Parkev Tatevosian, CFA on $APP (Oct 29, 2026)

After a meteoric rise in 2025, AppLovin stock is facing a tough year in 2026 as the stock price has fallen by about 50%.

The company recently announced its quarterly financial results, with revenues coming in lower than the management team had anticipated. Furthermore, the management team stated to investors that they are investing in increased computing costs, believing that this will lead to increased revenues while improving the performance of their models, which will enhance the return on advertising expenditure and generate more revenue, which they consider a positive and constructive cycle.

Therefore, they are willing to invest in increased costs and intensify research and development efforts in order to achieve revenue growth.

Management still expects a strong year in terms of revenue, particularly in the third quarter, where they anticipate growth of 47 % at the midpoint. But this represents a slowdown from what investors had hoped for , and consequently the share price has fallen as a result of these investments.

So, investors are asking me if this dip in AppLovin stock represents a buying opportunity, and that's the question I want to answer by looking at these short-term developments , weighing them against their long-term performance, and comparing them to the valuation to determine if it's an attractive stock to buy.

I mentioned that analysts and investors were expecting stronger performance from AppLovin. This is part of the reason why the stock price rose so much in 2025.

You can see here that the long-term estimates from Wall Street analysts who follow AppLovin have fallen significantly over the past year. A year ago, Wall Street analysts were predicting that AppLovin 's earnings per share would grow by 50 to 60% over the next few years.

These estimates have decreased to 32.7% over the next few years as of the time this video was recorded.

But the trend is improving again, as the company indicated that it had introduced that model since the end of the last quarter, and its activation has accelerated revenue growth once more.

I would like to point out that this is one of the most profitable companies I follow. Thus, management has the flexibility to reinvest in growth at the expense of margins if it chooses to do so.

However, they achieved a cash flow from operations to sales ratio of 66%, up from about 10% in 2022. This highlights just how profitable this business model is. And remember, they are expecting 45% growth in the next quarter.

So you have a company that is achieving growth exceeding 40% with margins approaching 65% to 70% if we look at operating margins.

This looks like an attractive opportunity when we only look at the performance. We haven't discussed the evaluation yet. But from what I've seen so far, this seems like a company that should be trading at a high valuation.

However, it is far from trading at a high valuation. Measured by the company based on its price-to-earnings ratio , it is trading at 12.84. This is not only cheap in itself, but also cheap when compared to the performance of this company.

Revenue growth is strong, profit margins are excellent, and the valuation is a fraction of what it was at the beginning of the year when it was trading at a forward price-to- earnings ratio in the mid- 40s.

In recognition of this, when evaluating the company on a discounted cash flow basis, my last few reviews were lower. So it seems my optimism about the stock was overblown at the beginning of 2026, and my revisions regarding the amount of free cash flow I expect the company to generate not only this year, but in the long term, have decreased.

But even with those estimates reduced, the fair value estimate I calculated for AppLovin is $354. Compared to the current market price of $264, it also appears to be undervalued when I measure the company using my discounted cash flow model.

So regardless of how I value the company, whether on a price-to- earnings basis or on a discounted cash flow basis, it appears to be undervalued. Therefore, I have rated AppLovin stock as a buy opportunity since 2024.

I was very pleased to see the great performance in 2025, but disappointed to see the weak performance here in 2026.

I last updated this rating on August 6 with a moderate level of conviction that it is a good buy opportunity. Today, I am not only confirming the company's buy rating , but I am also raising my confidence level from medium to high.

This does not mean it is a guaranteed winner, it only means that I think it is a great buying opportunity. I believe the risk-to- reward ratio is worthwhile for investors, and I am very confident in this assessment.

Of course, one of the more recent features I've added to my spreadsheet is tracking these changes in conviction and changes in direction. So today, I upgraded this rating, didn't I ?

From medium to high conviction, and I did that on October 27, 2026.

Now we can see how the stock will perform and based on my change of conviction, whether it is a correct or incorrect valuation , and we will see that when I review this company later this year.