Q3 2024 Summary
Published Jan 15, 2025, 8:21 PM UTC- AppLovin's e-commerce initiative is the most exciting product the company has ever launched, with strong demand from advertisers and promising early results. The CEO stated, "It's the most exciting product that we've ever launched. We've never seen this kind of data on a new product," and they have "a line out the door of companies that want to jump on to this platform." This e-commerce platform is expected to make a significant financial impact starting in 2025, indicating high growth potential. , , ,
- Advancements in AppLovin's technology, particularly AXON 2.0, are driving substantial growth in the gaming advertising business. Advertisers have "more budget interest in spending on our platform than we can deliver on a daily basis," suggesting strong demand and potential for continued growth. Improvements in AI technology are leading to growth rates above the previously guided 20%-30%, with "no constraint on demand". , , ,
- AppLovin has a massive scale advantage with 1.4 billion daily active users and the largest mediation solution in the sector, positioning the company to unlock untapped advertising opportunities and expand to serve millions of advertisers. This scale allows AppLovin to "become one of the strongest companies the world has seen" as it continues to expand into new verticals beyond gaming, like e-commerce. , , ,
- Reliance on Gaming Sector for Growth: AppLovin's growth is currently heavily dependent on the gaming sector. While the e-commerce initiative is described as "the most exciting product" they've launched, it's still in the pilot phase and not expected to make a material financial impact until 2025. This reliance on gaming could pose a risk if the mobile gaming advertising market slows down or faces increased competition. ,
- Challenges in E-Commerce Expansion Due to Lack of Brand Recognition: The company acknowledges that "e-commerce is a new category for us. So we do need brand awareness." AppLovin's lack of recognition in the e-commerce space may slow the adoption of their new platform, potentially requiring additional marketing efforts and resources to gain traction among e-commerce advertisers.
- Increased Costs from Early Cloud Infrastructure Investment: AppLovin renewed its Google Cloud contract earlier than planned to "get capacity to support future growth," investing in infrastructure "quarters ahead" of current consumption. If the anticipated growth does not materialize, these upfront costs could negatively impact margins and profitability.
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2025 Growth Outlook
Q: How should we think about 2025 growth?
A: Management reaffirmed their goal of 20% to 30% growth in gaming alone for the Software Platform, stating that any additional growth from e-commerce would be additive. They emphasized that technological advancements could push growth rates above 30%, noting there is no constraint on demand and improvements in their platform could lead to higher growth. -
E-commerce Business Ramp-up
Q: When will e-commerce make a material impact?
A: Management expects e-commerce to be financially impactful in 2025 and contribute 10% or more to revenue when scaled. They noted it's the fastest-growing product they've ever launched and, although still in pilot with a small number of shops, performance is strong. The company is focusing resources to scale this opportunity, which could significantly boost growth. -
Share Buybacks and M&A
Q: Does stock rise affect buybacks or M&A plans?
A: The significant stock price increase has no impact on their decision to continue buying back shares; they believe their stock is still a great investment. Regarding M&A, they have no plans to pursue acquisitions on the advertising side and are focused on organic growth. -
Technology and AI Enhancements
Q: What's the timeline for using generative AI?
A: Integrating generative AI features is on their roadmap and will eventually personalize ad creatives, leading to a material lift in their business. However, they cannot specify a timeline, as these advancements are not in the immediate future. -
Expansion Beyond E-commerce
Q: Can the model expand to other verticals?
A: Management believes their technology can apply to all transactional businesses, intending to eventually serve every advertiser with a transactional model. While e-commerce is the current focus, they see no limitations to expanding into other categories over time. -
Supply Expansion Outside Gaming
Q: Will you expand supply beyond mobile games?
A: They consider supply expansion an important growth vector and have acquired Wurl to tap into Connected TV (CTV), representing a significant amount of supply. While mobile gaming isn't a constraint now, they plan to increase supply reach beyond gaming over the next five years. -
Business Model Differentiation
Q: How does your model differ from others?
A: The company targets brands and direct-to-consumer advertisers with a focus on optimization and automated advertising to a revenue goal, taking on the media risk themselves. Unlike open web DSPs charging a percentage of ad spend, they aim to deliver compelling performance through their innovative technology. -
Market Share in Mobile Gaming
Q: Is growth from market share gains?
A: Growth is attributed not to market share gains but to creating a bigger market by unlocking more user acquisition spend for gaming advertisers. Improved technology allows advertisers to expand spending without reducing spend on other channels. -
AXON Licensing and Partnerships
Q: Updates on AXON licensing or Flip partnership?
A: AXON licensing remains a longer-term focus and is secondary to scaling the e-commerce opportunity. While excited about its potential, current resources are dedicated to the immediate opportunity in e-commerce. -
E-commerce Pilot Performance
Q: How is the e-commerce pilot performing?
A: The e-commerce pilot shows strong performance, with brands reporting scale and strong ROAS comparable to top channels. Management notes it's the fastest-growing product they've seen , generating excitement among e-commerce brands.