AppLovin CorporationAPPNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $209.38 per share(market-calibrated)

-51.6%

Upside to Fair Value

Current

$432.98

Pure Model

$134.85

Fair Value

$209.38

Bull Case

$197.46

Bear Case

$88.67

Market Reality Check

Model Terminal Growth

3.75%

Market-Implied Growth

Unreachable

Calibrated Growth

75/25 blend

Market price implies assumptions beyond model range. Fair value blends 75% model / 25% market price.

What's Driving This Ratingfor APP

✓

CapEx already efficient

CapEx at 0.14% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 28.06% — below the sector mature average of 75.75%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $5.1B (28.06% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 45.77% in Year 1 to 11.11% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $88.77/share (8.9x terminal FCF) while exit multiple gives $180.93/share (31.8x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.

⚠

Market price exceeds model's maximum

Even with the most optimistic terminal growth the model allows, it can't reach $432.98. The market is pricing in factors beyond the DCF framework — possibly optionality, brand premium, or expectations of margin/growth inflection not yet in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 88.11% indicates efficient cash generation. FCF reaches $5.7B by Year 10 (31.51% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)2.49

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)15.71%

Cost of Debt

Pre-tax Cost of Debt6.07%

Tax Rate13.15%

After-tax Cost of Debt5.27%

Equity Weight (E/V)97.64%

Debt Weight (D/V)2.36%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (97.64% × 15.71%) + (2.36% × 5.27%)

= 15.46%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$8.0B	$12.9B	$13.2B	$15.6B	$18.2B
EBIT	$2.2B	$3.6B	$3.7B	$4.4B	$5.1B
Tax	$295M	$476M	$486M	$577M	$671M
NOPAT	$1.9B	$3.1B	$3.2B	$3.8B	$4.4B
+ Depreciation	$615M	$994M	$1.0B	$1.2B	$1.4B
- Capex	$11M	$19M	$19M	$22M	$26M
- Δ NWC	$291M	$301M	$153M	$137M	$76M
Free Cash Flow	$2.3B	$3.8B	$4.1B	$4.9B	$5.7B
Discount Factor	0.866	0.650	0.487	0.366	0.238
Present Value	$2.0B	$2.5B	$2.0B	$1.8B	$1.4B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$5.7B

Terminal Growth Rate3.75%

WACC15.46%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$50.8B

PV of Terminal Value$12.1B

Exit Multiple Method

Year 10 EBITDA$6.5B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$182.3B

PV of Terminal Value$43.3B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$19.1B

PV of Terminal Value$12.1B

Enterprise Value$31.1B

(-) Net Debt$1.1B

Equity Value$30.1B

Shares Outstanding339M

Price per Share$88.77

Exit Multiple Method

PV of Projected FCFs$19.1B

PV of Terminal Value$43.3B

Enterprise Value$62.4B

(-) Net Debt$1.1B

Equity Value$61.3B

Shares Outstanding339M

Price per Share$180.93

Pure Model Fair Value

$134.85

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.75%	3.25%	3.75%	4.25%	4.75%
13.46%	$157.50	$158.74	$160.11	$161.63	$163.33
14.46%	$144.65	$145.60	$146.65	$147.80	$149.06
15.46%	$133.29	$134.04	$134.85	$135.74	$136.70
16.46%	$123.19	$123.78	$124.42	$125.11	$125.86
17.46%	$114.14	$114.62	$115.13	$115.68	$116.27

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$88.67

-79.5% vs current

• -25% vs analyst consensus
• Terminal growth: 3.3%
• Beta: 3.00

Base Case

$134.85

-68.9% vs current

• Analyst consensus
• Terminal growth: 3.8%
• Beta: 2.49

Bull Case

$197.46

-54.4% vs current

• +25% vs analyst consensus
• Terminal growth: 4.3%
• Beta: 2.12

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Technology Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth45.77%

Year 3 Revenue Growth25.09%

Year 5 Revenue Growth11.11%

Year 7 Revenue Growth8.17%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin28.06%

Terminal EBIT Margin75.75%

Tax Rate13.15%

Historical Capex / Rev0.14%

NWC / Revenue11.62%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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