AppLovin, Airbnb, and More Earnings Surprises

0:05Earnings season is in full swing and we have seen some big surprises. Motley Fool Money starts now.

0:20I'm Matt Frankel, joined by longtime Fools Tyler Crowe and Jon Quast. Today, we're going to get to earnings from Airbnb, Zillow, and some of our favorite retail real estate companies. Later, we're going to discuss some of the companies whose earnings reports we're most looking forward to next week. First, let's put AppLovin's latest results under the microscope. AppLovin posted extremely strong 77 % revenue growth in the second quarter, and its adjusted EBITDA roughly doubled. Free cash flow is$768 million, and the company spent nearly half of that buying back stock. John, what do you think?

0:54Matt Frankel:Matt, shareholders are getting used to these kinds of numbers from AppLovin, but I think we just need to take a second to really soak it in. Nearly$1.3 billion in quarterly revenue, growing at 77%, a profit margin of 65%. These are extraordinary numbers. And here's the impressive context. When we're looking for hidden gems, we're usually wanting to see companies and markets that are fast growing. By contrast, AppLovin is doing most of its business in the mobile gaming space, which is actually quite slow growing, maybe around 3 % growth for the industry. But AppLovin's advertising products are so effective that it's been able to grow at a much faster rate than the industry.

1:34Matt Frankel:And I think this is kind of turning into a theme this earnings season. AppLovin has its AI-powered advertising engine, and some advertising companies are underperforming this earnings season, whereas some companies such as AppLovin or even Reddit are using AI to better match advertising supply with demand. Those which are doing AI well are getting much stronger. Did this earnings report change how you feel about the stock? I'd love to get both your takes on this, but AppLovin's business is growing rapidly, but its stock has delivered six X returns over the past year. And we'll start with you, John.

2:07Matt Frankel:You know, this report actually didn't change the way that I feel about Apple 11 stock. Unfortunately, I thought that I'd have more clarity about its future. There's still a lot of unanswered questions here. And so just the context, Apple 11 has effectively conquered mobile gaming this quarter. It sold off its apps business. It ran a portfolio of apps. It was doing that so it could train its AI data better. It's gotten out of that. It's more pure advertising now. And it wants to expand beyond its core competency. It wants to get into direct-to - consumer e-commerce. It wants to move beyond mobile into web-based advertising.

2:44Matt Frankel:I thought that investors would have a lot more answers when it comes to this second phase, if you will, of Apple Eben's growth. But it seems that management has taken a slower, more measured approach. One thing that stood out to me and something to watch is AppLovin is going to get into performance marketing. So, for perspective, yes, part of the reason that it's been a 6X stock over the past years is because it's extremely profitable,$2.8 billion in trailing 12-month free cash flow. And it only spent 4 % of its revenue on sales and marketing to grow in the first half of 2025. Now, it's looking to go into new verticals.

3:20Matt Frankel:In theory, this could jumpstart its growth in a huge way. And it could be really successful, but how is it going to be now that it's spending more money on performance marketing? In theory, it should be really good. It is an advertising business, but it's also possible that it really doesn't grow the way it wants to. It's spending more money on marketing. And so profits could take a hit.

3:42Tyler Crowe:There's a lot of companies that we all have differing opinions on. And AppLovin has always been one that, despite its massive success so far. I've always had a lot of questions and it's made it a little bit hard for me to get over the hump of changing my opinion on it. I've always thought the business was a little bit on the fragile side. Perhaps I'm wrong, but if we look back through its history, majority of its revenue did come from those owned gaming cities. Now, it did sell those off in the most recent quarter, still maintaining an equity position in them as part of the deal. This e-commerce business that it has been standing up, it's actually stood up on a platform owned by a board member of Applovin.

4:30Tyler Crowe:It's an interesting sort of relationship, and it has worked out so far. It's left me a lot of questions on some of how the accounting works and things like that. And not to say anything bad about the company. It's just sometimes we have questions about companies. For me, it's enough that it has made me want to learn more about the company before I really want to commit to it. Unfortunately, I think I've been kind of wrong in this assessment because clearly the market has liked what it's seen with its revenues growth and the company has been posting pretty impressive numbers. Maybe I just need to keep digging and figure out why I seem to be hesitant based on these sort of things and reassess my ideas.

