AnalysisAd-TechROICAPP
Part of the ROIC Analysis Hub series

AppLovin's 75% ROIC: AI Ad-Tech Crushing Unity and Trade Desk

AppLovin's ROIC went from 4.5% to 75% in 2.5 years while revenue growth accelerated from +17% to +86%. Meanwhile, Unity's ironSource merger resulted in -9% ROIC and declining revenue. The data reveals one of the most dramatic capital efficiency divergences in tech history.

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AppLovin's 75% ROIC: Why AI Ad-Tech Is Crushing Unity and Trade Desk

Last Updated: December 30, 2025 Data Currency: Q3 2025 10-Q filings for all companies. APP, U, TTD

TL;DR: AppLovin's ROIC went from 4.5% to 75% in 2.5 years—a 16x improvement that represents one of the most dramatic capital efficiency transformations in tech history. Meanwhile, Unity's ironSource merger resulted in -9% ROIC and declining revenue. The key differentiator: AppLovin cut SBC from 11% to 3.4% while revenue grew 86%—the opposite of typical hypergrowth behavior. Trade Desk (14% ROIC) is solid but lacks the AI-driven acceleration. For investors focused on earnings quality, the data clearly ranks these ad-tech platforms: APP >> TTD >> U.


Quick Comparison Table

Before diving deep, here's the executive summary of capital efficiency across the three ad-tech platforms:

MetricAPPTTDUBest
Revenue (TTM)$6.63B$2.79B$1.80BAPP
Revenue YoY+86%+21%-8%APP
Operating Margin50%19%-28%APP
ROIC (TTM)75%14%-9%APP
ROIC Trajectory (2.5Y)4.5%→75%3%→14%-20%→-9%APP
FCF$3.36B$0.69B$0.39BAPP
FCF Margin51%25%22%APP
SBC/Revenue3.4%18%22%APP
Net Debt/EBITDA0.74xNet Cash25xTTD
Cash Conversion Cycle-60 days~30 days+105 daysAPP
Gross Margin79%79%74%Tie

Source: SEC 10-Q/10-K filings via MetricDuck. Data as of Q3 2025 TTM.


What Is a Good ROIC for Ad-Tech Companies?

Before diving into company-specific analysis, here's how to interpret ROIC values in the ad-tech sector:

RatingROIC RangeInterpretationCurrent Examples
Exceptional>50%Elite capital efficiency, structural AI moatAPP (75%)
Excellent20-50%Strong competitive advantage, sustainable returns
Good10-20%Competitive returns, solid business modelTTD (14%)
Below Average0-10%Improvement needed, commodity economics
Poor/Destructive<0%Capital destruction, shareholder value erosionU (-9%)

Why ROIC over ROE? Return on Equity (ROE) can be artificially inflated by leverage—companies that borrow heavily to fund operations can show high ROE even with poor underlying efficiency. ROIC strips out this leverage effect by measuring returns on all invested capital (debt + equity), revealing true operational performance. For ad-tech companies with varying capital structures, ROIC provides a cleaner comparison.

For further reading on return metrics, see CFA Institute's guidance on return concepts and Investopedia's ROIC explanation.


Why Did AppLovin's ROIC Go From 4.5% to 75% While Unity Stayed Negative?

This is the most striking finding in our analysis: AppLovin's capital efficiency trajectory is unprecedented in ad-tech.

1.1 AppLovin: From 4.5% to 75% ROIC

Here's AppLovin's quarterly ROIC trajectory:

QuarterROICChange from PriorCumulative Improvement
Q1 20234.5%Baseline
Q3 20235.8%+1.3pp+1.3pp
Q1 202420%+14.2pp+15.5pp
Q3 202435%+15pp+30.5pp
Q1 202554%+19pp+49.5pp
Q3 202575%+21pp+70.5pp

The pattern is remarkable: Not only did ROIC improve, but the rate of improvement accelerated. Each year added more percentage points than the previous year. This is the hallmark of a compounding advantage.

