AppLovin (APP) shares fell almost 6% to $319 after Bank of America lowered its rating on the tech stock to “Neutral.” The move came just days after the ad tech company posted second quarter results that fell short of its own guidance, forcing analysts to ask a key question: can AppLovin continue to grow at the pace it has promised?
That promise is 30% annual revenue growth over the long run. It's an ambitious number, and until recently, Wall Street mostly took it at face value. Now, at least one major bank wants more proof.
Why AppLovin's Growth Story Matters
AppLovin built its business on advertising technology that helps mobile game developers find and target new players. Its models learn from advertiser data, then use that data to place ads that convert into paying users. This flywheel has powered explosive growth for years.
- In the most recent quarter, revenue reached $1.92 billion, up 53% from a year earlier.
- Adjusted EBITDA came in at $1.61 billion, up 58% year-over-year (YoY).
While AppLovin continues to grow at an enviable pace, its Q2 numbers missed management guidance. CEO Adam Foroughi said the pace of model improvement was lighter than normal during the quarter, and the next meaningful upgrade landed just after the quarter closed.
He added that nothing in the data pointed to weaker advertiser demand or a tougher competitive environment and that the business was already reaccelerating in the third quarter.
BofA Downgraded AppLovin Stock
According to a report from Proactive:
- Bank of America explained that engineer-led improvements to AppLovin's gaming models appear to be the main driver of quarterly growth. However, it's now less clear whether a previously assumed 3% to 5% sequential lift from self-learning still holds.
- Given AppLovin's roughly double market share advantage over its next closest competitor, the bank said that self-learning boost may no longer be a reliable long-term assumption.
- Bank of America also pointed out that AppLovin's next phase of innovation, training larger and more complex models, still needs more proof before it can support the 30% growth target.
- Management has said this approach could unlock bigger gains over time, similar to how larger language models improve with more computing power.
- The bank still called AppLovin a technology leader who has outperformed Google (GOOG) (GOOGL) and Meta (META) in the in-app bidding market. It just says there isn't enough evidence yet to know how big or how lasting those future gains will be.
- As a result, the bank trimmed its 2027 revenue growth forecast to 23% from 31% and lowered its 2027 EBITDA estimate to $8.3 billion from $9 billion.
- It also cut its price target to $400 from $430. The firm said AppLovin could increasingly be viewed as a maturing ad tech platform rather than a hypergrowth story, unless another breakthrough shows up soon.
What Next for AppLovin?
On the earnings call, AppLovin's leadership pushed back on the idea that anything structural has changed.
CFO Matt Stumpf said the company still expects to spend about $0.10 of every incremental revenue dollar on compute, in line with prior guidance. He noted that free cash flow, at $863 million for the quarter, came in below normal due to the timing of international tax and interest payments rather than any change in underlying earnings power.
Foroughi also highlighted the company's newer consumer, or e-commerce, advertising business as a fresh growth lever. He said advertiser spending in that segment hit a record, running 28% above Q4 2025 levels, even though the second quarter is typically a seasonally slow period for that category. He argued that gaming keeps improving while consumer adds runway, and that together they support the company's 30% compounding target over the next decade.
For the third quarter, AppLovin guided to revenue between $2.055 billion and $2.085 billion, representing 46% to 48% year-over-year growth. That outlook already reflects model upgrades that went live in early Q3, along with higher training and compute costs.
The real test now is whether those upgrades deliver the kind of lift AppLovin is used to. If they do, the downgrade may prove premature. If growth continues to cool, Wall Street's read on AppLovin as a maturing platform, rather than a compounding growth machine, will likely gain more support.
Is APP Stock Undervalued?
Analysts tracking APP stock forecast revenue to increase from $5.5 billion in 2025 to $16.2 billion in 2030. In this period, free cash flow is projected to improve from $4 billion to $14.4 billion.
If APP stock is priced at 20x forward FCF, which is below its five-year average of 24.4x, it could almost triple within the next four years. Out of the 29 analysts covering the stock, 21 recommend “Strong Buy,” two recommend “Moderate Buy,” and six recommend “Hold.” The average APP price target is $568.83, above the current price of about $314.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.