Should You Buy AppLovin Stock Despite Its High Valuation?

AppLovin (NASDAQ:APP)  a company that helps mobile app developers publish and market their applications, has been a stellar performer over the last year, but has had a bit of a rollercoaster ride in 2025. While the stock fell by close to 57% from highs seen in early February 2025 following a short-seller report accusing AppLovin of violating terms of service and overstating the performance of its e-commerce operations, these allegations have not been proven, and the stock rebounded strongly after posting solid first quarter earnings. The stock remains up about 7% year-to-date in 2025 and remains up almost 4.5x over the past 12 months.

Demand for Axon 2.0, AppLovin’s proprietary machine learning algorithm for ad delivery, has surged. The software essentially decides which ad to show, to which user, and at what time, to maximize click-through or engagement. While this is similar to what Meta and Google do, Axon is specifically tuned for mobile app advertising. The company’s advertising platform posted strong revenue growth of 71% over Q1 2025, reaching $1.16 billion. Overall financial performance has also been robust, with revenue surging nearly 40% year-over-year, with adjusted EBITDA rising close to 83%. While the company still derives most of its revenue from advertisements for mobile gaming apps, it is focusing on growing its e-commerce business. However, it remains to be seen how successful this push will be, as AppLovin has a rich dataset in gaming,  but might lack the depth of first-party e-commerce data that players such as Meta and Alphabet possess.

Image by Pexels from Pixabay

That said, despite its strong growth and performance, AppLovin stock may be a tricky pick at its current price of around $360. We believe there is minimal cause for concern with APP stock, which makes it attractive, but highly sensitive to adverse events as its current valuation is high. We arrive at our conclusion by comparing the current valuation of APP stock with its operating performance over the recent years as well as its current and historical financial condition. Our analysis of AppLovin along key parameters of Growth, Profitability, Financial Stability, and Downturn Resilience shows that the company has a very strong operating performance and financial condition, as detailed below. That said, if you seek upside with lower volatility than individual stocks, the Trefis High Quality portfolio presents an alternative – having outperformed the S&P 500 and generated returns exceeding 91% since its inception.

How Does AppLovin’s Valuation Look vs. The S&P 500?

Going by what you pay per dollar of sales or profit, APP stock looks very expensive compared to the broader market.

• AppLovin has a price-to-sales (P/S) ratio of 25.1 vs. a figure of 3.0 for the S&P 500
• Additionally, the company’s price-to-free cash flow (P/FCF) ratio is 50.8 compared to 20.5 for S&P 500
• And, it has a price-to-earnings (P/E) ratio of 67.1 vs. the benchmark’s 26.4

How Have AppLovin’s Revenues Grown Over Recent Years?

AppLovin’s Revenues have grown considerably over recent years.

• AppLovin has seen its top line grow at an average rate of 23.2% over the last 3 years (vs. increase of 5.5% for S&P 500)
• Its revenues have grown 41.6% from $3.6 Bil to $5.1 Bil in the last 12 months (vs. growth of 5.5% for S&P 500)
• Also, its quarterly revenues grew 40.3% to $1.5 Bil in the most recent quarter from $1.1 Bil a year ago (vs. 4.8% improvement for S&P 500)

How Profitable Is AppLovin?

AppLovin’s profit margins are considerably higher than most companies in the Trefis coverage universe.

• AppLovin’s Operating Income over the last four quarters was $2.4 Bil, which represents a considerably high Operating Margin of 46.5% (vs. 13.2% for S&P 500)
• AppLovin’s Operating Cash Flow (OCF) over this period was $2.5 Bil, pointing to a considerably high OCF Margin of 49.4% (vs. 14.9% for S&P 500)
• For the last four-quarter period, AppLovin’s Net Income was $1.9 Bil – indicating a considerably high Net Income Margin of 37.4% (vs. 11.6% for S&P 500)

Does AppLovin Look Financially Stable?

AppLovin’s balance sheet looks strong.

• AppLovin’s Debt figure was $3.7 Bil at the end of the most recent quarter, while its market capitalization is $124 Bil (as of 6/13/2025). This implies a very strong Debt-to-Equity Ratio of 2.9% (vs. 19.9% for S&P 500). [Note: A low Debt-to-Equity Ratio is desirable]
• Cash (including cash equivalents) makes up $551 Mil of the $5.7 Bil in Total Assets for AppLovin.  This yields a moderate Cash-to-Assets Ratio of 9.7% (vs. 13.8% for S&P 500)

How Resilient Is APP Stock During A Downturn?

APP stock has fared worse than the benchmark S&P 500 index during some of the recent downturns. While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.

Inflation Shock (2022)

• APP stock fell 91.9% from a high of $114.85 on 11 November 2021 to $9.30 on 27 December 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 16 September 2024
• Since then, the stock has increased to a high of $510.13 on 17 February 2025 and currently trades at around $360

Covid Pandemic (2020)

• APP stock fell 36.7% from a high of $88.22 on 17 June 2021 to $55.88 on 16 August 2021, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 14 October 2021

Putting All The Pieces Together: What It Means For APP Stock

In summary, AppLovin’s performance across the parameters detailed above are as follows:

• Growth: Extremely Strong
• Profitability: Extremely Strong
• Financial Stability: Very Strong
• Downturn Resilience: Weak
• Overall: Very Strong

Hence, despite its high valuation, the stock appears attractive but volatile  due to its weak downturn resilience. This supports our conclusion that APP is a tricky stock to buy.

Not too happy about the volatile nature of APP stock? The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.