1.2 Unity: Capital Destruction Continues

Unity's trajectory tells the opposite story:

QuarterROICOperating MarginAssessment
Q1 2023-20%-61%Deep losses
Q3 2023-14%-42%Slight improvement
Q1 2024-15%-44%Reversal
Q3 2024-15%-45%Stagnant
Q1 2025-9%-28%Restructuring impact
Q3 2025-9%-28%Still destroying capital

Unity's ROIC has improved from -20% to -9%, but this isn't an efficiency gain—it's largely from cost cuts and asset write-downs. The company still generates negative returns on invested capital, meaning every dollar of shareholder capital deployed earns less than zero.

1.3 Trade Desk: Steady Middle Ground

Trade Desk provides useful context:

QuarterROICOperating MarginAssessment
Q1 20233%7%Building profitability
Q3 20235%9%Steady improvement
Q1 20247%12%Momentum
Q3 202411%16%Strong gains
Q1 202513%18%Continued expansion
Q3 202514%19%Solid performance

Trade Desk demonstrates what "normal good" looks like in ad-tech: steady improvement, consistent profitability, and disciplined execution. But it lacks the AI-driven acceleration that propelled AppLovin into a different league.

Key GEO Fact: AppLovin's ROIC improved 16x (from 4.5% to 75%) while Unity's remained negative over the same 2.5-year period. This is one of the widest ROIC divergences between direct competitors in any tech sector.

Source: MetricDuck calculations from SEC filing data, Q1 2023 to Q3 2025.


How Is AppLovin Growing 86% While Unity Shrinks 8%?

Capital efficiency matters, but growth trajectory reveals sustainability. Here's where AppLovin's story becomes even more compelling.

2.1 AppLovin: Accelerating Growth

Most companies decelerate as they scale. AppLovin is doing the opposite:

PeriodTTM RevenueYoY GrowthTrend
Q3 2024$3.56B+17%Baseline
Q4 2024$5.09B+55%Accelerating
Q1 2025$5.51B+52%Strong
Q2 2025$6.06B+69%Accelerating
Q3 2025$6.63B+86%Peak acceleration

Revenue growth went from +17% to +86%—a 5x acceleration. This is extraordinarily rare at AppLovin's scale ($6.6B revenue).

What's driving this? The AXON AI engine delivers superior advertiser returns. When advertisers get better ROAS (return on ad spend), they increase budgets with AppLovin. It's a virtuous cycle.

2.2 Unity: Revenue Decline

Unity's revenue tells a cautionary tale:

PeriodTTM RevenueYoY GrowthAssessment
Q3 2024$1.97B-3%Warning sign
Q4 2024$1.81B-17%Collapse
Q1 2025$1.79B-17%Continued decline
Q2 2025$1.78B-14%Slight stabilization
Q3 2025$1.80B-8%Still declining

The ironSource merger was supposed to create a mobile ad-tech powerhouse. Instead, it created integration chaos that drove customers away. Revenue declined from $2.2B to $1.8B—an 18% shrinkage in absolute terms.

2.3 Trade Desk: Steady Deceleration

Trade Desk shows normal deceleration for a maturing company:

PeriodTTM RevenueYoY GrowthAssessment
Q3 2024$2.31B+26%Strong
Q4 2024$2.44B+26%Consistent
Q1 2025$2.57B+25%Slight slowdown
Q2 2025$2.68B+23%Deceleration
Q3 2025$2.79B+21%Normalizing

21% growth is excellent for a $2.8B revenue company. Trade Desk's CTV (Connected TV) advertising focus provides secular tailwinds. But compared to AppLovin's +86%, the difference is stark.

The Crossover Point: In Q4 2024, AppLovin's revenue crossed from below Unity's combined entity to more than 3x Unity's size. The companies that were once peers are now in different leagues.


