AppLovin's revenue rebound came from a model rollout that is only partly done

AppLovin sells the software that decides which ad a mobile user sees and what that view is worth to the advertiser paying for it. Its prediction model estimates how likely each ad view is to lead to an install or a purchase, so a better model lets advertisers spend more while still earning the return they aim for. In August, after a second quarter that ended inside its guided range instead of above it, management said the soft patch was about timing: the latest model gains had landed just after the quarter closed. The September 2026 quarter tested that account. Revenue rose 13.6% on the quarter before, against guidance of 7% to 8%.

Revenue was $2,184.8 million, an increase of $261.1 million in three months, after growth of just 4.4% in the second quarter. Matt Stumpf, the chief financial officer, said most of the beat came from the core mobile gaming business, helped by model improvements during the quarter, while consumer advertisers such as online shops kept scaling. Adam Foroughi, the chief executive, said a next generation of models was partly rolled out over those months. The split between gaming, consumer and the new models is management's account.

The guidance record makes the second quarter, not the third, the odd one out. In the five quarters shown below, revenue finished between 3.6% and 4.9% above the top of the guided range in every quarter but the second, which came in 1.1% under the top, inside the range. Last quarter's 4.8% is the same size as the earlier beats, calculated from the reported revenue and the ranges management gave the quarter before. Mr Stumpf said the method has not changed: "We're guiding to what we know at that point in time."

The extra revenue cost little to earn. Total costs and expenses rose $46.4 million on the second quarter, a small fraction of the revenue gain. Research and development, the line that carries the engineers who build the models, was $101.8 million, barely changed from the quarter before though more than double a year earlier. Management said data-center costs fell as a share of revenue because of work on how the models are served, even as it bought more computing power to train new ones.

Two margin figures describe this, and they measure different things. Operating income, which counts stock-based pay as a cost, was 78.2% of revenue. The company's adjusted EBITDA margin, which leaves out stock-based pay along with depreciation and amortisation, was 84%. The gap matters because stock-based pay more than doubled from a year earlier; operating margin is the stricter of the two measures.

For the fourth quarter, the company guided revenue of $2,365 million to $2,395 million, about 8.9% above last quarter at the midpoint, calculated from the reported figures. Management said that range covers normal seasonality, consumer growth, model improvements already live and the cost of extra training compute. On that description, the range does not count gains from the parts of the new models still to come. "Here's the part I want you to sit with. This was a partial rollout," Mr Foroughi said, while adding that model gains do not arrive on a fixed schedule and that management would not commit to one.

Mr Foroughi also flagged a pattern that grows with the consumer business: an online retailer spends heavily in the holiday quarter and pulls back in the first quarter. So far, new customers have kept AppLovin growing through that season; revenue in the first quarter of this year rose 11.1% on the holiday quarter. He said that as e-commerce becomes a larger share, a bigger fourth quarter should be followed by a tougher first. Part of last quarter's jump came from model gains that, management said in August, landed just after the second quarter ended.