AppLovin Posts Strong 2025 Results But Valuation and Regulatory Risks Loom Large

What happened

AppLovin announced its fourth quarter and full-year 2025 financial results, likely showcasing sustained revenue growth and high adjusted EBITDA margins driven by its AI-powered AXON advertising engine. The company has delivered exceptional performance, with Q3 2025 revenue up 68% year-over-year and margins at 82%, fueling a significant stock rally over the past year. However, shares trade at extreme multiples of 73x trailing earnings and 88x EV/EBITDA, pricing in flawless execution of multi-year hyper-growth and margin expansion. Unresolved SEC and state investigations into data-collection practices, including allegations of unauthorized tracking, present a clear threat to the core data advantage and profitability. Management's pivot into e-commerce via Axon Ads Manager and international expansion is critical but faces stiff competition and regulatory headwinds that could derail growth assumptions.

Implication

The strong 2025 financials validate AppLovin's operational momentum but do not justify the current premium, with multiples implying sustained 30%+ growth and 80%+ margins amid rising risks. Any normalization in revenue growth below 25% or EBITDA margins dipping under 78% could trigger severe multiple compression, given the stock's sensitivity to disappointment. Regulatory resolutions from ongoing SEC and state probes could impose fines or data restrictions, directly eroding the AI-driven pricing power that supports high margins. Success in e-commerce and international markets is already priced in, and any execution missteps or slower adoption would amplify downside volatility. Therefore, new investments are better deferred until regulatory overhangs clear or the price reflects more realistic assumptions, aligning with the DeepValue report's 'POTENTIAL SELL' rating.

Thesis delta

The latest financial results do not alter the core investment thesis; they reinforce AppLovin's strong execution but also underscore the elevated valuation and unresolved regulatory risks that create asymmetric downside. No material shift is warranted, as the company must still navigate data-privacy investigations and platform dependencies to sustain its growth and margin profile, keeping the risk-reward skewed negatively at current levels.