AppLovin Corp. (NASDAQ:APP)

The financial performance, as measured by economic profit, demonstrates a consistent pattern of negative value creation over the four-year period. While net operating profit after taxes (NOPAT) exhibits significant volatility, the cost of capital and invested capital remain relatively stable, contributing to the persistent economic loss.

Net Operating Profit After Taxes (NOPAT)

NOPAT experienced substantial fluctuations. A significant loss was recorded in 2022, followed by a strong recovery and positive NOPAT in 2023 and 2024. The 2024 NOPAT value represents the highest level observed within the analyzed timeframe.

Cost of Capital

The cost of capital decreased from 29.21% in 2021 to 22.23% in 2022, then increased to 30.03% in 2023, and further to 32.91% in 2024. This indicates a rising cost of funding over the latter part of the period, potentially due to changing market conditions or company-specific risk factors.

Invested Capital

Invested capital decreased from 2021 to 2023, declining from US$5,576,322 thousand to US$4,514,462 thousand. It experienced a slight increase in 2024, reaching US$4,539,074 thousand, but remained below the 2021 level. This suggests a potential reduction in the company’s asset base or changes in working capital management.

Economic Profit

Economic profit remained negative throughout the period, ranging from -US$1,582,790 thousand in 2021 to -US$471,744 thousand in 2024. Although the magnitude of the economic loss decreased each year, the company failed to generate returns exceeding its cost of capital. The reduction in economic loss correlates with the increase in NOPAT and the slight increase in invested capital in 2024.

The trend suggests that while the company has improved its operational profitability, it continues to struggle to generate economic value. The increasing cost of capital presents a challenge to achieving positive economic profit in future periods. Further investigation into the drivers of NOPAT and the factors influencing the cost of capital is warranted.

Net income (loss) attributable to AppLovin

The net income demonstrates significant volatility over the four-year period. In 2021, the company reported a net income of $35,446 thousand. However, there was a considerable decline in 2022, with a net loss of $192,746 thousand recorded. The financial performance improved markedly in the subsequent years, with net income rebounding to $356,711 thousand in 2023 and substantially increasing to $1,579,776 thousand in 2024. This pattern indicates an initial downturn followed by strong recovery and growth.

Net operating profit after taxes (NOPAT)

The NOPAT values follow a trend similar to net income. Starting at $46,321 thousand in 2021, NOPAT shifted into a negative territory in 2022 with a loss of $171,497 thousand. The metric then showed a sharp improvement in 2023, increasing to $508,977 thousand, and further doubling to $1,022,182 thousand in 2024. This trend suggests an effective turnaround in the company’s operational profitability post-2022.

Overall Analysis

The financial data reveals a period of operational and financial struggle in 2022, characterized by negative net income and NOPAT. The subsequent years reflect a successful recovery, highlighted by substantial positive gains in profitability in 2023 and 2024. The strong upward trajectory in both net income and NOPAT during the latter years underscores significant improvements in both operational efficiency and overall financial health.

The financial data reveals distinct patterns in the company's tax-related figures over the four-year period ending December 31, 2024.

Provision for (benefit from) income taxes

This item fluctuates significantly throughout the period. In 2021, the company recorded a positive provision of approximately $10,973 thousand, indicating an expected tax expense. In 2022, this shifted to a benefit of about $12,230 thousand, suggesting recognition of tax benefits or credits reducing income tax expense. In 2023, the provision reverted to a substantial tax expense of roughly $23,859 thousand. The following year, 2024, again showed a tax benefit of $3,771 thousand. The alternating pattern between tax expenses and benefits over the years may reflect varying profitability levels, tax planning strategies, or one-time adjustments impacting the income tax provision.

Cash operating taxes

This figure shows a consistent upward trend, with a notable acceleration in the final year. Starting at approximately $99,248 thousand in 2021, cash taxes paid increased steadily to $126,764 thousand in 2022 and further to $164,738 thousand in 2023. The year 2024 presents an exceptional rise to $865,828 thousand, which is a significant leap compared to prior years. This sudden increase in cash operating taxes may indicate higher taxable income, changes in tax rates or policy, or settlement of prior tax liabilities, suggesting a considerable impact on the company's cash flows related to tax payments.

Overall, the data demonstrates a pattern of fluctuating tax provisions, alternating between expenses and benefits, alongside a steadily increasing and then sharply rising cash tax outflow. This divergence might hint at timing differences, disparities between accounting tax provision and actual cash taxes paid, or episodic tax events influencing the company’s tax expenses and cash taxes paid differently.

