AppLovin: The Next TikTok or Ad Flop?

AppLovin’s (APP) stock was one of last year’s top-performing stocks, gaining over 700% and sporting a market cap of around $150 billion. The stock destroyed shorts who piled in following the run from $40 to $100, peaking at 21.9 million shares (Over 6 days to cover based on average volume) in mid-October ahead of a strong Q3, creating a breakout to ultimately its high of $525 following its Q4 earnings

However, notable bloggers The Bear Cave and The Captain’s Log flagged concerns about very low-quality ads that border on fraudulence, resembling a pyramid scheme. Below, we’ll examine the bullish and bearish arguments to help investors decide whether AppLovin could be the next TikTok-like success story or just another ad flop.

The Bull Case

1. Dominant Position in Mobile-Game Advertising
   • They are an ad network specializing in mobile games, allowing game makers to monetize their user base and acquire new users. They announced their intent to sell their lower margin mobile games business, which has not been growing for $900 million, in a deal expected to close in Q2. Following the sale, they will be a pure mobile game marketing platform and intend to expand beyond mobile gaming companies to reach the eCommerce vertical.
   • AppLovin’s core strength is connecting mobile game developers with targeted audiences, making it the go-to platform for user acquisition. Its ad-serving and optimization tools are regarded as some of the most effective in the industry.
   • By spinning off its own mobile gaming studios, AppLovin will be a 76% (full year 2024) EBITDA margin company that grew 74% year over year. Bulls argue that this single-minded strategy will create an even more efficient, pure-play adtech company with a higher growth rate.
2. AI-Driven Advertising Platform
   • Much of AppLovin’s success stems from its proprietary AI engine- Axon. The platform leverages real-time user data to optimize which ads get shown and to whom, driving higher conversion rates for advertisers.
   • As the platform’s AI gets “smarter” with each campaign, many analysts believe it can extend well beyond gaming—particularly into eCommerce. With eCommerce ad spending growing yearly, that vertical could represent a massive untapped market for AppLovin. They would not disclose the eCommerce contribution except to say it would be material in 2025. Analysts believe its on the order of 10% or more for the year.
     
3. Rapid Growth & Free Cash Flow
   • AppLovin reported significant top-line growth and industry-high free cash flow margins. By prioritizing profitability from day one (instead of only growth at all costs), AppLovin is now in a position to reinvest heavily in AI to expand beyond the mobile gaming industry.
   • Many bulls see the potential for AppLovin to follow a path similar to other adtech success stories, using strong free cash flow to buy back shares, fund R&D, and expand globally. Note they generated $2.1 billion in free cash flow in 2024 and bought back that same amount of stock at much lower levels vs. where it is currently trading.
4. Management’s Strategic Vision
   • CEO Adam Foroughi has repeatedly emphasized how the company’s new focus—being the “one-stop shop” for in-app advertising—positions AppLovin to capture a huge share of global marketing budgets.
   • After the game business sale, management can dedicate resources toward forging partnerships with retail brands, direct-to-consumer (DTC) eCommerce, and even connected TV. These expansions could help diversify revenue streams and reduce reliance on the (sometimes volatile) mobile gaming market.

The Bear Case

1. Sustainability of Growth
   • Critics, including The Bear Cave, point out that app-install advertising can be cyclical, often influenced by gaming budgets that can shrink if user-acquisition costs spike or if macro headwinds reduce ad spend.
   • If the eCommerce push doesn’t ramp up as quickly as expected, AppLovin could face a steep slowdown in revenue growth.
2. Suspect Ads
   • The Bear Cave argues that AppLovin’s ads are “deceptive, predatory and at times unreadable or unclickable.” 
3. Shady Partnerships
   • The Captain’s Blog contends that their eCommerce initiative is primarily composed of a deal with the Flip platform that has gotten very negative press as it basically pays users to mine their contact network. (see picture below)
4. Competition and Privacy Changes
   • Apple’s iOS privacy framework (App Tracking Transparency) has already rattled many adtech players. While AppLovin navigated these changes better than most, further tightening of data privacy rules could still impact their performance.
   • Additionally, big players like Google, Meta, and Unity are expanding or refining their own mobile-ad products. 
5. High Valuation
   • A $150 billion market cap implies a valuation that some argue is “priced for perfection.” AppLovin trades at 31x EV to 2024 revenue and 70x FCF, which may leave little room for error if growth moderates and margins fall.
6. Execution Risk in New Verticals
   • While the pivot from game publisher to pure-play ad platform seems logical, it’s not guaranteed to succeed. Selling into eCommerce advertisers requires different relationships, integrations, and measurement tools, which they admittedly are well behind those of their mobile-gaming business. 
   • If AppLovin can’t demonstrate the same stellar results outside of mobile gaming, the transition could take longer and cost more than expected, potentially hurting margins and eroding investor confidence.

Ultimately, AppLovin’s story is evolving rapidly. It’s no longer just a gaming publisher with an ad network on the side—it’s shaping up to be a pure-play mobile marketing platform with global ambitions. Will it truly become the next TikTok of the ad world, or will the hype fizzle out if advertisers move on to the next big thing?

For now, investors should closely track quarterly performance, margin trends, and early wins (or losses) in non-gaming verticals. That will be the clearest indicator of whether AppLovin can sustain its eye-popping valuation—or if the skeptics at The Bear Cave and The Captain’s Log are right to be concerned.