# How AppLovin makes money

CXProWealth Business Lens · AppLovin (APP) · Q2 FY2026

Read from the 10-Q for the period 2026-04-01 to 2026-06-30, filed 2026-08-05 with the SEC (accession 0001751008-26-000059): https://www.sec.gov/Archives/edgar/data/1751008/000175100826000059/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $1.9B (+66.0% on the year)
- Operating income: $1.5B (operating margin 77.7%)
- Net income: $1.3B (net margin 65.8%)
- Gross margin: 88.3%
- Free cash flow: —
- Cash conversion (operating cash flow / net income): 0.69x
- Capital expenditure: — of revenue

## Where the money goes (Q2 FY2026)

- Revenue → Total costs and expenses: $429.4M
- Total costs and expenses → Sales and marketing: $63.4M
- Total costs and expenses → Research and development: $99.9M
- Total costs and expenses → General and administrative: $40.3M
- Total costs and expenses → Cost of revenue: $225.8M
- Revenue → Income from operations: $1.5B
- Income from operations → Income before income taxes: $1.5B
- Total other income (expense), net → Income before income taxes: $11.2M
- Income before income taxes → Provision for income taxes: $239.0M
- Income before income taxes → Net income from continuing operations: $1.3B
- Net income from continuing operations → Net income: $1.3B

## Income statement, as filed

| Line | Q2 FY2026 | Of revenue |
|---|---:|---:|
| Revenue | $1.9B | 100% |
| Cost of revenue | $225.8M | 11.7% |
| Sales and marketing | $63.4M | 3.3% |
| Research and development | $99.9M | 5.2% |
| General and administrative | $40.3M | 2.1% |
| **Total costs and expenses** | $429.4M | 22.3% |
| **Income from operations** | $1.5B | 77.7% |
| Interest expense | ($51.2M) | 2.7% |
| Other income (expense), net | $62.4M | 3.2% |
| **Total other income (expense), net** | $11.2M | 0.6% |
| **Income before income taxes** | $1.5B | 78.3% |
| Provision for income taxes | $239.0M | 12.4% |
| **Net income from continuing operations** | $1.3B | 65.8% |
| Income (loss) from discontinued operations, net of income taxes | $0 | 0.0% |
| **Net income** | $1.3B | 65.8% |
| Continuing operations (in dollars per share) | $4 | 0.0% |
| Discontinued operations (in dollars per share) | $0 | 0.0% |
| **Basic net income per share (in dollars per share)** | $4 | 0.0% |
| Continuing operations (in dollars per share) | $4 | 0.0% |
| Discontinued operations (in dollars per share) | $0 | 0.0% |
| **Diluted net income per share (in dollars per share)** | $4 | 0.0% |
| Basic (in shares) | 335,800,000 |  |
| Diluted (in shares) | 337,031,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2019 | $994.1M | $194.4M | $119.0M | $198.5M | $3.4M | $195.1M |
| FY2020 | $1.5B | -$62.0M | -$125.2M | $222.9M | $3.2M | $219.6M |
| FY2021 | $2.8B | $150.0M | $35.4M | $361.9M | $1.4M | $360.5M |
| FY2022 | $2.8B | -$47.8M | -$192.7M | $412.8M | $662.0K | $412.1M |
| FY2023 | $1.8B | $772.4M | $356.7M | $1.1B | $4.2M | $1.1B |
| FY2024 | $3.2B | $1.9B | $1.6B | $2.1B | $4.8M | $2.1B |
| FY2025 | $5.5B | $4.2B | $3.3B | $4.0B | — | — |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +70.0% (year before +75.1%): slowing
- Operating income: +117.3% (year before +147.4%): slowing
- Net income: +111.0% (year before +342.9%): slowing
- Free cash flow: +98.1% (year before +156.5%): slowing