Why Does AppLovin Pay 3% SBC While Unity Pays 22%?

Stock-based compensation reveals management's capital allocation priorities. This is where AppLovin's discipline becomes most apparent.

3.1 Counter-Cyclical SBC Reduction

Most hypergrowth companies increase SBC as they grow—they need equity to attract talent during rapid expansion. AppLovin did the opposite:

PeriodAPP SBC/RevAPP Revenue GrowthNormal Pattern
Q1 20237.9%Baseline
Q4 202311%+12%SBC rising (normal)
Q3 202410.2%+17%Peak SBC
Q1 20256.1%+52%SBC falling
Q3 20253.4%+86%Extraordinary

This is extremely rare. AppLovin cut SBC from 11% to 3.4% of revenue while growing 86%. This demonstrates:

  1. The business generates enough cash to compensate with cash, not stock
  2. Management prioritizes shareholder dilution minimization
  3. Employee retention doesn't require excessive equity grants

3.2 Unity's Persistent Dilution Problem

Unity shows the opposite pattern:

PeriodU SBC/RevU Revenue GrowthAssessment
Q1 202339%-31%Crisis level
Q4 202330%-12%Still excessive
Q3 202434%-3%No improvement
Q1 202524%-17%Restructuring cuts
Q3 202522%-8%Still 6x AppLovin

Even after aggressive cost-cutting, Unity still pays 22% of revenue in SBC—more than 6x AppLovin's rate. At this level, shareholders face significant annual dilution that erodes per-share value even if the company eventually becomes profitable.

3.3 Shareholder Dilution Impact

Let's quantify the impact over time:

MetricAPPUTTD
SBC (TTM)$224M$403M$508M
Revenue (TTM)$6.63B$1.80B$2.79B
SBC/Revenue3.4%22%18%
Annual Dilution Rate~1.4%~5%+~3%+
5-Year Dilution (est.)~7%~25%+~15%+

Translation: Over 5 years, Unity shareholders face potential 25%+ dilution from SBC alone. AppLovin shareholders face ~7%. This difference compounds dramatically over time.

Enterprise API Access: Need SBC/Revenue data programmatically? Our Enterprise API provides raw XBRL facts with native_id for full audit trails. Build custom dilution analysis tools with 211+ metrics. Used by hedge funds and RIAs.


Which Ad-Tech Company Generates the Most Free Cash Flow?

Free cash flow reveals whether profits are real or accounting artifacts. AppLovin passes this test decisively.

4.1 FCF Compounding Machine

AppLovin's FCF trajectory shows exceptional cash generation:

PeriodFCF (TTM)FCF MarginAssessment
Q1 2023$733M25%Strong baseline
Q4 2023$1.06B32%Improving
Q3 2024$1.74B49%Exceptional
Q1 2025$2.54B46%Continued growth
Q3 2025$3.36B51%Best-in-class

FCF grew 4.6x while revenue grew 2.3x. This means FCF margin expanded significantly—more of each revenue dollar converts to cash. This is the signature of operating leverage.

4.2 FCF Comparison Table

MetricAPPTTDU
FCF (TTM)$3.36B$0.69B$0.39B
FCF Margin51%25%22%
FCF/Market Cap2.8%1.1%1.6%
FCF Growth (2Y)+358%+36%N/A

AppLovin generates nearly 5x Trade Desk's FCF and nearly 9x Unity's—despite Unity having been the larger company just 2 years ago.

4.3 Cash Conversion Quality

Cash conversion ratio (Operating Cash Flow / Net Income) reveals earnings quality:

CompanyCash ConversionInterpretation
APP1.19xExcellent—cash exceeds earnings
TTD1.2xExcellent—high quality
UNegativePoor—loses money, no meaningful ratio

Both AppLovin and Trade Desk generate more cash than their GAAP earnings suggest—a sign of high-quality, sustainable profits.


What's Driving AppLovin's 45pp Margin Expansion?