The financial data reveals several notable trends in the company's capital structure and leverage over the four-year period under review.

Total Reported Debt & Leases

The total reported debt and leases remained relatively stable between 2021 and 2023, with slight decreases from approximately 3.35 billion to 3.34 billion US dollars. However, there was a significant increase in 2024, reaching approximately 3.71 billion US dollars. This indicates a shift towards higher leverage or increased borrowing in the most recent year.

Stockholders’ Equity

Stockholders' equity exhibited a consistent declining trend throughout the period. Starting at about 2.14 billion US dollars in 2021, it decreased to roughly 1.90 billion in 2022, followed by a more pronounced decline to about 1.26 billion in 2023, and further reducing to nearly 1.09 billion in 2024. This steady reduction potentially signals increased losses, share repurchases, or distributions exceeding retained earnings, weakening the equity base.

Invested Capital

Invested capital displayed a downward trajectory from 5.58 billion US dollars in 2021 to 4.51 billion in 2023, reflecting a decrease of approximately 19%. In 2024, there was a slight uptick to 4.54 billion US dollars, indicating some stabilization or minor growth after the decline. The overall reduction aligns with the trends observed in equity and debt, suggesting changes in the company's asset base or capital structure.

In summary, the company has experienced a notable increase in debt levels in the most recent year alongside a steady erosion of equity, leading to a reduced invested capital base. These developments point to an increased reliance on debt financing and potential pressures on financial stability, which warrant further analysis of profitability, cash flow, and risk management practices.

The economic spread ratio demonstrates a consistent improvement over the four-year period. Simultaneously, economic profit exhibits a decreasing negative trend, suggesting improving, though still insufficient, value creation.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, moved from -28.38% in 2021 to -10.39% in 2024. This indicates a narrowing spread between the return on invested capital and the weighted average cost of capital. The ratio’s progression suggests a diminishing gap in underperformance, moving closer to a position of covering the cost of capital.

Economic Profit

Economic profit, measured in US$ thousands, consistently reflects a loss, but the magnitude of the loss decreased from -1,582,790 in 2021 to -471,744 in 2024. This reduction in the absolute value of the loss aligns with the improvement observed in the economic spread ratio, indicating that the company is becoming more efficient in generating returns relative to its capital costs.

Invested Capital

Invested capital decreased from 5,576,322 in 2021 to 4,514,462 in 2023, before experiencing a slight increase to 4,539,074 in 2024. The reduction in invested capital, coupled with the improving economic spread ratio, suggests a more focused allocation of resources and potentially improved capital efficiency. The 2024 increase is minimal and does not negate the overall downward trend.

In summary, the trend indicates a positive trajectory in value creation, although the company continues to operate at an economic loss. The narrowing economic spread and decreasing economic profit loss suggest that strategic initiatives are having a positive impact on the relationship between returns and capital costs.

The economic profit margin demonstrates a consistent, though decelerating, improvement over the four-year period. While remaining negative throughout, the magnitude of the loss has decreased significantly. This suggests an increasing efficiency in generating profit relative to the capital employed, even if absolute economic profit remains negative.

Economic Profit Margin Trend

The economic profit margin moved from -56.83% in 2021 to -47.75% in 2022, representing a 9.08 percentage point improvement. The rate of improvement continued into 2023, with the margin reaching -25.68%, a further 22.07 percentage point increase. The most recent year, 2024, saw the margin improve to -10.04%, a 15.64 percentage point change. The diminishing magnitude of improvement suggests that further gains in economic profit margin may become increasingly difficult to achieve.

Adjusted revenue increased consistently throughout the period, from US$2,785,148 thousand in 2021 to US$4,700,528 thousand in 2024. This revenue growth occurred in parallel with the improving economic profit margin, indicating that increased scale is contributing to the improved performance. However, the economic profit itself, while decreasing in absolute value, remains negative, indicating that the cost of capital still exceeds the profit generated.

Relationship between Revenue and Economic Profit Margin

The observed increase in adjusted revenue is positively correlated with the improvement in the economic profit margin. This suggests that the company is becoming more effective at converting revenue into economic profit, despite the continued negative economic profit. The substantial revenue growth in 2024, coupled with the largest single-year improvement in economic profit margin, highlights this relationship.

The trend in economic profit, while negative, also shows improvement. The loss decreased from US$1,582,790 thousand in 2021 to US$471,744 thousand in 2024. This reduction in the absolute value of the loss, combined with the increasing revenue, supports the conclusion that the company is moving towards a more sustainable financial position, though it has not yet achieved positive economic profit.