## Operating figures stated in the filing

- AppLovin Ads net revenue per installation, year-over-year increase (three months): 58.0% (as of 2026-06-30). "For the three months ended June 30, 2026, our revenue increased by $664.9 million, or 53%, compared to the same period in the prior year due primarily to improved AppLovin Ads performance, where net revenue per installation increased 58%, partially offset by a decrease in the volume of installations of 2%." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- AppLovin Ads installation volume, year-over-year decrease (three months): 2.0% (as of 2026-06-30). "For the three months ended June 30, 2026, our revenue increased by $664.9 million, or 53%, compared to the same period in the prior year due primarily to improved AppLovin Ads performance, where net revenue per installation increased 58%, partially offset by a decrease in the volume of installations of 2%." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- AppLovin Ads net revenue per installation, year-over-year increase (six months): 75.0% (as of 2026-06-30). "For the six months ended June 30, 2026, our revenue increased by $1.3 billion, or 56%, compared to the same period in the prior year due primarily to improved AppLovin Ads performance, where net revenue per installation increased 75%, partially offset by a decrease in the volume of installations of 10%." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- AppLovin Ads installation volume, year-over-year decrease (six months): 10.0% (as of 2026-06-30). "For the six months ended June 30, 2026, our revenue increased by $1.3 billion, or 56%, compared to the same period in the prior year due primarily to improved AppLovin Ads performance, where net revenue per installation increased 75%, partially offset by a decrease in the volume of installations of 10%." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)

## Key insights

### Growth came from worth per install, not more installs

Revenue rose 52.8% while AppLovin Ads installs fell 2%, because net revenue per installation rose 58%: each install became more valuable.

Revenue was $1.92B against $1.26B a year earlier, up 52.8%. The filing attributes the rise primarily to AppLovin Ads, where net revenue per installation increased 58%, partially offset by a 2% decrease in the volume of installations. _(from the filing)_
The pattern is stronger over six months: net revenue per installation up 75%, installation volume down 10%. Volume has been shrinking, not growing, through the year. _(from the filing)_
Analysis: AppLovin is paid when advertisers hit their return targets, so the price of an install reflects how well Axon predicts a valuable user. Rising value on falling volume reads as better prediction being paid for, not as a bigger audience. It also means growth now rests on that prediction keeping its edge. _(analysis)_

### Costs grew slower than revenue, except engineering pay

Total costs rose 42.6% against revenue up 52.8%, lifting operating margin to 77.7%, even as research and development more than doubled.

Total costs and expenses were $429.4M, 22.3% of revenue against 23.9% a year earlier. Operating income rose 56.0% to $1.49B from $957.7M, for an operating margin of 77.7%, up 1.6 points. _(from the filing)_
Line by line: cost of revenue, mainly datacenter costs, rose 45.6% to $225.8M, 11.7% of revenue. Sales and marketing was $63.4M, 3.3% of revenue. General and administrative fell 26.8% to $40.3M, which the filing attributes to lower bad debt expense and lower professional services costs tied to transactions. _(from the filing)_
The exception is research and development, up 126.9% to $99.9M from $44.0M, moving from 3.5% to 5.2% of revenue. The filing attributes the increase primarily to higher stock-based compensation-related payroll costs. _(from the filing)_
Analysis: the margin widened because revenue outran every cost line at once. Engineering pay is the line growing fastest, and it is the one most tied to the models behind revenue per install. The widening holds only while revenue keeps outgrowing it. _(analysis)_

### Non-operating gains lifted net profit faster than operations

Net income from continuing operations rose 64.1% against 56.0% for operating income, as other income swung to $62.4M from a $22.3M expense.

Other income (expense), net was $62.4M against a $22.3M expense a year earlier. The filing ties the swing to a fair value gain on certain private equity securities against a loss a year earlier, more interest earned on a larger cash balance, and currency gains. Pre-tax income rose 70.3% to $1.51B. _(from the filing)_
Tax took back part of it. The provision rose 113.1% to $239.0M, 15.9% of pre-tax income against 12.7% a year earlier. The filing names higher pre-tax income, foreign income taxed at different rates and smaller stock-compensation benefits, partly offset by a larger foreign-derived income deduction. _(from the filing)_
Total net income rose less, 54.5% to $1.27B from $819.5M, because the year-ago quarter included $47.7M of income from the Apps business, sold at the end of that quarter. Diluted earnings per share were $3.76 against $2.39. _(from the filing)_
Analysis: fair value gains on private holdings and currency moves are not the advertising business and need not repeat. Operating income growth of 56.0% is the cleaner read of how the core business moved. _(analysis)_

### Cash collected trailed reported profit this quarter

Operating cash flow of $869.0M was 68.6% of net income, against 94.2% a year earlier, so less of the profit arrived as cash.

