AppLovin Corporation (APP)

By both methods, the value today (DCF $658 · Multiples $693) exceeds the market price ($314).

Today — with margin of safety: at $314 trades ~54.7% below its value discounted to today (~$693) — the wide discount we require (≥38%, equivalent to a ~15% annual return); the risk is covered by the margin, not the rate.

At 5 years — Muy infravalorado: the target price ($863) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years comfortably exceeds the risk-free rate (4.5%) — and the discount reaches the required margin of safety.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($314) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (1.6%/year) than we project (19.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$4.8 bn of owner earnings in year 5 (vs ~$10.6 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on EV/NOPAT (ganancias del dueño). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 is the TTM as of Jun 30, 2026 (revenue US$6,829M, operating result US$5,288M), reconstructed by levels from the FY2025 10-K plus the 1H2026 cumulative figure minus the 1H2025 cumulative figure (§5 R1 bis). The XBRL capex figure was discarded: the tag us-gaap:PaymentsToAcquirePropertyPlantAndEquipment has no facts posted after Dec 31, 2024 (546 days of lag), so it was taken from the 10-K's own cash flow statement and from the 2Q26 8-K: fiscal year 2025 does not present a separate line for property and equipment purchases (it stays within "other investing activities," just US$0.4M) and 2Q26 shows US$1.4M quarterly — AppLovin is, in practice, a business with no material physical capex (under 0.1% of revenue), consistent with a software-based advertising platform. An approximate TTM figure of US$6M was used, practically irrelevant to the result. The year-1 path starts from 3Q26 guidance (the Aug 5, 2026 8-K: revenue US$2,055-2,085M, adjusted EBITDA margin 83%) rather than the TTM's raw trend (+76.3%), because that rate is inflated by a 2025 monetization jump (revenue per install +72% with only +3% volume) that is not simply extrapolable: guidance already builds in the deceleration. The base-case exit multiple (23.0x EV/NOPAT) nearly matches today's entry multiple (~23.1x, EV US$106.4bn / TTM NOPAT US$4.6bn), so the base case's return comes almost entirely from earnings growth, with no assumed re-rating. The buyback is material — funded with operating cash, with balance-sheet cash growing from US$697M to US$3,053M despite buying back US$2.2 billion in FY2025 — but the most recent twelve-month window reveals a net diluted-share reduction of just ~1.0%/year, slower than the multi-year average between FY2022 and the TTM: the most recently revealed rate is modeled, not the faster historical one. An identical sharesPath is used across the three scenarios (337.0M → 320.0M shares in year 5), instead of accumulating cash.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $863 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $314, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $863 in 5 years and a required return of 4.5% annually, the maximum to pay today is $693. Against the current market price ($314), the margin of safety is 54.7% (trades below the maximum → there is margin) and the total return at that price would be 22.4% annually.

• Entry multiple vs terminal exit multiple. Today's entry multiple (~23.1x EV/NOPAT) practically matches the base case's terminal exit multiple (23.0x): the return depends on earnings growth, not a re-rating.
• Position within the archetype band. The base multiple sits toward the ceiling of the digital-advertising-platform band [18x,25x], reflecting the quality of the return on capital and a terminal growth rate still solid.
• Drawdown from the 52-week high. The stock trades 57% below its high, with the filing revealing no specific negative cause beyond the legitimate doubt over the durability of monetization-driven growth.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (97%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on invested capital. ~120% TTM, far above the 10% bar and the 20% threshold considered exceptional.
• Operating margin. 77.4% of TTM revenue, with sustained expansion from 41.9% in FY2023 via operating leverage over a largely fixed cost base.
• Cash conversion. TTM operating cash flow (US$4.53 billion) runs reasonably close to the operating result, with no large gap between reported earnings and cash generated.
• Stock-based compensation. Stock-based compensation is just ~4.1% of TTM revenue, well below the materiality threshold (~15-20% of the flow) that would require netting it from the valuation metric.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The two drivers cover FY2024 and FY2025, the only years the company published with this breakdown (after refocusing as a pure advertising platform). The reading flips between the two years: in 2024 growth was more balanced between volume (+50%) and monetization (+22%); in 2025 volume practically stalled (+3%) and all the acceleration came from monetizing each install better (+72%). That flip underpins the thesis's disconfirmer: a platform that grows exclusively via price/mix, with no volume growth, has less margin for error if the efficiency gain runs out.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Recent growth via monetization, not volume. Revenue per install grew 72% in 2025 while install volume rose just 3%: the durability of that improvement is the central question of the thesis.
• Solid near-term guidance. 3Q26 guidance implies revenue of US$2,055-2,085M and an adjusted EBITDA margin of 83%, with no sign of an abrupt slowdown next quarter.
• Simpler comparison base. After selling the Apps business, the company competes in a single market (ad-tech), simplifying the reading of future growth versus the previous two-segment structure.
• No proven volume growth lever. Install volume has posted two consecutive years of marked deceleration (+50% in 2024, +3% in 2025); there is no evidence yet that this lever reignites.