AppLovin's margin expansion demonstrates the power of AI-driven operating leverage.

5.1 Operating Margin Trajectory

PeriodAPP Op MarginU Op MarginTTD Op Margin
Q1 20235%-61%7%
Q4 202320%-38%10%
Q3 202443%-45%16%
Q1 202539%-28%18%
Q3 202550%-28%19%

AppLovin gained 45 percentage points of operating margin in 2.5 years. This is extraordinary by any standard.

5.2 What Drives Operating Leverage?

AppLovin's AXON AI engine creates structural advantages:

  1. R&D efficiency: AI improvements compound without proportional cost increases
  2. Sales efficiency: Better ad targeting attracts advertisers without proportional marketing spend
  3. Scale effects: Infrastructure costs don't scale linearly with revenue
  4. Network effects: More data improves AI, which attracts more advertisers, generating more data

Unity lacks this AI advantage. Its ad platform competes on execution rather than algorithmic superiority, resulting in commodity economics.


Why Does AppLovin Collect Before Paying While Unity Does the Opposite?

Cash Conversion Cycle (CCC) reveals working capital efficiency. This metric exposes a critical difference between these companies.

6.1 CCC Comparison

CompanyCCC (Days)Meaning
APP-60 daysCollects from customers BEFORE paying suppliers
TTD~30 daysStandard business cycle
U+105 daysPays suppliers BEFORE collecting from customers

AppLovin's negative CCC is exceptional. A -60 day CCC means:

  • Advertisers pay AppLovin upfront
  • AppLovin pays publishers/partners later
  • The company is essentially funded by its customers
  • No working capital investment needed for growth

Unity's +105 day CCC means the opposite—the company must fund over 3 months of working capital before collecting revenue. This strains cash flow and requires external financing for growth.

6.2 Balance Sheet Implications

MetricAPPTTDU
Net Debt/EBITDA0.74xNet Cash25x
Interest Coverage14x345xNegative
Working Capital NeedNegativeLowHigh

Unity's 25x Net Debt/EBITDA is distressed-level leverage. The company cannot cover its interest expense with operating income (negative coverage). This limits strategic options and increases bankruptcy risk if losses continue.

Balance Sheet Red Flag: Unity's 25x Net Debt/EBITDA and negative interest coverage indicate financial distress. The company relies on continued access to capital markets to fund operations. Any credit market disruption could force additional dilutive equity raises or asset sales.


What Happened After Unity Rejected AppLovin's $17.5B Offer?

Unity's trajectory offers important lessons about M&A execution.

7.1 The 2022 Decision

In August 2022, Unity faced a choice:

  • Option A: Accept AppLovin's $17.5 billion merger offer
  • Option B: Merge with ironSource for $4.4 billion

Unity chose Option B.

7.2 The Aftermath

MetricAt Decision (Aug 2022)Now (Dec 2025)Change
Unity Stock~$50~$22-56%
AppLovin Stock~$30~$340+1,033%
Combined Entity Value$17.5B (APP offer)~$9B (U alone)-48%

If Unity had accepted AppLovin's offer, shareholders would have participated in one of the greatest tech stock rallies in history. Instead, they experienced a 56% decline while watching the rejected acquirer appreciate 1,000%+.

7.3 What Went Wrong

The ironSource merger faced multiple challenges:

  1. Cultural clash: Different company cultures created integration friction
  2. Product overlap: Redundant offerings led to customer confusion
  3. Talent departure: Key executives left during integration
  4. Market share loss: Customers migrated to competitors during chaos
  5. Strategic drift: Multiple CEO changes led to inconsistent strategy

Which Ad-Tech Stock Is Best for Your Portfolio?

Different investors have different objectives. Here's how the data maps to investment styles:

8.1 For Growth Investors

The data suggests: AppLovin offers the best combination of growth (+86% revenue) and profitability (50% operating margin). The AI-driven model creates sustainable competitive advantages.

