I think Adam is a great CEO and a great visionary. He is concentrated in expanding the company’s propositions , providing results and value for shareholders and less talking.
Months ago I closed my position in Cloudflare - was holding it for many years. While its CEO was promising great things the numbers were showing different picture.
Applovin CEO is the opposite - he speaks measuredly and the numbers prove how consistent and determined he is.
If Applovin takes a part of the Tik-Tok pie, it will open so many opportunities for ad publishers and monetization. I think I even cannot comprehend what the possibilities are!
I thought this was an exceptional report as adj EBITDA margin is up 600 bps qoq, while GAAP EBITDA margin was up about 900 bps qoq. They had guided adj EBITDA margin in range of 63 - 64% for Q1 but it came in at 68%.
Last quarter they had mentioned there will be some new seasonality in Q4 due to e-commerce, but this didn’t seem to impact results much. The vast majority of the revenue is still coming from gaming which is growing. The engineers again found a step up algorithm wise on the model in the quarter, increasing profitability even more.
The e-commerce side is building out dashboards for their existing customers. Once the dashboards are refined they will open up the solution globally.
I found the guidance the company gave for Q2 to be strong as well. In past recent quarters, they have been guiding for just the revenue and EBITDA run-rate of where the current quarter landed. This upcoming guide is a bit of a boost up sequentially, so they must be seeing strength ahead.
I’m planning to stay invested at least until the pilot goes live for the global audience. There were a number of comments about what a huge catalyst this will be for the company’s growth.
For some more details on the report, this was my video on their Q1,
@wpr101 Thanks for your video review – it fairly sums up the content of the conference call. I would also add that your very laconic delivery matched well with the CEO and CFO. As I watched the call, I found it interesting just how no-key (not just low-key) those two were.
For those who did not watch the call, and haven’t clicked on wpr’s video, here are the final bullet points:
Stellar overperformance, relying only on gaming (i.e. not yet any contribution from e-commerce)
E-commerce and web present tremendous upside, and should be in general use by '26
Management gave stronger than typical guidance
Costs are going down, while profitability going up
TAM is off the charts
Self-service automation tools on the way
I’d also note that a long time favorite in this sector has been TTD, and a side by side comparison between the two is really eye-opening. That’s not to say TTD is not a bad bet now after its sharp and recent fall, but that is betting on a turnaround, while APP is already racing ahead.
Thanks for the discussion here. I too thought the earnings report was stellar and the guided EBIDTA margin ridiculously good.
One thing I noticed was that the advertising revenue grew:
Q4 2023 to Q1 2024 11.2%
Q1 2024 to Q2 2024 1.9%
Q2 2024 to Q3 2024 11.1%
Q3 2024 to Q4 2024 14.3%
Q4 2024 to Q1 2025 16%.
However, the guide for Q2 2025, assuming a 5% beat off guidance, comes in at $1,275M, which is a QoQ growth rate of 10.1%. Assuming an 8% beat shows a QoQ growth grate of 13.2%, which annualizes to 63%.
I noted qoq growth slowed from Q1 to Q2 2024 but they were adjusting their algorithm at that time.
Is anyone concerned about this slowdown in quarter over quarter growth? The year over year growth is still an acceleration but 10.1% qoq growth rate annualizes to 46%.
I believe Q2 is the softest quarter for AppLovin historically, because there are no school breaks in Q2 and less gaming time. AppLovin did mention that the expansion to e commerce might introduce new seasonality patterns, but since the e commerce revenue is still pretty small, the seasonality of gaming should still hold. Considering the seasonality, I think this guidance is very bullish.
In the management’s own words during the Q1 earning call:
in terms of seasonality, we have a bit of a unique advertising business because you typically expect Q1 to be a worst season. And our seasons are tied to time spent on mobile device, and Q1 gets the benefit of a whole bunch of holiday days at the beginning of the quarter, and then you’ve got other things like Ramadan, and spring break that take effect in Q1. Q2, you actually don’t have almost anything as only the tail end gets into summer. Q3, you get summer. Q4, you get the holidays. So, if you look last year at our quarter-over-quarter sequential growth, the only single-digit quarter was Q2.
Enhance ad testing and automated ad creation to improve advertiser experience.
For e-commerce and web ads, there’re 3 focuses:
Improve models. Still early days. The model can be significantly better.
“Enhance integrations with third-party platforms and attribution vendors to provide advertisers with a seamless measurement experience. The web advertising space is more fragmented than apps, so this will take time, but it’s a straightforward task.”
Develop a self-service dashboard tool for advertisers. Will launch for select customers in this quarter (so I assume the fully rollout will be at least in H2 or is toward the end of year). “While we’ve seen great performance so far in our web advertising pilot, we’re currently less than 0.1% of the potential market of total advertisers. Each new partner adds to our growth. It will take a few quarters to refine these tools for a broader release, but when we launch self-service globally, we expect it to unlock a massive opportunity.” “When we do go to a full self-service state, we’re going to open up our platform from a very small amount of advertiser penetration to the entirety of the world being able to come on to our platform.”
About tariffs:
90%+ revenue from mobile games, which aren’t directly impacted by tariffs.
For web / e-commerce, it’s possible some of the customers may be impacted, but because the penetration is very low now, management is confident to have no visible impact on their business trajectory.
Financial results:
“Our run rate adjusted EBITDA per employee in our Advertising business has risen to approximately $4 million annually”
Repurchased and withheld a total of 3.4 million shares for a total cost of $1.2 billion. (A napkin math tells me the average cost / share was at least $340, so the management must have been very bullish at this price)
Adjusted EBITDA margin of ads business was 81%, incredibly high.
Q2 is usually weakest quarter due to less holidays or school breaks.
Q1 ads revenue beat guidance by 10.38%.
Q2 ads revenue guidance is 1215. With 5% beat it will be 10.1% QoQ and 79.4% YoY growth. With 10% beat same as Q1, it will be 15.3% QoQ and 88.0% YoY growth. So it’s very likely that AppLovin will have an accelerated growth in Q2.
We should not read too much about the non-ads revenue, because that business is going to be sold for $400 million cash + AppLovin taking 20% shares. AppLovin will lose roughly $1.2B ~ 1.3B annual revenue after selling the business.
Q about churn rate
sub 3% churn for the e-commerce / web advertisers with yearly run rate > $250,000. Management said it is not acceptable because mobile ads basically has no churn. But the e-commerce / web ads are only a few months old.
Q about attribution window of the web / e-commerce ads being too short (24 hours)
Management confirmed that they could only do attribution within a cookie window because AppLovin does not have user’s email or phone number to do attribution. This means if the conversion takes a long time to happen, AppLovin may not be able to attribute that conversion back. Management said they were not concerned about this at the moment because there were many advertisers and most of conversions happen really fast.
