Adding my notes from the conference call,
CEO - Adam Foroughi
- we act like owners, personal accountability, pursuit of excellence, take pride in profitability (long intro to new investors on values)
- over 1.5M adj EBITDA per employee per year
- committed to long term goal of 20-30% yoy revenue growth in gaming space, and 4-5% sequentially
- this quarter saw meaningful growth driven by enhancements in Axon
- recent e-commerce pilot has exceeded expectations
- advertisers in pilot seeing substantial returns, often surpassing other media channels
- “in many cases experiencing nearly 100% incrementally from our traffic”
- confident pilot will scale significantly in 2025 and become a strong contributor
- reallocating employees to work on pilot, will launch self service platform, opening global opportunities for advertisers of all sizes
CFO - Matt Stumpf
- adj EBITDA +72% yoy
- 91% flow through from revenue to adj EBITDA
- 545M in FCF, +182% yoy
- FCF grew 22% qoq
- 76% flow through from adj EBITDA to FCF
- cash 568M (up from 460M last q, debt down -7M)
- improvements in Axon driven by self learning
- software platform “qoq flow through from revenue to adj EBITDA was 107%” (seems like they got some boost to get over 100% from revenue? mentioned on next point)
- adj EBITDA impacted by several non-recurring contracts with Google Cloud, foreign exchange, and vesting schedules
- “on a normalized basis we estimate qoq flow through be would be approximately 100%” (I believe what they are saying here is every transaction costs nothing for them and goes to earnings!)
- manage outstanding share repurchases funded through FCF
- increasing share repurchase program by 2B, total 2.3B in share repurchases planned
Q&A
- e-commerce is “super compelling product”
- best product ever seen released by us
- pilot is too early to have significant financial impact, quarter driven entirely by gaming side
- long runway for gaming
- gaming has a need for more UA dollars spent, constrained by return on ad spend goals and tech platforms such as AppLovin
- long roadmap of enhancements to this platform
- “we’ve got one of the largest GPUs deployed in the world at this point” through GCP (I did not realize they are using this much compute and AI)
- Twitter users saying pilot seeing as much scale and ROAS as anything in the world
- automated return on ad spend model
- e-commerce large fragmented category, so many promises in the past from others, AppLovin solution will be attractive to other side very quickly
- 10 years from now, every advertiser that has a transactional model can buy on our platform and do it at scale, no limitation
- want to grow organically over M&A
- stock price has no impact to keep purchasing back shares, feel it’s a great investment for share holders
- timing wise pilot exactly on track
- GA for pilot next year and will be self service for users
- The Trade Desk targets big agencies, two different approaches to the market, AppLovin targets brand and direct to consumers, gaming, devs
- customers care about optimization and automated advertising
- AppLovin takes all the risk on the media side
- 1.4B DAUS, largest mediation solution
- long runway to “expand the platform and become one of the strongest companies the world has seen”
- e-commerce the fastest growing product they’ve ever seen
- partnership with Flip app for licensing, will be secondary in priority to the e-commerce platform though
- Gen AI ads have a lot of potential to customize ads
- supply is not a constraint, lot of ways to improve monetizing 1.4B DAUs
- WURL with CTV provides an immense amount of supply
- created a bigger market in games, category is accelerating its growth
- growth in gaming driven by user acquisition, advertisers need more user acquisition
- platform unlocks more dollars
- advertisers are often doubling spend on AppLovin while keeping spending on other platforms, they want more overall
- shops are getting exposed to a new audience, not otherwise able to reach without AppLovin
- immense amount of incremental value for shops from the ads
- every advertiser has more budget interest in spending on our platform that we can deliver on a daily basis
- e-commerce has never seen this kind of data coming from a new product, compelling ever seen
- “line out the door at companies that want to jump on this platform”
This was an incredible quarter from AppLovin as gaming drove the top and bottom line results, while the pilot for e-commerce is ramping up extremely well. The management seems to have a new found confidence on the call, talking about the longer term vision. There were so many metrics that were unusually large percentages such as EBITDA flow through being “approximately 100%”. The future looks very strong for AppLovin as they have a “line out the door” for the new e-commerce solution.