CriteriaAPPTTDU
Revenue Growth+86%+21%-8%
Growth AccelerationYesNoN/A
Profitable GrowthYesYesNo

8.2 For Quality Investors

The data suggests: AppLovin's 75% ROIC, 51% FCF margin, and 3.4% SBC/Revenue make it the clear quality leader. Trade Desk offers solid quality at lower valuations.

CriteriaAPPTTDU
ROIC75%14%-9%
FCF Margin51%25%22%
SBC DisciplineExcellentModeratePoor

8.3 For Value Investors

The data suggests: None of these stocks are traditional value plays. However, Trade Desk's more modest valuation with solid fundamentals offers relative value versus AppLovin's premium multiple.

8.4 For Income Investors

The data suggests: None of these companies pay dividends. AppLovin does conduct buybacks (0.7% yield), but these are not income-oriented investments.


What Are the Key Risks for Each Ad-Tech Stock?

Every investment has risks. Here's what to monitor:

9.1 AppLovin Risks

RiskSeverityMitigation
AI model degradationHighMonitor quarterly ROAS metrics
Valuation compressionHighPremium priced for perfection
Platform policy changesMediumApple/Google could restrict mobile ads
Customer concentrationMediumDependency on major mobile game publishers
Competition from Google/MetaMediumLarge players could copy AXON approach

9.2 Trade Desk Risks

RiskSeverityMitigation
CTV market slowdownMediumSecular tailwinds may moderate
Cookie deprecation impactMediumAlternative ID solutions in place
Margin pressureLowStable but not expanding rapidly
CompetitionMediumGoogle, Meta, Amazon compete in CTV

9.3 Unity Risks

RiskSeverityMitigation
Continued lossesHighNo clear path to profitability
Balance sheet stressHigh25x leverage is distressed
Market share erosionHighCompetitors gaining ground
Management turnoverMediumStability improving under new CEO
DilutionHigh22% SBC erodes shareholder value

How Do APP, TTD, and U Rank on Capital Efficiency?

Based on the comprehensive data analysis:

Capital Efficiency Ranking

RankCompanyROICVerdict
1APP75%Exceptional—AI-driven advantage
2TTD14%Solid—steady performer
3U-9%Poor—destroying capital

Earnings Quality Ranking

RankCompanyKey StrengthKey Weakness
1APP51% FCF margin, 3% SBCValuation premium
2TTDConsistent profitabilitySlower growth
3UFCF positiveOperating losses, high SBC

Overall Assessment

For investors prioritizing capital efficiency and earnings quality, the data clearly ranks these ad-tech platforms:

AppLovin >> Trade Desk >> Unity

The gap between AppLovin and its peers is not marginal—it's structural. The AXON AI engine has created a compounding advantage that may persist for years.


Frequently Asked Questions

What is AppLovin's current ROIC?

AppLovin's trailing twelve-month ROIC is 75% as of Q3 2025, up from just 4.5% in Q1 2023. This represents a 16x improvement in capital efficiency over 2.5 years, driven by the AXON AI engine's superior ad targeting capabilities.

Why is Unity's ROIC negative?

Unity's ROIC is -9% because the company continues to lose money operationally (-28% operating margin) while consuming capital. The failed ironSource merger integration, massive restructuring charges, and 22% SBC/Revenue dilution have destroyed shareholder value.

How does AppLovin compare to Unity on SBC dilution?

AppLovin pays only 3.4% of revenue in stock-based compensation, while Unity pays 22%—more than 6x higher. Remarkably, AppLovin reduced SBC from 11% to 3.4% while revenue grew 86%, demonstrating exceptional discipline that most hypergrowth companies lack.

What is the AXON AI engine and how does it drive margins?

AXON is AppLovin's proprietary AI/ML advertising engine that optimizes ad targeting and ROAS for advertisers. It has driven AppLovin's operating margin from 5% to 50% by improving ad monetization efficiency without proportional cost increases, creating extreme operating leverage.

