Noticed this on twitter. There is a short report by one Lauren Balik. The following are the key points in the report.
Thesis: “AppLovin is merely a Russian/Belarusian/Cypriot hellhole of related-party transactions on low-tier mobile games in a declining industry.”
Despite company’s claim to now be primarily a software advertising platform it is still a mobile games story.
Report claims that most of the supposed advertising platform story and resulting revenue are the result of related party circular revenue, the related parties are Cyprus-based Belarusian-owned games studios.
Lots of the evidence presented is generated by the author playing the games and assessing the games and the ads presented.
Some aspects of the report I don’t understand but it claims that Applovin hijacks ad clicks.
Claims AppLovin has foreign investment ties to several people previously involved in fraud and manipulation.
Assesses the Belarussion-Cyprus connection developed games are simply click farm optimized to serve ads.
This link is to a tweet on X that assess the record of the individual who produced the report: x.com
Thanks to Saul and all who share here. When I asked for posting privileges I committed to only posting if I had something to offer, hope this meets the board criteria.
I i currently have a 10% APP position in my stock portfolio. Like some others here and I am an old guy so App is not significant in the total portfolio. I will assess as the market opens and look for more information.
I’ll decide on how to handle my shares as the market opens.
I posted about this short attack on Jan 8. The person who wrote the short report has attacked other companies as well. She (presumed to be a woman) apparently has somewhat of a reputation for hit pieces that don’t have substantial evidence.
Further, this hit piece in particular is focused on AppLovin as a maker of mobile games. In their most recent earnings call, CEO Adam Foroughi reported that they have found a buyer for that part of their business.
Baliks claim here is that APP revenue is fradulent and her reasoning is that while the advertising revenue represents 75% of their income the biggest games using AppLovin platform don’t actually present you with third party ads (they only advertise other games).
Her evidence for this is her attempt to play games running the AppLovin MAX platform where she only gets shown ads for other games. She wonders why she’s not getting ads from actual advertisers in there.
However, MAX is not an ad sharing platform but rather an In App Purchase platform. The game she played gets its money from IAP and that’s where AppLovin gets revenue from these particular games. Or in other words, a game publisher uses the AppLovin MAX platform to collect in-app purchase money from the players and APP gets a cut from each transaction.
But why is this presented as “advertising” revenue?
In the Q4 release APP states the following:
Our core advertising business now represents substantially all of the revenue in this segment and our future focus for the company. As a result, we have renamed our “Software Platform” segment to “Advertising”
And in their last 10-Q their “Software Platform” revenue lists “In-App Purchase” as one of their largest income generators.
So Balik was looking at this game but didn’t understand where the revenue really comes from - it’s from the in-app purchases, not the actual ads shown. And this revenue still gets bundled under the “Advertising” portion of their earnings. This is what seems to have confused her.
You can still dislike the company for enabling addictive slot-machine-like games. But their revenue doesn’t seem like a mystery to me.
Sorry for the confusion, as an old guy I have by far the largest portion of family assets in much less volatile and more secure assets. APP is at 10% of the about 20% of assets in individual equity positions.
Bob
"…today we’re excited to officially announce the migration of the Unity ad network to our new AI platform, which we’re calling Unity Vector. The migration begins towards the end of Q1 with this first phase of work slated to be complete by the end of Q2 2025. Ongoing efforts to expand the scale and our quality of our offering will of course continue thereafter. "
It’ll be interesting to monitor Unity Vector.
If $APP’s claims are true, Vector will be far inferior to corresponding $APP functionality and won’t be able to catch up any time soon.
AppLovin owns MAX, the instantaneous auction platform utilized for placing ads on mobile content. In other words, they have the raw data from both sides of every mobile ad placement transaction. They have a monopoly for this vital function. This gives AppLovin’s AI engine AXON a body of vitally important data that can’t be replicated.
Some time ago during an earnings call (I don’t remember which one) Adam Foroughi, AppLovin’s CEO asserted that they could make their code base open source and it would not help a competitor because it’s the training data they have which makes their system work. I’m hard pressed to know what data Unity is using for training Unity Vector, their AI function.
AppLovin’s algorithms use AI to determine what ad to show the user. Since this person is continually playing games it makes sense the ad will be for other games as this is what the AI has determined the user is interested in. This is the same way it works with social media where if you keep clicking on a category of posts you will see more of that type of post.
There is simply no way AppLovin would have been able to take over the entire ads space for games if the advertiser was not seeing the return or it was some fraudulent scheme. The e-commerce app is getting a ROAS better than Meta ads which is why the CEO said there are “long, long lines out the door” to onboard for the pilot. It sounds like self service automation for e-commerce is set to come online too which will make revenue and EBITDA go up huge. The CEO detailed the team working on the e-commerce pilot is 20 people, showing the incredible efficiency of the business as the CEO has focused on HR to make sure they do not have excess headcount that hurts so many SaaS companies.
Adam (CEO) even said as much in a recent earnings call. I’ll paraphrase in that I’m too lazy to search for the exact quote, but in effect he said the math behind AXON exceeded his ability to follow the logic (I take it from this comment that he holds a degree in mathematics or something like that). Anyway, once the algorithms got to a point where he no longer felt like he could comment or advise in a meaningful way, he had to have a talk with himself to determine what his primary function should be. What he decided was exactly what you just reported. HR is where his energy goes. He sees it as his role to do everything he possibly can to attract and retain the right people to address the needs company. And unfortunately, this also means to reduce force where ther company no longer needs the skills of the people in related roles. AppLovin has been reducing force in the gaming side of the house for a while. Now they’ve found a buyer for the entire business.
The stock is down .8% today and only up 44% ytd.