• AppLovin shares rocketed on Thursday after the online gaming and advertising company issued guidance that was well above estimates and reported better-than-expected earnings and revenue.
• The stock jumped 46%, bringing its gain for the year so far to over 500%
• "As we continue to improve our models our advertising partners are able to successfully spend at a greater scale," the company said in a letter to shareholders.

AppLovin shares soared 46% on Thursday after the online gaming and advertising company issued guidance that was well above estimates and reported better-than-expected earnings and revenue.

The stock closed at $246.53. It's now up 519% this year, far outpacing all other tech companies valued at $5 billion or more, according to FactSet data. The rally has lifted AppLovin's market cap to over $80 billion.

Revenue in the third quarter climbed 39% to $1.2 billion, topping the $1.13 billion average estimate, according to LSEG. Earnings per share of $1.25 exceeded the 92-cent average estimate.

For the fourth quarter, AppLovin sees revenue of $1.24 billion to $1.26 billion, representing growth of about 31% at the middle of the range. Analysts were expecting about $1.18 billion.

Founded 12 years ago, AppLovin went public in 2021, riding a Covid-era wave of excitement in online games. Now, the company's games unit generates relatively slow growth, but its online ad business is bustling from advancements in artificial intelligence that have improved ad targeting.

AppLovin attributes much of its growth to its AI advertising engine called AXON, particularly since releasing the updated 2.0 version last year. The technology helps put more targeted ads on the mobile gaming apps the company owns, and it works for other studios that license the software.

The company said software platform revenue in the quarter increased 66% to $835 million, driven by improvements in AXON's models.

"As we continue to improve our models our advertising partners are able to successfully spend at a greater scale," the company said in a letter to shareholders.

While revenue is increasing at a rapid rate, Wall Street is most attracted to AppLovin's profitability. Net income in the quarter increased 300% to $434.4 million, or $1.25 a share, from $108.6 million, or 30 cents a share, a year earlier. The software platform had an adjusted profit margin of 78%.

"AppLovin continues to impress with outsized revenue growth and incredible EBITDA conversion," analysts at Wedbush wrote in a report on Thursday. They recommend buying the stock and increased their price target from $170 to $270.

AppLovin CEO Adam Foroughi, whose net worth swelled on Thursday by more than $2 billion to about $7.3 billion, provided an update on the company's pilot e-commerce project. The technology allows businesses to offer targeted ads in games.

"In all my years, It's the best product I've ever seen released by us, fastest growing, but it's still in pilot," Foroughi said on the earnings call. E-commerce "is looking so strong that it's something that we think will be impactful to the business financially in 2025 and then for the long-term."

— CNBC's CJ Haddad contributed to this report

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