5:17Chris Hillman Let's quickly move over to Airbnb's latest earnings. They reported Wednesday afternoon, the results look pretty strong with revenue up 13 % year-over-year, really strong margins, double-digit growth in booking volume. But the stock is down primarily because management cautioned investors about demand heading into, especially the fourth quarter of the year. I'd love to get both of your thoughts on Airbnb. We'll start with you, Tyler.

5:42Tyler Crowe:Tyler Merrill I want to focus on the guidance a little bit more on the numbers. Revenue growth of 13%, cash flow margin strong. Compared to a lot of other companies, the numbers themselves actually looked, in my opinion, relatively fine. I want to focus on probably why so many people are a little apprehensive and that's this guidance they're giving. If you look at some of the broader macroeconomic numbers, I know Peter Lynch would probably crucify me for talking about macro, But things like the University of Michigan consumer sentiment scores, they're currently at some of the lows that we saw during 2022 inflation, COVID, the Great Recession levels.

6:22Tyler Crowe:Consumer sentiment surveys are hovering right around there. And a little caveat to me is it's even stranger is that these surveys don't coincide with higher gas prices. Because one of the weird things is that consumer sentiment tends to go with gas prices. And with gas prices actually trending lower and consumer sentiment dropping, that's an odd correlation that we don't often see in those sort of numbers. The growth in parts of Airbnb's business were still good, though. And I think that's maybe a little bit overlooked. Some of its less penetrated markets, like in the Asia-Pacific and the Latin America areas, are still growing in mid-to-high teens rates.

7:07Tyler Crowe:So, that's encouraging. They may not be showing up in the overall numbers as much because North America and Europe are such dominant parts of the revenue pie for Airbnb today. But there are still green shoots in international markets that give it levers to pull. And yes, Airbnb has been a market disruptor for this industry, but it is a cyclical market that is based on consumer spending. Eventually, you can only disrupt so much, and a cyclical market will win. So, not too surprising, again, that a little bit more tepid demand with consumer sentiment a little bit down. And just a weird caveat that I noticed, too, is Airbnb makes a ton of money on interest income because we pay for all of our stays and things like that, and they get to hold that cash, so they earn a ton of interest income.

7:59Tyler Crowe:So rate cuts come, we might actually see a little bit of decline in profitability from that.

8:04Matt Frankel:You know, Tyler, I want to jump off there and talk about maybe the narrative that floats around among investors when it comes to Airbnb. You know, the stock's only up as of this taping. The stock's only up 3 % over the last three years. It's still down more than 40 % from its highs in 2021. And so there's kind of a lazy narrative out there that, you know, consumers don't like Airbnb. They don't like its fees. So they're moving to hotels, kind of moving away from Airbnb. In my view, that's simply not accurate. Nights and experiences in Q2 are up 7%. Average daily rates, so this is what a place costs to book, up another 3%.

8:45Matt Frankel:So if Airbnb were having a demand problem, I would expect those average daily rates to come down. I would expect bookings to come down. That's not happening. Those key metrics are still trending in the right direction. What we have seen, though, is perhaps Airbnb stock was way too overvalued at one point compared to the growth that it has put forward. So I don't see that so much as a business model problem. On that line of thinking, it does need some better growth, I think, if it's going to reward shareholders. A little bit interesting that it does have incredible margins, a billion in free cash flow in the quarter.

9:24Matt Frankel:But it also used$1 billion to repurchase shares. That's a little bit interesting. Essentially, to me, this is telling me that management doesn't really have good places to invest the cash in the business. Share repurchases are good. It's just interesting that essentially all of the free cash flow went to share buybacks rather than investing in that second phase of growth. Next up, we're going to examine some of our favorite retail REITs, and you might be surprised how they're doing. You're listening to Motley Fool Money. Support for the show comes from Fundrise. For the past 70 years, there's been a room in finance most people couldn't enter.

