CEO attributes quarter shortfall to timing of AI model improvements

AppLovin shares fell 17% to $346.51 in after-hours trading Wednesday after the advertising technology company reported second-quarter revenue that missed analyst estimates and issued a third-quarter adjusted earnings forecast below Wall Street projections. At market close, shares were down 38% year to date.

The Palo Alto, Calif.-based company, which provides software and AI solutions aimed at improving marketing and monetization of mobile apps, reported second-quarter profit of $1.27 billion, compared with $819.5 million a year earlier. Earnings per share of $3.76 were in line with analyst estimates, according to FactSet.

Revenue grew 53% year over year to $1.92 billion, landing toward the bottom end of the guidance range the company had provided in May and coming in just below the $1.94 billion analysts expected. Adjusted earnings before interest, taxes, depreciation and amortization for the quarter also rose but came in below the company’s forecast range.

Chief Executive Adam Foroughi said AppLovin has always managed its business with the goal of outperforming its own expectations. “This quarter, we fell short of that standard,” Foroughi said during a call with analysts. “What matters is that we know what happened and it’s already been addressed.”

Foroughi attributed the shortfall to the timing of AI model improvements. The single biggest driver of AppLovin’s growth is the performance of its AI models, he said, because when models improve, advertisers get a higher return on their spending and naturally raise their budgets. Improvements to the company’s model performance landed just after the latest quarter ended, making for a lighter pace of improvement than normal during the period.

Foroughi emphasized that the company did not observe any slowdown in advertiser demand or a change in the competitive environment, and said the current quarter is off to a strong start. “The business is back on the trajectory we expect,” he said.

For the third quarter, AppLovin expects revenue of about $2.06 billion to $2.09 billion, in line with the $2.08 billion analysts are forecasting. The company expects adjusted EBITDA of $1.71 billion to $1.74 billion, below Wall Street’s forecast of $1.76 billion.