AppLovin CEO sees benefits from Apple-Epic fallout as stock pops on earnings

On Thursday, AppLovin's shares experienced a significant surge, climbing 11% after the ad-tech firm revealed second-quarter earnings that surpassed expectations. This upswing contributes to a remarkable 34% rise in stock value for the year, following an astonishing eightfold increase in 2024 alone. The company's growth trajectory has been bolstered by advancements in artificial intelligence, which provide advertisers with enhanced targeting capabilities in mobile gaming. During the earnings call, CEO Adam Foroughi indicated that additional growth is anticipated, largely due to the ongoing legal disputes between Apple and Epic Games. In April, a judge ruled that Apple had failed to comply with a previous court order from a 2021 case, necessitating limited modifications to its linking policies under California law. Furthermore, in June, Apple's efforts to pause these changes were thwarted by the U.S. Court of Appeals for the Ninth Circuit, which denied the company's emergency application. Foroughi, who founded AppLovin in 2012 and took it public in 2021, discussed the potential impact of the Epic case on gaming companies' user acquisition strategies. He noted that while no immediate effects have been observed, he believes the situation will evolve over the next four to eight quarters, unlocking significant advertising budgets for developers now free from Apple's commission fees on in-app purchases. This shift could lead to increased spending on advertising as developers seek to attract new users, ultimately benefiting AppLovin as an advertising platform. Foroughi pointed out that once larger gaming companies begin adjusting their strategies, smaller and mid-sized developers will likely follow suit rapidly. The current financial results also appear promising for investors. AppLovin reported a net income of $819.5 million, or $2.39 per share, a substantial increase from $310 million, or 89 cents per share, a year prior. This performance exceeded analysts' expectations of $2.03 per share. Revenue surged by 77% to $1.26 billion, although this figure does not include revenue from its gaming division, which was sold in June. Despite AppLovin's recent stock performance, skepticism remains among some analysts, with multiple firms expressing concerns over the company's digital advertising practices. Muddy Waters Research, for instance, alleged that AppLovin's methods violate app store rules by improperly extracting proprietary IDs from various platforms. In response to the initial short-seller reports, Foroughi defended his company in a blog post, denouncing those making allegations as "nefarious short-sellers" intent on undermining AppLovin's success for their own financial gain. Nevertheless, analysts at Wedbush continue to recommend purchasing shares, anticipating that the ramifications of the Apple-Epic case will provide a favorable boost for AppLovin in the upcoming year.