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10:34This is a paid advertisement. Several top retail real estate investment trusts or REITs reported earnings this week. Simon Property Group raised its guidance and its dividend. Its malls are performing very well. Tanger Factory Outlets is in a similar situation. Even Realty Income, which is known for just kind of being really predictable, raised its FFO guidance, as well as its investment spending expectations for this year. All this during a, quote, challenging consumer spending environment. Tyler, what are your big takeaways from all this?

11:03Tyler Crowe:Can I say that I thought it was a little weird? And I want to go back to what we talked about previously with Airbnb and kind of consumer sentiment. Allegedly, consumer sentiment is way down. It's in the dumps. and yet we look at some of these numbers that retail rates are putting up and they're incredibly impressive and their outlook on the future looks really good i want to focus a little bit on tanger i i spent a little bit more time in their results than i did some of the other ones but you know i looked at tangier tangier's results their sales per square foot for all of its stores were up occupancy was up its blended average lease rates which basically means when you renew a lease or get a new cut a new tenant into a lease those are up 12 those are incredibly impressive numbers for a retail REIT that's hitting for the cycle here.

11:51Tyler Crowe:It's weird, right? Because it seems like everyone's miserable based on the sentiment surveys, but we're just spending through it. It's really reflecting in these retail numbers. The last takeaway, and I'll leave a little bit of a question, is we have been talking for six months, seven months now about tariffs and when they're going to hit. They're not going to hit how big, how small, because it has been changing very frequently over the past several months. I've been wondering, this quarter, with so much aggressive changes in those tariff rates during the quarter, if we saw a little bit of everyone trying to buy now, pull ahead, pull forward some demand to lock in prices or buy things before tariff prices really start to eat into people's purchasing powers.

12:38I own all three of the stocks that I mentioned earlier. I think you both own at least one or two. How do you see retail REITs like this performing over, say, the next three to five years? Tyler?

12:52Tyler Crowe:For retail REITs writ large, I'm going to shrug a little bit. If consumer sentiment is a leading indicator of actual spending, then some REITs in retail, especially the more experiential, maybe not consumer durables like groceries and things like that, they could struggle. But that's talking about the entire industry, not just these specific companies. The good thing about the three companies that you mentioned, Simon Property Group, Tanger, Factory Outlets, and Realty Income, is they have proven over many years to be some of the superior operators and managers of their business in this respective industry.

13:29Tyler Crowe:And I think that if we were just focused on these three instead of retail rates writ large, these are the kind of companies that will benefit during times of struggle. Maybe It might not show up on their stock prices, but they're the ones that can take advantage of struggling other competitors and things like that, either through acquisitions or, yeah, sure, we'll take a couple of malls off of your plate because you're struggling. Why not? And then we'll turn them into much more profitable engines. I think that's a little bit more accurate reflection on my opinions of retail rates, because industry writ large, we're getting into a very wide field of sometimes not the best operators on the planet.

14:08Matt Frankel:Yeah, I won't comment on retail REITs as a whole. I do own Tanger stock and I plan to keep holding Tanger stock. Like Tyler was mentioning, I do get concerned when you start looking at the consumer sentiment. But one of the things I have learned over the years is that negative narratives are really seductive and they're also very contagious. And so sometimes people do have negative thoughts and that tends to spread and people talk negatively. But really watch what people are doing. And what we're seeing is that they do continue to spend money, especially in these retail rates. Those businesses are doing quite well.

14:47Matt Frankel:Tanger, as Tyler mentioned, really good numbers that it's putting up. So I do plan to keep holding this stock. It's not my highest conviction for growth over the next three to five years, but just predictability steady as she goes. I do like having it in my portfolio, reinvesting the dividends. All right. So quickly, let's pivot over to Zillow. They just reported their second quarter results. Revenue growth was strong despite a pretty slow real estate market, and the company exceeded expectations. Margins were strong, and Zillow was actually slightly profitable on a gap basis. But Tyler, what's your quick take on Zillow's numbers?

15:24Tyler Crowe:I liked where the growth came from, which was mostly rentals and mortgages. These are their nascent businesses. Rentals is also nice. It's not as interest rate sensitive as buying homes. So, there's some encouraging things there to maybe take a little of the cyclicality out of this business. The one thing I would pick some nits against is the profitability. It's still producing operating losses, and the actual net income gain was interest on cash balance sheets. So, the fact that it's still operating profit losses still makes me a little bit wary. All right. So, just real quick on Zillow, and I want to get both your opinions on this.

