AppLovin's Premium Valuation Rests on Margin Strength and AXON Scale

AppLovin Corporation APP continues to command a premium valuation, trading at 34X forward earnings compared to the industry’s 22.5X, a level that may raise eyebrows in a sector where multiples are coming under scrutiny. Yet the market’s willingness to pay up appears rooted in the company’s margin durability and the increasing scalability of its AXON platform.

At the heart of the bull case is AXON, AppLovin’s machine learning-based ad engine, which has demonstrated notable efficiency gains and strong monetization potential. Since its rollout in the second quarter of 2023, advertising spend on APP’s platform has quadrupled, with ad spend for gaming clients reaching an estimated $10 billion annual run rate, a scale that now places AppLovin among the most highly valued ad tech firms globally.

As AXON continues to scale, its contribution to the company’s top-line growth and profitability has strengthened, giving investors confidence in the platform’s long-term upside. In the first quarter of 2025, revenues increased 40% year over year, adjusted EBITDA surged 83%, and net income grew 144%. Full-year 2024 figures were equally strong, with revenue up 43% and EBITDA up 81%.

AppLovin’s margin profile remains a key differentiator. The company has managed to sustain healthy operating margins despite broader market pressures, a testament to disciplined cost controls and improving platform economics. Adjusted EBITDA margin expanded by 1600 basis points year over year in the first quarter of 2025. All of this strengthens the argument that the valuation premium is driven by fundamentals, not just sentiment.

Still, a 34X forward P/E isn’t cheap, especially in a competitive and rapidly evolving ad tech landscape. For the premium to hold, APP will need to continue executing, scaling AXON further, maintaining margin strength and expanding its competitive moat.

In short, while APP’s valuation may seem steep on the surface, the market’s optimism hinges on tangible business strengths. As long as AXON delivers and margins stay resilient, the premium may prove justified.

Two other names standing out alongside AppLovin are Trade Desk and PubMatic, both riding the same ad tech wave, but with different setups.

TTD and PUBM Deserve a Closer Look Next to APP

The Trade Desk TTD has steadily proven its staying power in programmatic advertising. The company’s diversified customer base and open internet focus give it resilience in a tightening macro. Trade Desk’s narrative increasingly leans on innovation in its UID2 identity framework, an edge as privacy changes unfold. That gives TTD a solid foothold, making it more than just a growth story.

Meanwhile, PubMatic PUBM keeps chipping away with a supply-side strategy that’s all about efficiency. PubMatic’s focus on direct publisher relationships and its owned tech stack helps control costs, a core reason PUBM continues expanding margins while its revenue base stabilizes.

APP’s Price Performance and Estimates

The stock has gained 7% year to date, outperforming the industry’s 4% rally.

The Zacks Consensus Estimate for APP’s earnings has been on the rise over the past 30 days.

APP stock currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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