AppLovin Corp. (NASDAQ:APP)

The analysis of the financial leverage and related debt ratios over multiple quarters reveals several important trends regarding the company's financial structure and risk profile.

Debt to Equity Ratio

This ratio exhibits a generally increasing trend from mid-2021 through to mid-2025, with some fluctuations. Starting below 1.0 early in the period, the ratio climbs steadily, peaking notably in December 2024 at 6.45 before declining again by mid-2025 to 3.01. This indicates a rising reliance on debt financing relative to shareholder equity over time, albeit with some variability suggesting changes in financing strategies or equity base adjustments.

Debt to Capital Ratio

The debt to capital ratio shows more stability compared to the debt to equity metric. It remains mostly within the 0.46 to 0.87 range, indicating that debt constitutes roughly 46% to 87% of the company's total capital over the periods. The gradual increase around late 2023 to early 2025 suggests a slight increase in debt proportion within the capital structure but remains comparatively moderate.

Debt to Assets Ratio

This ratio follows a pattern similar to the debt to capital ratio, starting from a low of 0.38 around mid-2021 and rising to about 0.67 by early 2024, then tapering slightly towards mid-2025. This pattern reflects that the company’s liabilities as a portion of total assets increased moderately over the observed period, indicating enhanced leverage but at a cautious pace.

Financial Leverage Ratio

This metric parallels the upward trend seen in the debt to equity ratio, starting around 2.3 and escalating to a very high peak of 9.92 in mid-2025 before receding to 5.11. The steep spike indicates periods of significant borrowing, magnifying both the potential return on equity and the associated risk. Subsequent reduction suggests some deleveraging measures later in the period.

Interest Coverage Ratio

Initially, the interest coverage ratio reflects very weak ability to service interest expenses, with values near or below 1.0 and occasional negative figures indicating operating income insufficient to cover interest obligations. However, there is a clear and consistent improvement from late 2022 onward, rising steadily to a ratio of 10.72 by mid-2025. This substantial improvement points to enhanced operational earnings relative to interest expenses, signaling improved financial health and reduced default risk.

In summary, the company's financial leverage increased over the observed periods, as evidenced by rising debt-related ratios, indicating an increased use of debt relative to equity and assets. However, a positive development is the improvement in interest coverage, reflecting stronger earnings capacity to meet interest obligations. This balance suggests a strategic approach to leveraging that carried increased risk initially but was managed over time through improved operational performance and subsequent deleveraging actions.

The analysis of the financial leverage and capital structure over the observed periods reveals significant fluctuations and evolving dynamics. The total debt exhibits a relatively stable pattern with values oscillating around the 3.2 to 3.5 million US dollars range from late 2021 through mid-2025, with a notable peak reaching approximately 3.71 million US dollars at the end of the first quarter of 2025.

In contrast, stockholders’ equity shows more variability, initially moving from negative territory to solid positive values exceeding 2 million US dollars in the middle of 2021. Subsequently, equity levels decline steadily with some minor recoveries but remain positive for most periods. A marked reduction is observed starting in early 2023, with equity declining from around 1.9 million US dollars to a low near 0.58 million US dollars by the first quarter of 2025 before partially rebounding towards the mid-2025 period.

The debt-to-equity ratio mirrors these changes and underscores increasing leverage over time. Initially standing below 1.0 in mid-2021, the ratio escalates sharply, surpassing 1.5 by the end of 2021 and continuing a rising trend through 2023. This trend peaks at an elevated 6.45 in March 2025, indicating a substantial increase in financial leverage and a relatively higher reliance on debt financing during this period. Following this peak, a significant improvement is visible as the ratio declines to just above 3.0 by mid-2025, suggesting some deleveraging or increase in equity capital.

Overall, the data indicates a shift towards a more leveraged capital structure beginning around 2022, characterized by a steady reduction in equity and relatively stable debt levels, culminating in a high debt-to-equity ratio in early 2025. The partial reversal in the last periods may signal strategic financial adjustments aimed at reducing risk exposure or augmenting equity to improve the balance sheet stability.

Total Debt

Remains relatively constant, fluctuating in the 3.2 to 3.7 million USD range, peaking in early 2025.

Stockholders’ Equity

Transitions from negative to positive early on, with a peak above 2 million USD in 2021, then gradually declines with some recovery by mid-2025.

Debt to Equity Ratio

Increases steadily from below 1.0 to a peak above 6.0 in early 2025, indicating rising leverage, followed by partial improvement.

The analysis of the company's financial leverage over the observed periods reveals significant fluctuations in total debt, total capital, and the debt to capital ratio.

