APP gapped up 35% on earnings night, and shorts are still paying longs
First, where I stand: I’m on the bulls’ side this time, but I’m not chasing it higher.
Let’s start with the numbers.
After the U.S. market closed last night, APP reported Q3 revenue of $2.185 billion, up 55% year over year, versus expectations of just over $2.07 billion.
EPS was $4.30, against expectations of $4.03 and just $2.45 in the same quarter last year.
Net income was $1.439 billion, up 72% year over year, with a 66% net margin. Adjusted EBITDA was $1.842 billion, with an 84% margin.
Put simply, earnings are growing faster than revenue. There’s not much to poke holes in with this report.
Even more impressive was the guidance: Q4 revenue is forecast at $2.365–$2.395 billion, while Wall Street expected around $2.25 billion.
Adjusted EBITDA guidance is $1.995–$2.025 billion, also well above the $1.88 billion consensus.
Free cash flow came in at $1.4 billion for the quarter, and the board added $3.2 billion to its buyback authorization, bringing the total authorization to $3.6 billion.
This goes beyond simply calling it a beat—it was a beat across the board.
By the way, ARM also beat earnings next door, but its perpetual futures still fell 8%, and SOXL was down 12% in a single day.
APP’s 35% move is a solo act, not a sector-wide rally.
The bull case.
The ad business is genuinely making money after upgrades to its AI models. Gaming revenue rose nearly 50% year over year, and consumer spending grew by triple digits.
The explanation for the Q2 miss—that the model upgrade was a few days late—holds up. This quarter, they made up for it and then some.
With the buyback and higher guidance, management isn’t even pretending to be cautious anymore.
The bear case.
But don’t get carried away: APP has been falling from its high of 614 this year, and it even touched 228 last Friday.
At the end of October, UBS cut its price target from 790 to 414, RBC cut theirs from 575 to 500, and Zacks went straight to a Sell rating.
It missed once in Q2. The model-upgrade explanation worked this time, but that doesn’t mean it will work next time.
And perpetual futures are already up 35% today. The current price is 329.5, just a hair below the 24-hour high of 343. If you chase it here, you’re just providing an exit for the first buyers from earnings night.
My take.
Both the bulls and bears make good points, but I put more faith in the numbers.
Guidance is 6% above expectations, and the buyback authorization is up to $3.6 billion. Those are real, tangible things—not just talk.
Still, I’m not chasing a 35% gap. With gaps like this, the price could easily pull back to retest the level the same day.
There’s another interesting signal in perpetual futures: the funding rate is -0.52% every 8 hours, meaning shorts are still paying longs.
The spot index is 333, while perpetuals are at 329—perpetuals are actually cheaper than spot, which suggests traders chasing the move in perpetuals aren’t as frenzied as spot buyers.
Here are the scenarios.
If it holds above 343 and closes there, this won’t be just an earnings pop, and a move toward 360 looks pretty likely.
If it breaks below 317, the 24-hour volume-weighted average price, that would mean the earnings momentum has faded, with a move back to 300 to fill the gap.
If it breaks below 300, my bullish thesis in this post is invalidated, and I’ll admit this was just a one-day wonder.
What I’m planning to do.
I never chase a gap, so I’ll watch from the sidelines and wait to see if it holds above 343 or pulls back to 317.
I believe the earnings, but not the price. Chasing it at this level leaves too little room for error.
If you had to pick one: does it hold above 343 and charge toward 360, or break below 317 and fall back to 300 to fill the gap? I’m betting on a run to 360, but I’m not chasing it. What about you?
$APP $ARM $SOXL #AppLovin #Earnings