In a video presentation to investors earlier this month, Morgan Stanley analysts discussed ad tech firm AppLovin and its prospects ahead of the company’s Q4 2025 earnings report on Wednesday, February 11.
TL;DR: The prospects look good from an investor’s perspective, says MS. AppLovin was valued at $177 billion as of Friday.
According to analyst Matthew Cost, the upcoming earnings report will have several facets that pique Wall Street’s curiosity beginning with AppLovin’s AI-enabled Axon self-serve platform – known as Axon Ads Manager – which went “live” in early October.
On the self-serve platform, and early positive signals Morgan Stanley has apparently discovered, Mr. Cost explained (lightly edited):
“I think it’s a mistake to not give this company credit for the pace of innovation they’ve shown on the ad product historically. I think that if you assume that they’re at a plateau and they won’t iterate and improve and invest in Axon to make it perform better at scale for a broader group of advertisers, I think you could miss the next move when they have a breakthrough, because that’s really been the story of the past three years, as the stock has had these 30% moves on earnings.”
Read more about “Axon AI” (October 1) and the re-brand of AppLovin’s customer-facing ad platform from CEO Adam Foroughi who noted the importance of “agentic workflows” in the self-serve product.
In the video, Morgan Stanley analyst Brian Nowak chimed in with his take on AppLovin:
“We’re sort of dealing with similar dynamics at AppLovin as we are at Meta, where there is this discussion and concern that the runway for further improvements to growth — better machine learning, new products, engagement drivers, conversion drivers — is going to tap out sooner than expected, and revenue growth is going to come in lighter than expected, or slow down faster than expected… I think that is an overly draconian [view].”
On its overall business and “who” AppLovin has the potential to take market share from (like a Google or Meta), Mr. Cost saw revenue gains as all incremental:
“I think at the scale of the business right now — we think they did 150-175 million of eCommerce revenue in the third quarter — the answer could literally be nobody. I mean, that is, that could be truly incremental people throwing some experimental budgets at it over time. Over the past year or two, over time, as we look out, if we think this is going to be a multi-billion-dollar business, I think they’re competing against other performance channels across the board. That probably means Meta and Google, but it probably also means a lot of the other channels too…”
From tipsheet: There are a couple of broader AI-in-advertising themes in Morgan Stanley’s AppLovin observations:
- First, just better, more performant ads thanks to machine learning and AI. AppLovin’s performance marketing capabilities are continually refined.
- Enabling small business advertisers with AI tools – in this case, the Axon Ads Manager. When aggregated at scale, small business budget is a needle-mover to say the least (See Google, Meta).
LLMs & CHATBOTS
Developments
- How Playing Pokémon Became the Ultimate Test of AI’s Intelligence – The Wall Street Journal (subscription)
- Leidos, OpenAI deploying AI to transform U.S. federal operations (January 22) – press release
- “There are now more than 1 million ‘.ai’ websites, contributing an estimated $70 million to Anguilla’s government revenue last year” (January 23) – Sherwood News
COMMERCE
Agentic commerce & ‘long game’ of ads
In a note to investors last week, top Wall Street analyst Dan Salmon of New Street Research dissected today’s agentic commerce launch (The Information, January 21) of Shopify merchant product feeds into OpenAI’s ChatGPT, Google’s Gemini and AI Mode, and Microsoft’s Copilot chatbots.
Salmon notes the correlation of agentic commerce strategy to ads strategy between OpenAI and Google: OpenAI is asking for a fee on every transaction and Google is not.
He explained:
“It is positive that the Shopify commerce integration is launching, but the 4% take rate (versus nothing taken by Google and Microsoft) may limit merchant adoption. This tradeoff is similar to ChatGPT’s predicament in ads. OpenAI is adding them to ChatGPT, whereas multiple Google executives continue to reiterate that ads are not coming to Gemini anytime soon.
To us this suggests that Google is playing the long game, first focusing on adoption of Gemini, and holding off on monetization until critical mass has been reached, which has been the typical pattern for established platforms like Google and Meta.”
Related: The agentic commerce platform: Shopify connects any merchant to every AI conversation (January 11) – Shopify
From tipsheet: As Salmon also points out, Shopify is not automatically turning on the ChatGPT product feed unlike the other chatbots. Shopify merchants need to opt-in and presumably come to terms with the 4% tax on ChatGPT sales.
TECH
AI’s impact on CTV
With an eye toward the changing connected TV landscape due to AI, AdExchanger’s Alyssa Boyle recently interviewed Wall Street analyst Laura Martin of Needham & Co..