16:02Do you think it's a buy, a hold, or a runaway? Tyler?

16:06Tyler Crowe:I was an early doubter, but there have been some green shoots that have started to prove me wrong, like with residential and mortgages. I'm still holding out until they can prove that those businesses can generate consistent operating profitability.

16:18Matt Frankel:Yeah, for me, I would rate Zillow as a hold. I mean, when it comes to real estate, it is undeniably the name. Everyone does go there. It does have a super app strategy. It does seem to be the right company to pursue that. If anyone's going to pursue it, I can see why it would be Zillow. That said, they've been talking about that for quite some time, and it really hasn't produced the kind of consistent growth that I'm looking for in a company such as this. So, I ask myself with companies like this, like, what is different now? If they've been talking about all along, what's different now? What is going to lead to better growth and better profits from here?

16:53Matt Frankel:I'm hearing a lot of the same from Zillow. So call me somewhat skeptical, but it is still a great business and a great name. I'm just in the show me camp. Next up, we'll learn what stocks the three of us are watching as earnings season continues. As a podcaster, my voice is heard by thousands of people. And now with Vanguard Investor Choice, I can be heard by the companies I invest in too. Vanguard Investor Choice makes it easy for eligible Vanguard fund investors to have a say in how their funds vote at company shareholder meetings. With just a few clicks, you can set your proxy voting preference and make your voice heard on topics like executive pay, board director elections, and more.

17:31Investor participation is the heartbeat of a healthy corporate governance ecosystem. You have a voice. Let it be heard. Visit Vanguard.com slash InvestorChoice to learn more. Vanguard Investors own shares of Vanguard Index Funds and those funds own shares of the companies they invest in. Available for Vanguard Index Funds that participate in InvestorChoice. Vanguard Marketing Corporation Distributor. These past two weeks were the peak of earnings season, but there's still a lot of stocks left to report. So let's each give one on our radar. And I'll start with C Limited, ticker symbols SE. It was by far the top-performing stock in my portfolio last year.

18:11Growth and profitability progress, the turnaround from 2022 and the downturn, has exceeded even my most optimistic expectations already. I'm really looking forward to seeing what they report on the 12th. John, what is on your radar?

18:24Matt Frankel:Mediterranean restaurant chain Cava reports on August 12th. Fast food and fast casual are struggling a little bit here in 2025, whereas casual dining is doing better. Those are generalities. There are some fast food that are doing well. There are some casual dining who are not, but I'd say that's a general trend. Where does Kava fit in consumers' minds? They're only forecasting 6 % to 8 % same-store sales growth this year compared to 13 % last year. They're already looking at a deceleration, management is. But does it decelerate faster than management anticipated? That's something I'm considering, especially as it's trading at 10 times sales.

19:02Matt Frankel:We'll see when it reports.

19:04Tyler Crowe:I'm going to go with BBB Foods. The ticker is TBBB, and it's a Mexican hard discount grocer. It actually reports on August 11th. Hear me out. I know it sounds like an oddball one, but this company has been posting impressive operating results ever since it went public last year. We're talking double-digit same-store sales growth on top of double-digit store count. We're looking at 25 % to 30 % year-over-year growth for a grocery company. All of the operating metrics say that they're doing great high inventory turnover, good returns, initial returns on a lot of what they're doing. I think it really has a lot of those hidden gems qualities that we're looking for in a business.

19:43Tyler Crowe:I don't see any reason why it would start to slow down outside of some drastic macroeconomic sluggishness in Mexico, because it is Mexico only that we're talking about here. But how much does that really hurt a discount grocer, one of the places people go to shop in the event of macroeconomic sluggishness? I don't think I'm going to see much of a change, and I really look forward to the update. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.

20:15All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Jon Quas, Tyler Crowe, our production magician, Dan Boyd, and the entire Motley Fool Money team, I'm Matt Freichel. We'll see you tomorrow.