Operating cash flow was $869.0M against net income of $1.27B, 68.6%. A year earlier it was $772.2M against $819.5M, 94.2%. The filing ties the half-year cash pattern to higher collections from revenue growth, offset by larger publisher payments, operating spending and cash paid for income taxes. _(from the filing)_
The quarter before ran the other way: operating cash flow of $1.29B against net income of $1.21B, 107.1%. Quarterly cash is uneven, so one quarter does not establish a trend. _(from the filing)_
Analysis: a business booking net revenue on payment terms carries receivables that grow with revenue, and tax payments arrive in lumps. For this to be timing rather than a change in the business, cash would need to move back toward reported profit in the quarters that follow. _(analysis)_

### Competitive edge

- **Paid on the advertiser's outcome, priced per install** AppLovin earns when advertisers reach their return targets, so better prediction raises price per install without a sales push.
- **A lean company whose main cost is compute** Cost of revenue, mainly datacenters, is 11.7% of revenue, against 3.3% for sales and marketing and 2.1% for administration, leaving an 88.3% gross margin.

### What to watch

- **Apple, Google and Meta control the data and distribution** Growth rests on value per install, which depends on data that a few platforms, some of them competitors, can restrict at will.
- **Cancelable contracts, concentrated in mobile gaming** Substantially all contracts are cancelable at any time and revenue sits mainly in mobile gaming, so spending follows results month to month.
- **Engineering pay and compute are the rising costs** Research and development rose 126.9% and cost of revenue 45.6%, the two lines the filing ties to talent and computing capacity.

## Investor view

**AppLovin grew revenue by earning 58% more per install on slightly fewer installs**

### How it makes money

AppLovin sells performance, not ad space. Advertisers set a return on advertising spend target and AppLovin Ads places their budget against it across apps. The filing puts it plainly: "We generate revenue when our advertisers achieve their return on advertising spend targets." Substantially all of the quarter's $1.92B of revenue came from AppLovin Ads; revenue from other services was not material. _(from the filing)_
Revenue is booked net. AppLovin acts as an agent, so it reports what advertisers pay less what it passes on to the publishers whose apps show the ads. What remains is mostly a software margin: cost of revenue, chiefly datacenter costs for third-party cloud computing, was $225.8M, or 11.7% of revenue, for a gross margin of 88.3%. _(from the filing)_
Three smaller products sit around the core. MAX lets publishers auction their ad inventory and earns a percentage of winning auction spend. Adjust sells measurement and attribution, mainly on an annual subscription. Wurl distributes streaming video to connected TV on a usage or CPM basis. The filing does not report their revenue separately. _(from the filing)_
Very little of the revenue is spent selling it. Sales and marketing was $63.4M in the quarter, 3.3% of revenue, and research and development $99.9M, 5.2%. General and administrative was $40.3M, 2.1%. All costs and expenses together came to $429.4M, 22.3% of revenue. _(from the filing)_

### What shifted

Revenue rose 52.8% to $1.92B from $1.26B, and the filing says why: AppLovin Ads net revenue per installation increased 58%, while the volume of installations fell 2%. Over six months the split was sharper, with revenue per installation up 75% and installs down 10%. Growth this year came from what each install is worth, not from more of them. _(from the filing)_
The cost mix moved. Research and development rose 126.9% to $99.9M, from 3.5% to 5.2% of revenue, which the filing attributes to higher stock-based compensation-related payroll costs. General and administrative fell 26.8% to $40.3M on lower bad debt and professional services costs. Cost of revenue grew 45.6%, slower than revenue, so operating income rose 56.0% to $1.49B. _(from the filing)_
Below the operating line, other income swung to $62.4M from a $22.3M expense, which the filing ties to a fair value gain on private investments, more interest earned on a larger cash balance and currency gains. Pre-tax income rose 70.3% to $1.51B. The tax provision rose 113.1% to $239.0M, an effective rate of 15.9% against 12.7%, on higher pre-tax income, foreign income taxed at different rates and smaller stock-compensation benefits. _(from the filing)_
The year-ago quarter still carried the Apps business, sold at the end of that quarter, which added $47.7M of income from discontinued operations. Without it, net income from continuing operations rose 64.1% to $1.27B while total net income rose 54.5%. Diluted earnings per share were $3.76 against $2.39, on 337.0 million diluted shares against 342.2 million. _(from the filing)_
Cash lagged profit. Operating cash flow for the quarter was $869.0M against net income of $1.27B, 68.6%, where a year earlier it was $772.2M against $819.5M, 94.2%. The filing ties the half-year cash pattern to higher collections from revenue growth, offset by larger publisher payments, operating spending and cash paid for income taxes. _(from the filing)_

