What happened
Shares of AppLovin Corporation (NASDAQ: APP), a marketing platform, skyrocketed today after the company reported its first-quarter financial results. Surprisingly, AppLovin missed Wall Street's consensus estimate for both its top and bottom lines and cut its revenue guidance for the full year.
Investors were instead focused on the fact that AppLovin's management said that it's open to selling the company's Apps business. The tech stock surged 33% on that prospect as of 3:07 p.m. ET.
So what
Let's start with the company's financial results. AppLovin's first-quarter sales increased just 3.5% from the year-ago quarter to $625 million, which was far below analysts' consensus estimate of $814.9 million for the quarter.
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Additionally, AppLovin's non-GAAP loss of $0.31 per share was much worse than the $0.05 loss in the year-ago quarter and lower than the $0.08 loss per share that Wall Street was expecting. The company also cut its full-year revenue guidance from a range of $3.55 billion to $3.85 billion down to a range between $3.14 billion to $3.44 billion.
Investors ignored all those financial results and instead focused their attention on comments made by AppLovin's management about treating its Apps business as a separate entity and being open to selling it. The company said that it's going to start to "operate our Apps business as if a stand-alone business," and that separating it in this way "could result in the retention, restructure, or sale of certain assets, or no change at all to our Apps portfolio."
Investors latched onto the prospect that the company could sell its Apps business -- and sent the company's share price through the roof today -- because the company's Apps business has lower margins than the company's software business. By treating Apps as a separate business that could potentially be put up for sale, investors were optimistic that AppLovin's management is focusing on the company's future growth in higher-margin opportunities.
Now what
It's still unclear whether or not the company will indeed sell its Apps business or how much AppLovin could get for such a sale. But even without a sale, AppLovin's pivot toward its software segment and away from Apps will have financial benefits, according to management.
While the company lowered its revenue guidance for the year, it actually increased its earnings before interest, taxes, depreciation, and amortization (EBITDA) outlook from its previous estimate of $1 billion to its revised estimate of $1.2 billion because of "continued growth of our Software Platform business" and operational improvements to its Apps segment.
All of this means that investors will want to continue keeping a close eye on what happens with the company's Apps business and how well AppLovin continues to expand its software segment.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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