Why AppLovin Stock Tumbled Today

Shares of AppLovin (NASDAQ: APP) were heading lower today, as the adtech company came up short in its second-quarter earnings report.

Given that the high-growth company is trading at a lofty valuation, the sell-off on the news wasn't surprising. As of 10:49 a.m. ET, the stock was down 19.6%.

AppLovin grows quickly, but not quickly enough

Revenue was up 53% to $1.92 billion in the quarter, which was short of the analyst consensus at $1.94 billion.

Management said on the earnings call that the business underperformed in the core gaming segment due to slower-than-normal model improvement, which the company said is the key driver of its growth. The consumer/e-commerce segment, which represents a huge opportunity for the company, remained strong.

The business continued to be highly profitable, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) up 58% to $1.61 billion, giving it an adjusted EBITDA margin of 83%. On a generally accepted accounting principles (GAAP) basis, earnings per share jumped from $2.39 to $3.76, which was just ahead of estimates at $3.75.

What's next for AppLovin

Looking ahead to the third quarter, AppLovin's guidance also disappointed investors. The company called for revenue of $2.055 billion-$2.085 billion, or 47% growth at the midpoint, though that was below the consensus at $2.08 billion.

It also sees adjusted EBITDA of $1.71 billion-$1.74 billion in Q3. AppLovin's growth is clearly decelerating, but the company believes it can deliver 30% annual growth over the long term.

Today's sell-off is certainly disappointing, but if the company can hit that 30% target, the stock looks like an excellent buy here at a trailing price-to-earnings ratio of just 26. That looks like a great price for a high-margin business growing this fast.

Jeremy Bowman has positions in AppLovin. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.