What specific model breakthroughs were expected but didn't happen in Q2, and what was the timing impact?

Model improvements are constant R&D, and while typically multiple small lifts compound each quarter, Q2 had smaller impact. A material uplift landed right after quarter-end, which is why Q3 started strong and guidance is robust. This is a normal part of R&D, not a fundamental issue. “Look, it's R&D, right? Like there's no guarantee that we're always going to have lifts in every single period of 3 months. The team is always working on lifts. And usually, in every single quarter, it's not one lift that we get. We compound multiple small lifts. The impact was just smaller in Q2, followed by a pretty material uplift in Q3 in the early part of Q3.”

Are advertisers hitting ROAS ceilings, and has your perspective changed on targeting larger advertisers in the consumer segment, given the success with mid-market?

Advertisers are not hitting ROAS ceilings; they are still early in their spend on the platform. The consumer model is less mature than gaming, making mid-market a sweet spot currently due to their willingness to invest in learning costs. As data builds and the model becomes more sophisticated, the company expects to support smaller and larger advertisers, similar to its gaming business. “On your first question, if I understood it correctly, you're basically saying advertisers haven't reached their maximum amount of spend for the return that they're getting. And we're new -- yes, we're a new platform, right? Like these companies, first of all, they like manage their budgets really slowly.”

How should we think about the margin profile of the business as compute costs continue to increase and scale?

The company expects short-term fluctuations in margin due to compute spend, but views this as positive because spending is tied to incremental revenue. Over the longer term, they are confident in maintaining a low 80% EBITDA margin. They spend about $0.10 on compute for every incremental dollar in revenue. “To the margin question, over the longer term, we may see some variability, which is consistent with what we've told analysts and investors in the past as well that we may have some short-term fluctuation in the margin profile of the business, but it should be indicative and investors should look at that as a positive because when we're spending, we're very cautious about how we're spending and we're only spending if we see that there is incremental revenue behind that.”

APP

AppLovin (APP) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Information Technology· Aug 5, 2026

Source: earnings call transcript

Executive summary

AppLovin Q2 FY26 — Model Uplift Timing Impacts Results, Q3 Reacceleration Expected

AppLovin's Q2 FY26 results fell slightly short of expectations due to a lighter-than-normal pace of model improvements, which landed just after quarter-end. Despite this, the consumer vertical saw record growth, and the company expects reacceleration in Q3 as model improvements are now live. Management remains confident in the long-term opportunity, focusing on core model advancements, architectural work for scaling compute, and strategic partnerships to expand its advertiser base.

Highlights

Q2 FY26 revenue reached $1.92 billion, growing 53% year-over-year and 4% sequentially.
Adjusted EBITDA was $1.61 billion, up 58% year-over-year, with margins expanding approximately 300 basis points.
Consumer vertical advertiser spend set a new record, finishing 28% above Q4 2025 levels.
Net leverage ended at approximately 0.1x trailing 12-month adjusted EBITDA, well below the long-term target of 1x.
The SEC inquiry was concluded with no recommended action, resolving a prior concern.

Concerns

Q2 FY26 revenue of $1.92 billion was just below the midpoint of guidance.
Adjusted EBITDA of $1.61 billion was just below the guidance range.
Free cash flow for Q2 FY26 was $863 million, below normal cadence due to timing of international cash tax and interest payments.
Pace of meaningful model improvement was lighter than normal during Q2, impacting performance.
Moderated share buyback pace in Q2, repurchasing $551 million, compared to roughly $1 billion in Q1.

