APP

AppLovin (APP) just reported fourth quarter 2025 results that exceeded expectations, with revenue climbing 68% year-over-year to $1.405 billion—beating the high end of guidance by 5%. More importantly, the company's ambitious expansion into e-commerce advertising is beginning to show traction, albeit with a more measured ramp than some investors may have anticipated.

Financial Performance and Capital Allocation

The quarter's revenue of $1.405 billion came in essentially in line with analyst estimates of $1.406 billion, demonstrating consistent execution. Looking ahead, management guided Q4 2025 to $1.6 billion at the high end, representing 60% year-over-year growth and landing slightly above consensus expectations.

The company also announced an aggressive capital return program, executing $571 million in share buybacks during the quarter. The board authorized an additional $3.2 billion in repurchases, bringing total authorization to $3.3 billion—a clear signal of management's confidence in the business trajectory.

The E-Commerce Expansion: Measured but Promising

The headline story remains AppLovin's push into e-commerce advertising through its Axon platform. While early indicators are encouraging, CEO Adam Foroughi emphasized the importance of managing expectations around timing and scale.

Current State of Ramp-Up

E-commerce advertisers who onboarded when the platform opened on October 1st are showing approximately 50% week-over-week spending growth. However, Foroughi was careful to note this is coming from a "small base"—significantly smaller than last year's cohort which reached a $1 billion run-rate budget.

The ramp takes time for predictable reasons: new advertisers must integrate tracking pixels, learn the platform mechanics, test creative, and optimize campaigns. Based on the company's experience, this process typically requires 2-3 weeks before meaningful spend materializes.

Strategic Guardrails

AppLovin is taking a deliberately measured approach to onboarding, implementing several quality controls:

• Referral code limitations to maintain advertiser quality, though the company will issue additional codes to agencies with proven track records

• Registration vetting that filters applicants, with most qualifying but not all

• No instant approvals in early October, creating a natural lag in the ramp

Importantly, management noted that current feature requests from new e-commerce advertisers are "minimal, far fewer than a year ago," suggesting the platform is more mature and the learning curve less steep.

Accelerating Market Development

A notable development is AppLovin's recent launch of paid marketing to promote the Axon ads platform—a strategy the company only deploys when confident in unit economics. As Foroughi explained, "No reason to advertise for customers if e-commerce algo isn't tuned properly."

The timing of paid acquisition coinciding with accelerated advertiser approvals suggests AppLovin's e-commerce algorithm has met internal ROI targets, giving management confidence to expand the advertiser base more aggressively.

Geographic and Market Coverage

The e-commerce expansion remains primarily focused on English-speaking markets. The European Union, which represents low-teens percentage of total revenue, is not yet covered due to GDPR compliance requirements. Management also highlighted closed advertising markets like Japan and Korea as future expansion targets, though these currently show no meaningful client progress.

This geographic limitation suggests 30-40% of potential markets remain untapped for e-commerce advertising—representing significant whitespace for future growth.

The Counterintuitive Supply-Side Story

One of the most interesting insights from the call was management's explanation of how e-commerce advertising will actually expand gaming advertiser spend rather than cannibalize it.

The logic: Current conversion rates suffer because users are "bombarded with game ads." With 10 gaming advertisers competing across 1,000 impressions, 80-90% of those impressions are wasted on users who won't convert.

By introducing more diverse ad content through e-commerce, AppLovin can achieve the same gaming results with fewer impressions while increasing CPMs through better targeting. Moreover, e-commerce purchase data enriches the platform's understanding of gaming users—someone buying a $5,000 handbag likely has high lifetime value as a mobile game player.

This creates a virtuous cycle where more advertiser diversity improves outcomes for all advertisers while expanding available inventory.

Conservative Guidance Philosophy

Notably, Q4 guidance includes "no incremental assumption built in for onboarding of incremental customers." Management based projections on e-commerce optimism from existing advertisers, continued model improvements, and normal seasonality—not aggressive assumptions about new customer acquisition.

This conservative approach should give investors confidence that guidance represents a floor rather than a ceiling, particularly as paid marketing scales and geographic expansion progresses.

The Bottom Line

AppLovin continues to execute on core gaming advertising while methodically building its e-commerce platform. The 68% revenue growth and strong guidance demonstrate the durability of the base business, while early e-commerce traction—though smaller scale than last year's cohort—validates the strategic direction.

The company's willingness to invest in paid customer acquisition signals confidence in unit economics, while conservative guidance philosophy and substantial buyback authorization reflect management's long-term conviction.

For patient investors, the setup remains compelling: a proven advertising platform expanding into an enormous adjacent market, with management taking measured steps to ensure quality over speed. The ramp may take quarters rather than months, but the trajectory appears intact.

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