Her public company coverage includes Taboola, Magnite, MNTN, Viant and Netflix among others (see TipRanks). Ms. Martin didn’t hesitate when discussing AI’s biggest impact on CTV — AI-generated content.
She said:
“Studies suggest the volume of AI-generated content on the open web – including video – is about to jump exponentially this year. While a higher volume of video ad space lowers overall ad prices for media buyers, the recent jump in AI-generated video is further blurring the lines between what is and isn’t premium content. Those gray areas make it possible for YouTube to get increasingly more of the ad dollars that agencies earmark for CTV. And as YouTube eats into streaming TV ad revenue…”
Read more on AdExchanger. (January 23)
Related: Podcast – Omnicom Digital CEO Jonathan Nelson talks “AdsGPT” (January 23) – AdExchanger
From tipsheet: Good interview — and another AI win for Google — this time thanks to CTV. But Google is not the only CTV (or AI) winner as consumers’ migration from linear to streaming/CTV continues.
SELL-SIDE
DeepMind CEO questions chatbot ad strategy
Last week, Google DeepMind CEO Demis Hassabis reappeared at Davos for an interview with Axios reporter Ina Fried. See the 15-minute interview on YouTube. (January 21)
Mr. Hassabis reiterated, yet again, that there are no plans for ads in Google’s AI chatbot Gemini.
He also threw a little “shade” OpenAI’s way regarding its announcement on January 16 to launch ads in ChatGPT.
Hassabis said:
“I’m a little bit surprised they’ve moved so early into that. I mean, look, ads, there’s nothing wrong with ads…they funded much of the consumer internet. And if done well, they can be useful. But in the realm of assistants, and if you think of the chatbot as an assistant that’s meant to be helpful — and ideally, in my mind, as they become more powerful, the kind of technology that works for you as the individual…there is a question about how ads fit into that model?… You want to have trust in your assistant, so how does that work?”
Read more in TechCrunch. (January 23)
Related: Sen. Markey questions OpenAI about ‘deceptive advertising’ in ChatGPT (January 22) – The Verge
Read more: Google appears to be in the AI “catbird” seat at the moment. As analyst Eric Seufert has pointed out, Google is already monetizing its AI efforts with advertising by using Google Search with AI Overviews and AI Mode. OpenAI has to find a way to catch up with advertising and its revenue potential in order to pay for its own AI efforts.
SELL-SIDE
Using AI for personalization, agents soon
Digiday reported late last week that publishers will be using more AI in the creation of content for readers in the hopes of better personalization.
Digiday’s Sara Guaglione reported:
“‘You could imagine a scenario where a news company doesn’t just use AI to repackage content as voice, as visuals — but to reorganize the entire experience. Most AI today, you have to prompt it, you have to tell it what you want. Imagine a scenario in the not-too-distant future where we can take those signals in terms of your behavior and the time and things like that, and convert that into a point of view on how the experience should be rendered to you,” [Mike Dyer, The Washington Post’s new chief product officer] said.”
Is this personalization also “agentic publishing” or “conversational publishing”? No — that’s the next step where the publisher home page interacts with the reader, writes Guaglione.
Read more in Digiday. (January 22)
FINANCE
Quarterly earnings imminent (updated)
Public companies involved in the AI, advertising and marketing ecosystem will begin reporting earnings from their most recent calendar quarters. It’s a great opportunity to look “under the hood” and see how AI is impacting strategy.
Here’s an abbreviated list of confirmed dates:
- Meta – This Wednesday, January 28
- Microsoft – This Wednesday, January 28
- Apple – This Thursday, January 29
- Omnicom – Tuesday, February 3
- Alphabet/Google – Wednesday, February 4
- Amazon – Thursday, February 5
- Reddit – Thursday, February 5
- MNTN – Tuesday, February 10
- AppLovin – Wednesday, February 11
- Criteo – Wednesday, February 11
- Unity – Wednesday, February 11
- The Trade Desk – expected mid-February (await confirmation)
- Magnite – Wednesday, February 25
- PubMatic – Thursday, February 26
- WPP – Thursday, February 26
MORE
- Trends shaping publishing priorities in 2026 (January 19) – Digital Content Next
- “How OluKai Unlocked a 20% CAC Reduction Overnight from Causal MMM” (January 15) – Haus
- Available in March 2026: Additional ad opportunities in search results – Apple
- “ChatGPT is Launching Ads. Here’s How FERMÀT Sees the Future of Commerce.” (January 23) – FERMÀT