLovin reported adjusted earnings of $3.76 per share, surpassing the Zacks Consensus Estimate of $3.72 by 1.08%. Earnings increased 66.4% from $2.26 per share in the year-ago quarter.
The company has now exceeded consensus EPS estimates in each of the past four quarters. However, the magnitude of the latest beat narrowed from the preceding quarter, when earnings of $3.56 per share topped expectations by 4.71%. On a sequential basis, second-quarter EPS increased 5.6%.
Revenues reached $1.92 billion, up approximately 52.4% from $1.26 billion a year earlier. The top line nevertheless missed the Zacks Consensus Estimate by 0.75%. Revenues increased about 4% sequentially, implying first-quarter revenues of roughly $1.85 billion.
The combination of rapid year-over-year expansion and a sequential slowdown in incremental growth helps explain the mixed interpretation of the quarter. AppLovin continues to expand at an exceptional rate for its scale, but elevated expectations leave relatively little room for execution delays.
EBITDA Growth and Margin Remain Major Strengths
Adjusted EBITDA climbed 58% year over year to $1.61 billion, implying approximately $1.02 billion in the prior-year quarter. EBITDA growth therefore exceeded revenue growth by roughly six percentage points.
More importantly, adjusted EBITDA represented approximately 83.9% of second-quarter revenues. That is an exceptionally high profitability level and demonstrates the operating leverage embedded in AppLovin's technology-driven advertising platform.
The quarter also generated $863 million of free cash flow, equivalent to roughly 44.9% of revenues and about 53.6% of adjusted EBITDA. Cash generation was softer than the company's recent earnings profile might suggest, but the weakness primarily reflected timing rather than a deterioration in underlying economics.
Costs increased sequentially as AppLovin directed additional resources toward computing capacity for existing and new artificial-intelligence models. This is worth watching because model training and inference requirements could create some quarter-to-quarter margin variability even if the investments ultimately support higher revenues.
Balance Sheet Supports Continued Capital Returns
AppLovin ended the quarter with $3.05 billion in cash and $3.7 billion of total debt. The resulting $650 million gap between debt and cash is modest relative to the company's EBITDA generation, with net leverage standing at approximately 0.1 times trailing adjusted EBITDA.
During the quarter, the company repurchased or withheld approximately 1.14 million shares for $551 million. Repurchase activity moderated compared with the first quarter as management balanced capital returns against temporarily softer free cash flow.
The combination of strong profitability, substantial cash holdings and minimal net leverage gives AppLovin flexibility to fund AI infrastructure, pursue product expansion and continue returning capital without placing meaningful stress on the balance sheet.
Q3 Guidance Points to Reacceleration
Third-quarter guidance provides one of the strongest counterarguments to the post-earnings pessimism.
AppLovin expects revenues between $2.055 billion and $2.085 billion. The $2.07 billion midpoint implies approximately 7.8% sequential growth from the second quarter's $1.92 billion, representing a meaningful acceleration from the second quarter's roughly 4% sequential increase.
Adjusted EBITDA is projected between $1.71 billion and $1.74 billion. At the $1.725 billion midpoint, EBITDA would increase approximately 7.1% sequentially from $1.61 billion.
The company expects an adjusted EBITDA margin of approximately 83% in the third quarter. That would be modestly below the second quarter's roughly 83.9%, reflecting, in part, higher AI-related infrastructure spending. Still, sustaining a margin above 80% while investing aggressively in model development would underline the strength of APP's operating model.
Importantly, the outlook incorporates model enhancements already deployed and does not depend on additional releases that have yet to reach production. That makes the guidance somewhat more tangible than an outlook dependent on future technological breakthroughs.
How Have Estimates Been Moving Since Then?
Since the earnings release, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, AppLovin has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a score of D on the value side, putting it in the bottom 40% for value investors.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, AppLovin has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
AppLovin belongs to the Zacks Technology Services industry. Another stock from the same industry, SLB (SLB), has gained 11.4% over the past month. More than a month has passed since the company reported results for the quarter ended June 2026.
SLB reported revenues of $8.97 billion in the last reported quarter, representing a year-over-year change of +5%. EPS of $0.55 for the same period compares with $0.74 a year ago.
For the current quarter, SLB is expected to post earnings of $0.62 per share, indicating a change of -10.1% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.3% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for SLB. Also, the stock has a VGM Score of C.
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This article originally published on Zacks Investment Research (zacks.com).