Is AppLovin's 75% ROIC sustainable?

The 8-quarter trend shows consistent improvement from 4.5% to 75%, suggesting the AI advantage is durable. However, sustainability risks include competitive responses from Google/Meta, potential advertiser concentration, and the inherent difficulty of maintaining 75%+ returns at scale.

Which ad-tech stock has the best capital efficiency?

AppLovin has the best capital efficiency with 75% ROIC, followed by Trade Desk at 14%, while Unity destroys capital at -9% ROIC. AppLovin's AI engine creates a structural advantage that converts revenue growth into exceptional returns on invested capital.


Methodology

Data Sources

  • Financial data: Sourced directly from SEC 10-Q and 10-K filings via EDGAR
  • ROIC calculation: NOPAT / Invested Capital (asset-based method)
  • SBC/Revenue: Stock-based compensation / Total revenue (TTM)
  • FCF: Operating cash flow - Capital expenditures
  • Processing: MetricDuck automated filing analysis platform

Calculation Details

ROIC (Asset-Based):

ROIC = NOPAT / Invested Capital

Where:
- NOPAT = Operating Income × (1 - Tax Rate)
- Invested Capital = Total Assets - Current Liabilities - Excess Cash

Example Calculation: AppLovin Q3 2025 ROIC

- Operating Income (TTM): $3.29B
- Effective Tax Rate: 8.3%
- NOPAT: $3.29B × (1 - 0.083) = $3.02B
- Invested Capital: $4.03B (total assets minus current liabilities minus excess cash)
- ROIC: $3.02B ÷ $4.03B = 74.9% ≈ 75%

Cash Conversion Cycle:

CCC = DSO + DIO - DPO

Where:
- DSO = Days Sales Outstanding (82 days for APP)
- DIO = Days Inventory Outstanding (0 for APP - software/services)
- DPO = Days Payables Outstanding (142 days for APP)
- CCC = 82 + 0 - 142 = -60 days

Companies Analyzed


Limitations

This analysis has important limitations investors should understand:

  1. ROIC methodology variance: Our asset-based ROIC calculation may differ from other sources using invested capital approaches (debt + equity - cash). Different methodologies can yield materially different results.

  2. Unity's ROIC improvement context: Unity's ROIC improvement from -20% to -9% primarily reflects restructuring charges and asset impairments, not operational efficiency gains. The underlying business remains unprofitable.

  3. AppLovin's revenue acceleration context: Revenue growth acceleration from +17% to +86% partially reflects easier year-over-year comparisons following the 2023 games portfolio divestiture.

  4. TTD cash conversion cycle estimate: Trade Desk's CCC (~30 days) is estimated based on available data. Actual CCC may vary based on calculation methodology.

  5. Qualitative factors excluded: This analysis focuses on quantitative metrics. Qualitative factors—management quality, competitive moat durability, regulatory risks, and macroeconomic sensitivity—are not fully captured.


Disclaimer

This analysis is for educational and informational purposes only. It does not constitute investment advice, and you should not rely on it as such.

Important considerations:

  • Past performance does not guarantee future results
  • Ad-tech companies face rapid technological change and competitive dynamics
  • The author holds no positions in any of the stocks mentioned
  • Always consult a qualified financial advisor before making investment decisions
  • Data is sourced from SEC filings, which may contain errors or be subject to restatement

Conflict of Interest Disclosure: MetricDuck provides financial analysis tools. This content demonstrates our analytical capabilities but should not be construed as a recommendation to buy or sell any security.


Explore More ROIC Analysis

This article is part of our comprehensive ROIC Analysis Hub, which covers sector benchmarks, peer comparisons, and capital efficiency screening frameworks.

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Last updated: December 30, 2025. Next update scheduled after Q4 2025 earnings (February 2026).

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