• Single dominant product. Axon Ads Manager generates substantially all of revenue; there is no line-of-business diversification to cushion a drop in demand.
• Dynamic, outcome-based pricing model. Charges are tied to the advertiser's return on ad spend, aligning incentives but also tying revenue to the measurable effectiveness of each campaign.
• Capital-light. Physical capex is practically nil (below 0.1% of revenue); growth is funded with research and development, not fixed-asset investment.
• Dependence on third-party platforms. Distribution depends on the Apple App Store, Google Play and Meta, which are simultaneously competitors and partners.
• No long-term contracts. Customers can stop using the platform at any time; there are no contractual commitments that give visibility into future revenue.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net debt / EBITDA 0.1x
• ✓Interest coverage (EBIT / interest)25.8x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 97% of ROIC
• ✓Value creation (ROIC − 10% bar)+110pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.0x — no over-investment
• !Float / working capitalConsumes cash $0.3 bn (positive WC)
• !Dilution (SBC % of revenue + shares)SBC 4.1% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Reduced net debt. Total debt of US$3.72 billion against cash and equivalents of US$3.05 billion: net debt of just US$0.66 billion.
• Cash growing despite aggressive buybacks. Balance sheet cash rose from US$697 million (FY2024) to US$3.05 billion (2Q26) despite buying back more than US$2.7 billion in the period.
• Moderate interest expense. TTM interest expense of ~US$0.21 billion, comfortably covered by a TTM operating result of US$5.29 billion.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

In FY2025, operating cash flow (US$3.97 billion) went mostly to share buybacks (US$2.19 billion, ~55%), with a smaller portion to purchases of intangibles and unlisted equity stakes (~1%) and the rest (~44%) retained, growing the balance sheet's cash from US$697 million to US$2.49 billion despite the pace of buybacks. There were no material acquisitions in the period (the only relevant corporate action was the sale, not purchase, of the Apps business), and no dividend was declared.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Founder alignment. A three-class share structure concentrates voting control with the founding team; no formal employment agreement or key-man insurance for the CEO.
• Capital allocation. Prioritizes share buybacks funded with operating cash (never with added debt), with no dividend or material acquisitions in the period.
• Lean organizational structure. 898 employees for a business with US$6.8 billion of TTM revenue: cost-efficient, but the company itself acknowledges greater vulnerability to key-personnel turnover.

• The composition of 2025 growth is debatable with the 10-K itself in hand: revenue per install rose 72% while install volume grew only 3%, so nearly all of the improvement came from better monetizing the same traffic rather than from selling more. That the market doubts how much of that jump repeats is a legitimate reading of the same data, not a misunderstanding.
• The multiple compression reached the broader set of high-growth stocks tied to artificial intelligence and digital advertising, without the company's business having deteriorated: the third-quarter 2026 guidance — revenue of US$2,055 to 2,085 million with an adjusted earnings before interest, taxes, depreciation and amortization margin of 83% — is consistent with solid growth and margins.
• What was not found, and is disclosed: neither the 10-K nor the earnings release carries a guidance cut, a missed quarter, litigation, or a restatement of the financial statements that would explain a 57% decline from the 52-week high. Without a positive, identifiable source for the discount, the method does not treat the edge as established: the absence of a cause is a signal that the stock may only appear cheap, never proof that it is.

The stock trades 57% below its 52-week high without the search of the filing and the earnings release having found a guidance cut, a missed result, or a specific adverse event: the 3Q26 guidance (revenue US$2,055-2,085M, adjusted EBITDA margin 83%) is consistent with solid growth and margins, not with a deterioration of the business. The most defensible reading with the evidence available in the filing is a combination of two observable factors: (i) 2025 growth was driven almost entirely by a jump in monetization (NRPI +72%) rather than volume (+3%), which raises a legitimate doubt — verifiable in the 10-K itself — about how much of that improvement is repeatable; and (ii) a general multiple compression in high-growth stocks tied to artificial intelligence/ad-tech, without the underlying business having deteriorated. No specific negative catalyst (litigation, guidance cut, restatement of financial statements) was found in the filing; that gap is explicitly declared rather than inventing a cause.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +6%/year (+32% total): the margin of safety protects the downside. The bull (+31%/year, +291% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Single-product concentration. Axon Ads Manager generates substantially all of revenue; there is no second business line to offset a drop in demand or price on that line.
• Dependence on platforms that are also competitors. Apple, Google and Meta control distribution while competing with AppLovin at the same time; a policy change from any of the three would hit the business disproportionately.
• Evolving data-privacy regulatory framework. Additional restrictions on targeted advertising (GDPR, CCPA/CPRA, platform policy changes) would reduce the data availability that Axon AI's effectiveness depends on.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 120% above the 10% bar, with a +55% margin → a quality business at a good price.

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 19% at a multiple/growth of 1.2 → reasonable for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 5% (EBIT/EV) + ROIC 120% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 2% vs our 19%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +6%/yr, bull-scenario ceiling +31%/yr over 5y and a +55% margin → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: network effects, intangibles, efficient scale, switching costs, cost advantage → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 2%, within what we project (19%) — the story squares with the numbers.