AppLovin CorporationAPPNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $184.75 per share(market-calibrated)

-54.1%

Upside to Fair Value

Current

$402.87

Pure Model

$112.04

Fair Value

$184.75

Bull Case

$166.74

Bear Case

$71.92

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 normalizing toward maintenance

Historical CapEx is 14.53% of revenue (heavy investment phase). Model fades this to 6.00% by Year 10, freeing up ~$1.6B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 28.03% — 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 (28.03% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 44.90% 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 $62.63/share (8.9x terminal FCF) while exit multiple gives $161.45/share (39.0x 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 $402.87. 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 71.72% indicates efficient cash generation. FCF reaches $4.7B by Year 10 (25.62% 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)97.47%

Debt Weight (D/V)2.53%

WACC Calculation

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

WACC = (97.47% × 15.71%) + (2.53% × 5.27%)

= 15.44%

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	$7.9B	$12.9B	$13.2B	$15.6B	$18.2B
EBIT	$2.2B	$3.6B	$3.7B	$4.4B	$5.1B
Tax	$293M	$476M	$486M	$576M	$671M
NOPAT	$1.9B	$3.1B	$3.2B	$3.8B	$4.4B
+ Depreciation	$612M	$994M	$1.0B	$1.2B	$1.4B
- Capex	$1.2B	$1.6B	$1.4B	$1.4B	$1.1B
- Δ NWC	$286M	$309M	$153M	$137M	$76M
Free Cash Flow	$1.1B	$2.2B	$2.7B	$3.5B	$4.7B
Discount Factor	0.866	0.650	0.488	0.366	0.238
Present Value	$957M	$1.4B	$1.3B	$1.3B	$1.1B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$4.7B

Terminal Growth Rate3.75%

WACC15.44%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$41.4B

PV of Terminal Value$9.8B

Exit Multiple Method

Year 10 EBITDA$6.5B

Exit Multiple (EV/EBITDA)28.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$182.1B

PV of Terminal Value$43.3B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$12.4B

PV of Terminal Value$9.8B

Enterprise Value$22.3B

(-) Net Debt$1.1B

Equity Value$21.2B

Shares Outstanding339M

Price per Share$62.63

Exit Multiple Method

PV of Projected FCFs$12.4B

PV of Terminal Value$43.3B

Enterprise Value$55.8B

(-) Net Debt$1.1B

Equity Value$54.7B

Shares Outstanding339M

Price per Share$161.45

Pure Model Fair Value

$112.04

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%
13.44%	$132.21	$133.22	$134.34	$135.58	$136.97
14.44%	$120.83	$121.61	$122.46	$123.40	$124.44
15.44%	$110.77	$111.38	$112.04	$112.76	$113.55
16.44%	$101.81	$102.30	$102.82	$103.39	$104.00
17.44%	$93.80	$94.19	$94.61	$95.05	$95.54

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

$71.92

-82.1% vs current

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

Base Case

$112.04

-72.2% vs current

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

Bull Case

$166.74

-58.6% 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 Growth44.90%

Year 3 Revenue Growth25.97%

Year 5 Revenue Growth11.11%

Year 7 Revenue Growth8.17%

Year 10 Revenue Growth3.75%

Terminal Growth Rate3.75%

Margin & Efficiency

Current EBIT Margin28.03%

Terminal EBIT Margin75.75%

Tax Rate13.15%

Historical Capex / Rev14.53%

Terminal Capex / Rev6.00%

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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