Total Debt

Total debt demonstrated volatility, starting at approximately $2.16 billion and declining to around $1.75 billion within the first two quarters of 2021. Subsequently, there was a marked increase to nearly $3.23 billion by the end of 2021. From early 2022 through mid-2023, the total debt remained relatively stable, fluctuating slightly around the $3.2 billion mark with a modest downward trend toward $3.12 billion by the fourth quarter of 2023. In 2024, total debt increased again, peaking at approximately $3.53 billion mid-year, before gradually declining to about $3.51 billion by the end of the year. The first two quarters of 2025 saw a further rise and then a decrease, with total debt ending around $3.51 billion.

Total Capital

Total capital exhibited a different pattern, beginning at $2.03 billion and surging to nearly $3.8 billion by the third quarter of 2021. This upward momentum continued, reaching over $5.3 billion by the end of 2021. However, from 2022 through 2023, total capital saw a declining trend, dropping from about $5.24 billion to approximately $4.38 billion by the end of 2023. The year 2024 displayed some variability, with capital hovering in the $4.29 to $4.6 billion range. Early 2025 showed recovery signs, with total capital rising to about $4.68 billion by mid-2025.

Debt to Capital Ratio

The debt to capital ratio started exceptionally high at 1.06, indicating that debt exceeded total capital initially, but rapidly decreased below 0.5 by mid-2021, reflecting improved capitalization and reduced leverage risk. Through the remainder of 2021, this ratio climbed moderately, settling around 0.6. From 2022 to the end of 2023, the ratio fluctuated within a range of approximately 0.63 to 0.74, indicating a relatively stable but moderately leveraged capital structure. In 2024, the ratio increased, peaking at 0.82 mid-year before decreasing to about 0.79 by the end of the year, signaling a temporary increase in leverage. Early 2025 data show continued volatility, with the ratio rising to 0.87 in the first quarter and falling back to 0.75 by mid-year, suggesting ongoing adjustments in the company’s financing strategy.

Overall, the financial data indicate periods of significant changes in leverage and capital structure. The company initially reduced debt significantly relative to capital, improving its capitalization profile in early 2021. However, later quarters showed persistent moderate to high leverage, with increases in total debt and corresponding fluctuations in the debt to capital ratio. These patterns may reflect strategic financing decisions or responses to market conditions affecting capital management. The volatility in these ratios underscores the importance of closely monitoring debt levels in relation to capital to assess financial stability and risk exposure over time.

Total Debt

Total debt exhibited a general decline from March 2021 to September 2021, decreasing from approximately 2.16 billion to 1.75 billion US dollars. However, a significant increase occurred by December 2021, where total debt more than doubled to over 3.22 billion US dollars. Following this peak, total debt remained relatively stable through June 2023, fluctuating slightly around the 3.2 billion mark.

Starting from December 2023, a rising trend reemerged with total debt climbing again, reaching near 3.53 billion US dollars by March 2024. This level remained fairly consistent until December 2024, after which total debt experienced a small dip before increasing again to approximately 3.71 billion US dollars in March 2025. The fluctuations indicate periods of increased leveraging, followed by phases of stabilization.

Total Assets

Total assets showed considerable volatility over the analyzed period. Initially, there was a substantial increase from around 2.62 billion US dollars in March 2021 to over 6.16 billion US dollars by December 2021. After this peak in late 2021, total assets experienced a gradual decline, falling to approximately 5.00 billion US dollars by September 2023.

From September 2023 onwards, total assets showed a mild recovery, oscillating above 5.26 billion US dollars with peaks near 5.87 billion US dollars by December 2024. By March 2025, total assets settled around 5.96 billion US dollars, indicating a moderate upward adjustment after previous declines. Overall, total assets demonstrated cyclical movement with an initial strong growth phase followed by correction and subsequent moderate recovery.

Debt to Assets Ratio

The debt to assets ratio started at a high value of 0.82 in March 2021, reflecting a substantial proportion of debt relative to assets. This ratio dropped sharply to 0.38 by June 2021, aligning with the observed increase in total assets and reduction in total debt during that period.

From June 2021 to December 2021, the ratio rose moderately to approximately 0.52, consistent with increased debt and fluctuating asset levels. The ratio then displayed a slowly increasing trend through 2022 and early 2023, peaking at 0.62 in September 2023. This increase suggests growing leverage as debt levels remained high relative to a diminishing asset base.

Subsequently, the ratio increased further, reaching the highest point of 0.67 in March and June 2024, indicating elevated financial leverage. Thereafter, it declined somewhat to 0.59 by June 2025. The overall trend in the debt to assets ratio reveals periods of significant deleveraging followed by renewed leveraging activity, with the company maintaining a relatively high debt load in proportion to its assets in recent quarters.

