AppLovin stock slides after Q2 revenue miss and softer EBITDA outlook

AppLovin stock’s Q2 revenue miss sent shares sharply lower after the advertising technology company reported $1.92 billion in second-quarter sales, just below Wall Street expectations. The reaction shows why fast growth alone may not satisfy investors when a company has built a record of exceeding forecasts: CNBC reported shares were down 18% in premarket trading Thursday.

Revenue increased 53% from a year earlier, according to CNBC. But LSEG estimates cited by CNBC had called for $1.94 billion in sales. Another estimate reported by StockStory through Yahoo Finance was $1.95 billion, so the shortfall was modest whichever benchmark is used.

GAAP earnings per share were $3.76, in line with the $3.76 LSEG consensus estimate cited by CNBC. TIKR reported net income of $1.27 billion, up from $820 million a year earlier, while diluted earnings per share rose from $2.39.

Why did AppLovin stock fall after Q2 revenue grew 53%?

The concern extended beyond the quarter that ended in June. AppLovin forecast third-quarter revenue of $2.055 billion to $2.085 billion and adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, of $1.71 billion to $1.74 billion, according to TIKR. EBITDA is a measure investors use to assess profit from a company’s operations before certain financing, tax and accounting costs.

The top end of that EBITDA range was below the $1.75 billion StreetAccount expectation cited by TIKR. StockStory also put AppLovin’s midpoint EBITDA outlook at $1.73 billion, below a $1.75 billion analyst estimate. A lower-than-expected forecast can move a stock more than reported results because it changes what investors expect the business to deliver next.

Chief Executive Adam Foroughi told analysts the company’s advertising-model improvements were lighter than usual during the quarter, according to CNBC. He said the next meaningful step up in model performance arrived just after the quarter closed. AppLovin uses artificial intelligence-driven advertising tools to help marketers place ads and app publishers earn revenue from their advertising space.

Foroughi said AppLovin aims to beat its own expectations and did not do so this quarter, CNBC reported. TIKR characterized management’s explanation as a timing issue in the rollout of those models, rather than weaker demand or competitive pressure.

The exact share-price drop differed by trading window. StockStory reported shares were down 21% immediately after the results, while CNBC later reported an 18% premarket decline. Those figures describe different points in extended-hours trading, rather than conflicting closing prices.

Analysts also reassessed the outlook. Piper Sandler analyst James Callahan downgraded AppLovin to neutral and cut his price target to $385 from $665, according to CNBC. His stated concern was the company’s ability to return to its prior pattern of beating expectations and raising forecasts.

This story draws on original reporting from CNBC.