AppLovin's stock dropped 17% despite reporting a 53% year-over-year revenue increase in Q2, totaling $1.92 billion, which fell short of the $1.94 billion analyst estimate. However, the company maintained strong margins with a 66% net margin and a 55% increase in net income to $1.27 billion. The adjusted EBITDA also improved to 84%. The Rule of 40 metric, combining revenue growth and free cash flow margin, rated AppLovin at 98. For Q3, management projects revenue of $2.06 to $2.09 billion with an 83% adjusted EBITDA margin.

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AppLovin Stock Falls 17% Despite a 98 Rule of 40

Renato Neves, CFA

Thu, August 6, 2026 at 8:36 AM EDT1 min read

APP \ -18.32%

This article first appeared on GuruFocus.

AppLovin ( NASDAQ:APP), which runs an advertising and marketing platform for app developers, fell 16.91% premarket after reporting second-quarter revenue of $1.92 billion, up 53% from a year earlier but short of the $1.94 billion analyst estimate. Diluted earnings of $3.76 a share matched expectations.

Margins remain stellar. Net income rose 55% to $1.27 billion for a 66% net margin, and adjusted EBITDA reached $1.61 billion at an 84% margin, up from 81%. Free cash flow was $863.3 million against $768.1 million a year earlier. The Rule of 40, revenue growth plus free cash flow margin, puts AppLovin at 98.

For the third quarter, management calls for $2.06 billion to $2.09 billion in revenue, around 47% growth and an 83% adjusted EBITDA margin. AppLovin spent $551.3 million on repurchases and share withholdings covering 1.1 million shares.