Summary Insights

Throughout the reviewed timeline, the company's financial structure experienced notable shifts, characterized by fluctuations in both total debt and total assets. The strong growth in total assets up to late 2021 was accompanied by a reduction in debt, improving the debt to assets ratio significantly. However, subsequent increases in debt and declines or slower growth in assets led to rising leverage ratios, reflecting increased financial risk.

The data indicates cyclical leveraging behavior possibly linked to strategic financing decisions or external market conditions. The persistence of a relatively high debt to assets ratio, particularly after mid-2023, suggests ongoing reliance on debt financing. Asset levels have shown some recovery following prior declines, but the company remains in a position of elevated leverage compared to earlier periods.

Total Assets

The total assets experienced significant volatility over the analyzed periods. Initially, assets increased markedly from approximately 2.62 billion USD at the end of Q1 2021 to a peak of around 6.17 billion USD in Q1 2022. Following this peak, assets exhibited a declining trend, reaching a low point near 5 billion USD in Q3 2023. Subsequently, total assets showed a moderate recovery through to mid-2025, closing at approximately 6 billion USD. This pattern suggests phases of expansion followed by contraction, with a partial rebound towards the later quarters.

Stockholders’ Equity (Deficit)

Stockholders’ equity showed a dramatic transformation early in the period, shifting from a deficit of about -130 million USD in Q1 2021 to a positive value near 2 billion USD by Q2 2021. Thereafter, equity remained relatively stable, fluctuating between approximately 1.5 billion USD and 2.1 billion USD until early 2023. From Q1 2023 onward, equity declined sharply, reaching a trough of around 575 million USD in Q2 2025, with minor recoveries in some quarters. This decline in equity suggests increased financial strain or losses affecting the company’s net worth in the later periods.

Financial Leverage

Financial leverage ratios increased significantly over the observed periods. Starting from a leverage ratio of approximately 2.3 in mid-2021, the ratio rose steadily, peaking at nearly 9.92 by Q1 2025, before decreasing somewhat to 5.11 in the subsequent quarter. The upward trend, particularly from early 2023, indicates a growing reliance on debt financing relative to equity. The peak leverage ratio reflects elevated financial risk and potential exposure to debt servicing challenges.

Overall Analysis

The data reveals a dynamic financial position over the analyzed quarters, characterized by substantial asset growth in the early phase followed by a contraction and moderate recovery. The positive equity established early on suggests initial strength, but the later decreasing trend indicates weakening net asset value. Correlatively, the increasing financial leverage from mid-2021 onward highlights escalating debt levels relative to equity, reaching a critical point in early 2025 before a partial reduction. The combination of declining equity and rising leverage suggests heightened financial risk and may warrant closer monitoring of liquidity and solvency metrics.

The quarterly financial data reveals significant fluctuations and overall trends in earnings before interest and tax (EBIT), interest expense, and interest coverage ratios over the analyzed periods.

EBIT Trends

EBIT displayed considerable volatility, with initial growth noted from March 31, 2021, reaching a peak in December 31, 2021, followed by a sharp decline in March 31, 2022, where it turned negative. Subsequent quarters showed recovery and strong positive growth, with EBIT climbing steadily from June 30, 2022, through to June 30, 2025. By the end of the period, EBIT showed substantial expansion, peaking at 935,413 thousand US dollars, indicating robust operational profitability after the initial setback.

Interest Expense Trends

Interest expense fluctuated across the quarters without a clear directional trend. Starting at 35,010 thousand US dollars in March 31, 2021, it temporarily decreased in mid-2021, then experienced increases and decreases irregularly. Notably, interest expense peaked at 94,199 thousand US dollars in June 30, 2025. Despite variability, interest costs remained significant, reflecting ongoing financing obligations.

Interest Coverage Ratio Trends

The interest coverage ratio exhibited a marked improvement over time. Early in the period, limited data is available, but from December 31, 2021, onward, the ratio was very low, dipping as low as -0.19 at December 31, 2022, signifying earnings insufficient to cover interest expenses. Following this, a consistent upward trend is observed, with coverage surpassing 1.0 by mid-2023 and progressively increasing to 10.72 by June 30, 2025. This indicates an enhanced ability to meet interest obligations from operating income, suggesting improving financial health and reduced risk of distress.

Overall, the data suggests that despite substantial early fluctuations and a period of negative EBIT, the company has demonstrated significant recovery and growth in earnings capacity. Interest expenses have remained sizable but have been increasingly well-covered by operating earnings, evidencing strengthened operational performance and improved financial stability over time.