AppLovin Corporation (APP) Cash Flow Statement

The 2026Q2 OCF/NI ratio of 0.69 marks a sharp deterioration from the 1.07 in 2026Q1 and the 1.19 in 2025Q4, suggesting that earnings quality may be temporarily strained by working capital outflows. The negative working capital change of -$365.2M in 2026Q2, as reported in the cash flow statement, appears to be the primary driver, possibly reflecting timing of collections or payables. Investors should monitor whether this is a one-off or a trend, as sustained sub-1.0 conversion would imply that reported profits are not fully translating into cash.

The FCF margin trajectory shows a clear upward trend, with 2026Q1 hitting 70.1% before normalizing to 45.2% in 2026Q2, still well above the 50.7% in 2024Q4. This expansion is driven by revenue growth and cost discipline, as evidenced by the income statement's operating margin expansion to 77.7%. The near-zero capex (only $28.3M in 2025Q4) means FCF closely tracks operating cash flow, making the business highly cash-generative relative to its software peers, which typically have higher capital intensity.

The negligible capex, combined with D&A of only $32.6M in 2026Q2, indicates that AppLovin's growth does not require significant fixed asset investment, allowing nearly all operating cash flow to convert to FCF. This is consistent with a software platform business where the primary investments are in R&D and marketing, which are expensed rather than capitalized. The low capital intensity relative to revenue (capex/revenue under 2% in all quarters) suggests that the company can sustain high FCF margins without heavy reinvestment, though investors should consider whether this limits future scalability.

The volatility in working capital is a key driver of quarterly cash flow variability, as seen in the 2026Q2 OCF/NI ratio of 0.69 versus 1.19 in 2025Q4. The negative working capital change in 2026Q2 suggests a build-up in receivables or inventory, or a reduction in payables, which may indicate aggressive revenue recognition or timing of collections. Given the company's high growth, such swings are not unusual, but the magnitude warrants monitoring, as persistent negative changes could signal deteriorating collection efficiency or channel stuffing.

The company has consistently deployed cash into buybacks, with cumulative repurchases of over $2.5B in the last four quarters, while paying no dividends. This aggressive buyback program, combined with minimal capex, suggests management is confident in the stock's value and is using excess cash to reduce share count. However, the sustainability of this pace depends on continued robust FCF generation; if FCF declines, the buyback may strain liquidity, though current FCF of $869M in 2026Q2 covers the buyback.

The cumulative OCF/NI ratio of approximately 1.26 over the period suggests that AppLovin's earnings are backed by real cash generation, with the excess likely due to non-cash charges like D&A and SBC. This divergence is positive, as it implies that reported profits are not inflated by aggressive accruals. However, the recent quarterly dip in conversion (0.69 in 2026Q2) may signal a shift, and investors should watch whether the cumulative gap narrows, which would indicate deteriorating cash generation relative to earnings.