Q2 2024 Summary
Published Jan 15, 2025, 8:21 PM UTC- Strong Confidence in Achieving 20%-30% Long-Term Growth in Software Business: AppLovin's CEO, Adam Foroughi, expressed strong confidence in achieving 20% to 30% long-term growth in the Software business, driven by continuous improvements in their AI-driven models and expansion into new verticals. He emphasized that this growth is not heavily dependent on verticals beyond gaming, and they see many years of growth ahead due to model enhancements and demand expansion.
- Promising Expansion into New Verticals like E-Commerce Advertising: The company is piloting its web advertising program targeting e-commerce shops, allowing them to advertise to over 1 billion daily active users. Early results are materially better than expected, opening doors to advertising for any website seeking measurable transactions on a performance basis. This expansion could significantly contribute to growth in 2025 and beyond.
- Continuous Improvement and Scalability of AI-Driven Models: AppLovin's AI models are becoming more accurate by processing more data, which increases the match rate between users and advertisers. Advertisers have unlimited tolerance to spend when their revenue goals are met, leading to increased advertiser spend and higher revenue. The models' ability to consistently improve over time provides a sustainable competitive advantage and drives growth beyond the mobile gaming market.
- The company's aggressive growth targets rely heavily on continuous improvements in its AI models, which may not be sustainable over the long term. The CEO suggested that as technology improves, the business will continue to grow, but if model enhancements slow down, achieving the 20%-30% long-term software platform growth could be at risk.
- Diversification efforts into non-gaming verticals are still in pilot stages and contribute minimally to current revenue, indicating potential challenges in scaling these new initiatives. The CFO noted that non-gaming growth is still a relatively small portion of overall installations. Additionally, the CEO mentioned that their web advertising and e-commerce products are in pilot and hope to show material impact in 2025 and beyond, suggesting limited near-term contributions.
- The mobile gaming market, which is the company's primary domain, is growing only at low single digits, potentially limiting overall growth opportunities. The CEO acknowledged that the mobile gaming category is growing a few percentage points per year. While the company aims to outpace this growth through its AI models, reliance on a slow-growing market could constrain future expansion.
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Long-term Software Growth
Q: How will you achieve 20%-30% software growth?
A: The 20%-30% long-term software platform growth is driven primarily by continuous model improvements within mobile gaming, not heavily dependent on expanding beyond gaming. Model enhancements contribute an extra 3% to 4% growth per quarter, and with ongoing technological advancements, they are confident in reaching the higher end of that range. -
Expansion into E-commerce Advertising
Q: What's the progress on initiatives outside gaming, like e-commerce?
A: They launched a pilot web advertising program in Q2, allowing e-commerce websites to buy video ads on their in-app inventory of over 1 billion daily active users. The results are promising, exceeding expectations, and they expect this to have a material impact in 2025 and beyond. This opens doors to advertising for any website type on a performance basis. -
Model Improvements Driving Growth
Q: What gives confidence in consistent 3%-5% sequential growth?
A: Confidence comes from the low single-digit market growth and continuous improvements in their models, which get more accurate with more data. Advertisers are willing to spend more as models improve, leading to natural spend increases. Technological enhancements can also result in step-function growth. -
Mobile Gaming Market Trends
Q: Any changes in mobile gaming market growth trends?
A: There are no significant changes; the overall market is growing at low single digits. However, the advertising-supported market is growing faster, benefiting their business focused on advertising-based applications with over 1 billion daily active users. -
Apps Business Divestiture
Q: Do you plan to divest the Apps business?
A: They remain open to divesting the Apps business and are waiting for the market to improve. Meanwhile, they've optimized the app studios by decreasing costs and increasing margins to maximize profit, and they are open to future transactions. -
Adoption by Large Publishers
Q: Are big publishers now using your platform more?
A: Yes, even publishers that previously viewed them as competitors are now adopting their platform due to its success in mobile gaming. They have broad adoption, and customers are finding scalable success on their platform today. -
In-App Advertising Opportunity
Q: Can your tech drive ad revenues for publishers?
A: Yes, their MAX platform, which runs the majority of mobile gaming in-app advertising, has enhanced efficiency through programmatic bidding. This has led to growth in the in-app advertising market, benefiting both publishers and their software business. -
Confidence in Growth Trajectory
Q: How will you transition from 50% growth to 20%-30%?
A: They expect consistent 5% to 7% quarter-over-quarter growth within the existing business, excluding potential gains from model enhancements or new categories in pilot. They believe the business will remain steady and grow at a healthy rate. -
E-commerce Data Applicability
Q: Is your data applicable to e-commerce advertising?
A: Yes, they process tens of billions of dollars in transactions and have over 1 billion daily active users. Their audience skews female and middle-aged, suitable for e-commerce. Advanced models like Axon 2.0 enable success, and their pilot is showing promising results. -
Stock Repurchases and Capital Allocation
Q: Will you be more tactical with buybacks?
A: They plan to continue managing shares through withhold to cover on shares vesting each quarter and will strategically continue supplemental repurchases in addition to the quarterly vesting.