AppLovin Q2 FY26 earnings call APP

AppLovin's Q2 FY26 performance was impacted by the timing of^📎 model improvements. The pace of meaningful model uplift was lighter than normal during the quarter, with the next significant step-up in model performance landing just after quarter-end. This led to revenue and adjusted EBITDA falling slightly below guidance. Management emphasized that this was not due to weakening advertiser demand or competitive changes, but rather the inherent R&D nature of model development, where material lifts are not guaranteed in every three-month period. The Q3 outlook reflects the benefits of these now-live model improvements.

The consumer business demonstrated outstanding growth, with advertiser spend reaching a new record, 28% above Q4 2025 levels. This growth is particularly notable as Q4 is typically the seasonal peak for these advertisers, indicating strong momentum in a seasonally slower quarter. While not yet large enough to fully smooth out quarterly fluctuations, the consumer segment is scaling rapidly and is expected to contribute significantly to long-term growth. The company is prioritizing mid-market advertisers in this segment, leveraging partnerships to target high-value customers.

AppLovin is focused on four key areas: improving core models for near-term growth, advancing architectural work to benefit from scaling compute, enhancing creative tools and ad formats, and bringing more high-quality advertisers through strategic partnerships. The company views investments in technology, particularly compute spend for model training, as critical for long-term revenue generation, making these investments even if they cause short-term margin fluctuations. The public launch of AppLovin Ads Manager is sequencing mid-market advertisers first, with the long tail expected to unlock as data compounds.

The company announced the resolution of a previously reported SEC inquiry. The SEC advised that it concluded its inquiry with no recommended action. Management noted that the voluntary request was never deemed material and expressed satisfaction with its resolution.

Management addressed concerns about CPI inflation, waning ROAS, and declining mobile game app downloads. They argued that in-app purchasing data can be misleading due to off-platform purchases and that the market is shifting towards deeper, higher-LTV games. AppLovin positions itself as a catalyst for growth in mobile gaming user acquisition, asserting that its model releases can significantly impact install rates and CPIs across the category. The company remains highly competitive on both Android and iOS platforms.

AppLovin is actively pursuing partnerships with third-party companies, such as analytics providers in e-commerce, to acquire targeted mid-market advertisers. This strategy aims to bring in higher-GMV customers more efficiently than traditional ad buying. The goal is to build data coverage and model sophistication, eventually reaching a tipping point where customer acquisition accelerates. The company acknowledges that building brand recognition and market penetration will take time, similar to how it achieved full penetration in mobile gaming over 14 years.

The biggest hurdle for advertiser onboarding, particularly for smaller businesses, remains the creation of high-quality video ads with interactive end cards, which are crucial for AppLovin's platform. While interactive end cards can be auto-generated, high-quality 30-60 second videos are still a work in progress. Resolving this creative challenge is expected to enable one-click campaign creation, improving conversion rates for advertisers and facilitating broader adoption, especially among SMBs who may lack such assets.

While connected TV (CTV) and Wurl represent a significant long-term opportunity, AppLovin is not yet focusing on this area due to current budgetary constraints and the early stage of its consumer vertical. The most natural path for supply expansion is expected to be non-gaming apps and other open web placements, where consumer advertisers can leverage existing ad formats. CTV is seen as a later-stage opportunity, as the company needs to first ensure it has excess budget and can drive incremental dollars without weakening its mobile position.