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    Applovin Corp (APP)

    Q1 2024 Summary

    Published Jan 15, 2025, 8:21 PM UTC
    Initial Price$39.41January 1, 2024
    Final Price$69.14April 1, 2024
    Price Change$29.73
    % Change+75.44%

    What went well

    • Rapid growth of the software business with high margins: AppLovin's software segment is growing approximately 90% to 100% year-over-year with a 73% margin, driven by improvements in their AXON technology. This indicates a strong revenue stream with significant profitability.
    • Strong competitive advantage due to cutting-edge AI technology: The company has developed complex AI systems that are difficult to replicate, providing a competitive edge. Their AXON models continually improve through vast amounts of data, making it challenging for competitors to catch up.
    • Expansion into new markets beyond gaming: AppLovin is successfully expanding into non-gaming apps, with the non-gaming app space growing faster than gaming on their platform. They are also launching web advertising targeting e-commerce and other transactional industries, which could open up significant new revenue opportunities.

    What went wrong

    • AppLovin's growth heavily relies on continuous improvements to their AXON AI models, which may be difficult to sustain indefinitely, potentially leading to slowing growth rates.
    • Expansion into non-gaming verticals like e-commerce and connected TV is still in early stages and may not contribute significantly to revenues in the near term, limiting growth opportunities beyond the core gaming market.
    • The mobile gaming advertising market is not growing rapidly, with only single-digit growth, which may constrain AppLovin's revenue growth if they cannot successfully expand into new markets.

    Q&A Summary

    1. Expansion Beyond Gaming
      Q: Update on efforts outside gaming?
      A: AppLovin is launching its first web advertising product this quarter, expanding beyond mobile gaming into new verticals like e-commerce. They rely on AXON 2 technology to drive growth organically without heavy investment in sales.

    2. AI Technology and Competitive Edge
      Q: How do you view potential competitors?
      A: AppLovin's cutting-edge AI technologies, like AXON 2, are difficult to replicate and improve with massive data feedback. Even if competitors tried to copy them, they would be years behind, allowing AppLovin to maintain its lead.

    3. Margins and Profitability
      Q: Expectations on margins as growth continues?
      A: Margins should continue to expand as AXON develops. Since net revenue essentially drops to the bottom line, increased development leads to higher margins. They don't expect any decrease from existing margin levels.

    4. Capital Allocation Strategy
      Q: How do you balance organic vs. inorganic growth?
      A: With a compelling AI platform, AppLovin focuses on organic growth through partnerships, data, and reach. They have over 1 billion daily active users, and their algorithms can execute in any transactional vertical, reducing the need for acquisitions.

    5. Mobile Gaming Market Growth
      Q: Is the mobile gaming market growing this year?
      A: Yes, AppLovin sees growth driven by their technology's success. Doubling their software business added billions in incremental dollars to the market. They attribute TAM expansion directly to their impact.

    6. Sales Approach
      Q: Do you use a sales force for growth?
      A: AppLovin remains product-first, believing great products sell themselves. They haven't invested heavily in sales, and advertisers increase spend based on measurable results from their technology, not sales efforts.

    7. Unity Bidding into MAX Supply
      Q: What's the impact of Unity bidding into MAX?
      A: Having Unity bid into MAX supply aligns with market trends, as over 80% of the market bids today. There's no data advantage gained, and it benefits publishers through a clean auction, enhancing AppLovin's platform.

    8. Advertiser Spend from Large Developers
      Q: What's driving incremental spend from big developers?
      A: Larger advertisers can spend more due to successful games, and there's no limit to advertiser spend in their system. Improvements in their models can lead to significant growth without constraints.

    9. Net Revenue per Install and Volume
      Q: Can you update us on net revenue per install growth?
      A: Both net revenue per install and install volume have increased, driven by continuous improvement of AXON. This leads to higher advertiser spend, with a dramatic increase over the last four quarters.

    10. Market Trends in Mobile Advertising
      Q: How much has the ad market grown?
      A: It's hard to define the whole ad market, but their MAX marketplace—a good proxy for mobile gaming advertising—is growing double-digit plus year-over-year, reflecting their leadership position.

    11. Header Bidding and MAX Supply
      Q: What's the trajectory for header bidding revenue?
      A: While specific figures aren't disclosed, they continue to see a positive trend with acceleration in Q1, as more publishers shift to header bidding on their MAX platform.

    12. Wurl Business and Connected TV
      Q: Update on Wurl's growth and CTV efforts?
      A: Wurl has brought a lot of supply online, adding eyeballs through connected TV. Though too small to break out revenue figures, they see potential in extending their performance advertising model to CTV as they grow e-commerce advertising.

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