Guidance & targets

Category	Target	Timeline	Confidence
Revenue	$2.055 billion and $2.085 billion high materiality	Q3 · FY26	High
Revenue Growth (YoY)	46% to 48% medium materiality	Q3 · FY26	High
Revenue Growth (Sequential)	7% to 8% medium materiality	Q3 · FY26	High
Adjusted EBITDA	$1.71 billion and $1.74 billion high materiality	Q3 · FY26	High
Adjusted EBITDA Growth (YoY)	48% to 50% medium materiality	Q3 · FY26	High
Adjusted EBITDA Margin	approximately 83% medium materiality	Q3 · FY26	High
Free Cash Flow Conversion	normalize to roughly 75% of adjusted EBITDA medium materiality	Full Year FY26	High
Long-term Business Compounding Growth	roughly 30% annually high materiality	Next Decade	High
Long-term Net Leverage	approximately 1x low materiality	Long term	High
Adjusted EBITDA Margin	low 80% medium materiality	Longer term	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
US US revenue accelerated quarter-over-quarter, driven by the web consumer business which is more concentrated in the West.	—	—	accelerated	—
International International revenue growth was closer to flat quarter-over-quarter, slowing down slightly after strengthening in previous quarters. This is based on user location demographics.	—	—	closer to flat	—

Product announcements

Product	Type	Timeline	Details
AppLovin Ads Manager	launch	during Q2 FY26

Deals & partnerships

Third-party analytics companies Strategic partnerships to acquire targeted mid-market advertisers in e-commerce.

AppLovin has engaged in deals with third-party analytics companies, such as one of the larger analytics companies in the e-commerce market, to leverage their client relationships for targeted advertiser acquisition. Triple Whale was mentioned as an example of such a partner.

Risks & headwinds

Timing of model improvements Q2 FY26

Q2 FY26 revenue and adjusted EBITDA were just below guidance ranges.

Mitigation:Model improvements landed just after quarter-end, leading to expected reacceleration in Q3 FY26. Ongoing investment in architectural changes and compute for more complex models.

Higher compute costs Q3 FY26 and beyond

Primary driver of sequential increase in costs; higher training and inference costs built into Q3 FY26 guidance.

Mitigation:Management views these as strategic investments that produce substantially more revenue through better model performance. They are cautious about spending and only deploy dollars when there is an opportunity to produce more revenue.

Mobile game ecosystem challenges Recent months

Reports of CPI inflation, waning ROAS, and mobile game app downloads down 10-15% year-over-year.

Mitigation:Management argues IAP data is misleading due to off-platform purchases and that the market is shifting to deeper, higher-LTV games. AppLovin positions itself as a catalyst for user acquisition, with its model releases driving performance improvements.

What to watch in Q3 FY26

Free Cash Flow Conversion

Q3 FY26 and Full Year FY26

Current below normal cadence

Target improve and normalize to roughly 75% of adjusted EBITDA

Why it matters

To confirm that Q2's lower FCF conversion was a timing issue and that the business's strong cash generation is normalizing.

We expect free cash flow conversion to improve in the third quarter and to normalize to roughly 75% of adjusted EBITDA for the full year.

Find out whether APP delivers this. Inve re-checks your case every morning.

Q&A highlights

Can you elaborate on the partnership opportunity to bring in more customers, as this is the first time I've heard it mentioned?

AppLovin is partnering with third-party analytics companies in e-commerce to target specific mid-market advertisers. This approach is more targeted than broad ad buying and aims to bring the right types of advertisers to the platform, similar to how Triple Whale operates.

“We have done a couple of deals so far with third-party companies, one of the larger analytics companies in the market in e-commerce. And we found that if we go to the source that works with these companies on the other side, the advertisers that we want, it's a more targeted way to get the right kinds of advertisers onto our platform.”

asked by Jason Bazinet · answered by Adam Foroughi

3 min read 8 chapters

Detailed narrative

Model Performance and Q2 Underperformance

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.

Consumer Vertical Rapid Scaling

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.

Strategic Focus and Investment Priorities

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.

SEC Inquiry Resolution

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.

Mobile Gaming Ecosystem Health

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.

Partnership Strategy for Advertiser Acquisition

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.

Creative Tools and Advertiser Onboarding

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.

Future Supply Expansion (Wurl/CTV)

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.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.