APP Q1 Earnings Call: Web Expansion, AI Model Advances, and Strategic Refocus on Advertising

Mobile app advertising platform AppLovin (NASDAQ: APP) exceeded the market’s revenue expectations in Q1 CY2025, but sales rose 40.3% year on year to $1.48 billion. Its non-GAAP EPS of $2.38 per share was 21.8% above analysts’ consensus estimates.

Is now the time to buy APP? Find out in our full research report (it’s free).

StockStory’s Take

AppLovin’s first quarter results were shaped by ongoing enhancements to its AI-powered advertising technology and an early but meaningful contribution from its web-based advertising solution. CEO Adam Foroughi highlighted the company’s ability to drive measurable revenue for advertisers, particularly in mobile gaming, as a key differentiator. He described the recent quarter as a period in which improvements to machine learning models enabled gaming clients to scale campaigns, while a full quarter of web advertiser activity bolstered overall growth. Foroughi also addressed the company’s decision to sell its games business, emphasizing the resulting sharper focus on advertising and technology development. According to CFO Matt Stumpf, increased operating efficiency and a lean organizational structure enabled the company to expand margins and generate strong free cash flow.

Looking ahead, AppLovin’s management is prioritizing further advances to its machine learning models and a broader rollout of its web advertising platform. Foroughi stated, “Each iteration brings us closer” to delivering a seamless experience for web advertisers, underlining the importance of ongoing model refinement, third-party integration, and the launch of a self-service dashboard. The company anticipates that these initiatives will open up access to a much larger pool of advertisers and catalyze long-term growth. Management also downplayed potential headwinds from tariffs and regulatory changes, noting low current exposure to affected segments. CFO Matt Stumpf explained that while sequential revenue growth may slow seasonally in the near term, the company believes that ongoing technical enhancements and automation will drive continued margin expansion and future step-function improvements in scale.

Key Insights from Management’s Remarks

Management credited improved AI-driven campaign performance and new web advertiser contributions as primary factors supporting the quarter’s growth, while emphasizing a strategic pivot to focus exclusively on advertising solutions.

• AI model enhancements: The company attributed much of its quarterly growth to ongoing refinements in its machine learning models, which improved advertiser returns—particularly in mobile gaming. Foroughi explained that each data-driven improvement leads to better performance and scale, creating a compounding flywheel effect as more advertisers use the platform.
• Web advertising traction: The web-based advertising solution contributed for a full quarter, diversifying revenue sources beyond gaming. Management noted a $1 billion run-rate and the onboarding of hundreds of advertisers, though emphasized that the product remains in an early development stage with significant room for improvement.
• Divestiture of games business: AppLovin signed a definitive agreement to sell its games unit, sharpening its focus on advertising technology. Leadership described this move as aligning resources with the company’s core strengths and long-term strategy.
• Operational efficiency: The company highlighted its lean organizational structure and high EBITDA per employee, attributing margin expansion and cash flow growth to disciplined cost management and technology-led automation.
• Early-stage web product: While the web advertising platform’s churn rate among larger advertisers was below 3%, management acknowledged that further model enhancements and a broader rollout of self-service tools are needed to improve retention and scale onboarding capacity.

Drivers of Future Performance

Management expects future growth to be driven by expanded self-service capabilities, ongoing machine learning improvements, and broader web advertiser adoption, while noting that seasonality and product development pace may influence near-term results.

• Self-service dashboard rollout: Launching and expanding a new self-service dashboard is expected to automate advertiser onboarding and campaign management, significantly increasing the addressable customer base. Management believes this will be a major catalyst for scaling web advertising, though the rollout will occur in phases to ensure quality and model performance.
• Continuous AI model improvement: The company’s research science team is focused on leveraging advances in artificial intelligence to enhance predictive accuracy and performance for both gaming and web advertising models. Management expects periodic step-function improvements in campaign results as new model iterations are deployed, which could drive incremental revenue and advertiser satisfaction.
• Web platform integration and expansion: AppLovin is investing in deeper integration with third-party platforms and attribution vendors to improve measurement and user experience. While current web advertiser penetration is low, leadership expects that improvements in integration and model performance will enable access to a much larger pool of advertisers over time.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will be monitoring (1) the phased rollout and adoption rate of AppLovin’s self-service dashboard for web advertisers, (2) evidence of sustained improvements in AI model performance and their impact on advertiser returns, and (3) the closing and integration process following the divestiture of the games business. Additional signposts include further progress in third-party platform integrations and any regulatory or market shifts affecting digital advertising demand.

AppLovin currently trades at a forward price-to-sales ratio of 25.3×. At this valuation, is it a buy or sell post earnings? Find out in our full research report (it’s free).

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