AppLovin Q2-25: Where Did the Short Sellers Go?
Revisiting Our $APP Q1-2025 Video Essays
Last night AppLovin ($APP) reported better than expected Q2-2025 earnings. Revenue hit $1.258 billion, +74% YoY. The company continued its lean operations, showing a strong 81% quarter-over-quarter flow-through from revenue to adjusted EBITDA. Plus, they generated $768 million in free cash flow, my favorite metric, up +72% YoY. I'll provide a recap of the Q2 results in a separate post. For today, I wanted to highlight just how mistaken short sellers have been about the company. Here are 5 YouTube videos from Q1 of this year where I discussed the investment thesis. (AppLovin Research Playlist Q1-2025) (And it is STILL my #1 position today.)
1)"Facing the Short Sellers: The Case for Holding AppLovin" (February 28, 2025)
This was our first deep dive into the short attacks that caused AppLovin's stock to tank over 20%. I highlighted how CEO Adam Foroughi kept it classy, responding to the sensational claims by reaffirming the company's compliance with App Store policies, the sophistication of performance marketers, and the effectiveness of their platform in driving real engagement and revenue for advertisers.
Most importantly, Adam revealed the e-commerce pilot's early success, showing they were on a run-rate of over $1 billion dollars of gross ad spend from only 600 customers in December 2024. This growth clearly demonstrated the platform's effectiveness and started to expose the short sellers' narrative for what it was.
2)"Facing the Short Sellers: AppLovin Fights Back" (March 3, 2025)
In this update, we saw AppLovin go on the offensive, not with words, but with cold, hard cash. The company didn't issue a flashy press release, but SEC filings showed they were changing their stock buyback rules. They made $500 million available immediately, removed the quarterly limit based on prior free cash flow, and made the buyback limit cumulative each quarter.
I pointed out that AppLovin is a rare high-growth tech company that converts a very high percentage of its EBITDA to free cash flow (76% in 2024), enabling them to shrink their share count aggressively (4% retired in 2024 alone). This showed the market that management truly believed in the intrinsic value of their company and was putting their money where their mouth is.
3)How Shorts Lie: AppLovin’s Battle with Misinformation" (March 5, 2025)
Here we tackled the short sellers' "flooding the zone" strategy, where they put out an abundance of misinformation to create confusion and distrust. I broke down their scary accusations, including accounting fraud, offshore tax evasion, Chinese espionage, and even inappropriate ads to children.
We specifically debunked their claims about executives "dumping" shares by looking at Form 4 SEC filings, revealing that these were normal sales for tax purposes or portfolio diversification related to vested stock options. It was a clear demonstration that not all short sellers are "white knights" looking for truth; they're often just trying to scare you out of your shares.
4)"Facing the Short Sellers: Debunking Lies about AppLovin’s Financials" (March 7, 2025)
This video was all about getting back to accounting basics and exposing the short sellers' financial illiteracy. They claimed weak FCF, pointing to a "gap" between net income and balance sheet cash growth, but as I showed, they completely cut the cash flow statement out of their analysis! Their claims of rising DSO indicating financial distress were also debunked as irrelevant for digital companies without physical goods.
We also addressed the "illegally avoiding taxes" claim by explaining that revenue is recognized where the customer sits (40% outside US), while costs are recognized where they occur (many in US), making their lower US taxable income perfectly logical.
Finally, their complaint about reduced headcount was turned on its head: AppLovin is an asset-light company using automation and AI, growing substantially with modest headcount additions, something to be applauded.
5)"How AppLovin's Strategy Shift Is Winning Against Short Sellers" (March 24, 2025)
In our last video from Q1-25, we celebrated how AppLovin was accelerating its revenue growth. I revealed that the company had lowered the minimum spend requirements for its e-commerce pilot from $600,000 in Meta spend to just $10 million in annual total revenue. This dramatically expanded the pool of potential customers, going far beyond the initial 600.
Evidence from Northbeam, a company working with DTC and e-commerce clients, showed AppLovin's spend was higher than YouTube's and almost surpassed TikTok's among their clients. This highlighted AppLovin's strong execution, with customer acquisition costs as much as 25% less than Meta and TikTok, and consistent conversions driving strong ROAS.
AppLovin's consistent performance and strong Q2 earnings demonstrate that their AI models and strategic adjustments are yielding significant, tangible growth, effectively countering short-seller claims. I will soon provide further analysis on AppLovin's Q2-25, as we monitor its progress and other TMT stocks throughout earnings season.
-Accrued Interest
Disclaimer: The information presented in this Substack is for educational purposes and should not be construed as investment advice. Investors should make their own decisions regarding the prospects of any company discussed here, as I am not a registered investment advisor.
You can always reach me at simeon@accruedint.com.