### Risks in the filing

Platform dependence. The mobile app ecosystem runs through a small number of distribution platforms, the Apple App Store, the Google Play Store and Meta, some of them direct competitors, each with broad discretion to change fees and rules. AppLovin relies in part on Apple's advertising identifier; if consent rules or future changes reduce the data available, the filing says its advertising solutions "may not be as effective." _(from the filing)_
Concentration. Revenue sits mainly in the mobile app ecosystem and specifically mobile gaming. Meta and Google are both significant partners, so a worse relationship with either would weigh more heavily. Expansion beyond that base, into e-commerce and connected TV, means competing where large rivals are already established, and the filing says broader adoption among e-commerce advertisers is not assured. _(from the filing)_
No contracts to lean on. Clients have no long-term commitments and substantially all contracts are cancelable at any time, so spending follows results. The filing names competition from Meta, Google, Amazon, Unity Software and Liftoff Mobile, among others, and clients who are also competitors may choose to invest in their own offerings instead. _(from the filing)_
People, infrastructure and rules. The company runs a deliberately lean organization and says it is highly dependent on its co-founder and chief executive, Adam Foroughi, with no key-man insurance. Growth needs more computing power, largely from third-party providers, at a reasonable cost. Laws on privacy, AI, advertising, tracking and the protection of minors are changing and could limit targeting or measurement. _(from the filing)_
Two of these already show in the numbers. Installs fell while revenue per install rose: the business is growing by getting more from a flat or shrinking flow of installs, which is exactly the exposure the platform and data risks describe. And cost of revenue, mostly cloud computing, is rising nearly in step with revenue, the infrastructure risk at work, though so far well covered by the margin. _(analysis)_

## Founder view: mechanisms

### Paid when the advertiser's return is met

AppLovin prices against the advertiser's goal rather than selling impressions. The advertiser states a return target, Axon decides which install to buy and at what price, and AppLovin is paid when the target is met, net of what publishers receive. Because the price is set dynamically per outcome, every gain in prediction accuracy shows up as revenue per install, not as a discount a sales team has to defend. _(analysis)_

### Net revenue turns a marketplace into a software margin

AppLovin sits between advertisers and publishers but reports only the spread it keeps, because it never controls the ad inventory. The publisher payout never enters revenue, so the remaining cost is mostly the computing that runs the auctions and models. The economics are a take on someone else's transaction, with costs that scale with compute rather than with the money flowing through. _(analysis)_

### Model gains compound over a lean cost base

When the product is a model, an improvement ships to every customer at once and costs little more to serve. AppLovin pairs that with a deliberately lean organization, spending on engineers and compute rather than on headcount in sales and administration. Revenue then grows much faster than costs, and the operating margin widens with it. _(analysis)_

### Selling the other business to focus

AppLovin sold its own mobile games, the Apps business, to concentrate on advertising. The games had been a source of first-party demand and data, but they carried heavy marketing and development costs and a different profit profile. Selling them removed a business that competed for capital and attention with the one producing nearly all the profit. _(analysis)_

## Member research

Signed-in members read, on the page: what AppLovin's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- AppLovin 10-Q for the period to 2026-06-30: https://www.sec.gov/Archives/edgar/data/1751008/000175100826000059/ (2026-08-05)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02