Question about AppLovin

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Hi, I have a question about AppLovin. It looks like AppLovin never talks about any metrics related to the inventory for ad space. For example, DAU, number of ad impression, or time spent in apps, etc. The only DAU number I could find was in AppLovin’s 2024 annual report, which stated that they had ~1.6 billion DAU.

Does anyone know any previous data so we could measure its trend?

In Q1 earning call, when an analyst asked about the inventory, it sounded like the management admitted that they had roughly static inventory.

Well, look, we have a very large scale static base of inventory. I’d say if you look at Meta’s business or YouTube, these are static bases of inventory. It’s not like there’s new users pouring in, especially in the States. But what’s happening across the companies that are doing well in performance advertising is the matching and the technology algorithm is getting stronger. We’re starting at a very, very low place.

I think in the past, we’ve said, look, we’re driving a 1% transaction right now. We’ve grown a lot, so that’s probably gone up a little bit. Doesn’t have to go up a lot for our business to expand dramatically. We think that can go up to become 2%, 3%, 4%, 5% over time. The ads are very, very impactful. It’s full-screen video. It captures the user’s attention. And the more advertiser demand we get as we open up our self-service platform and hopefully bring on thousands, tens of thousands, eventually hundreds of thousands of millions of customers, we’re going to have more content to show the end consumer. We’re going to pair that with personalized ad creative.

The consumer response is going to go up. That’s going to help us. It’s going to help our publishers. It’s going to help our partners, and we think it’s going to catalyze potentially years and decade plus of growth.

When we look at a pure ads company, I think it’s very important to understand the inventory as well, because ads revenue is essentially inventory * revenue-per-ad. When the management said that Meta’s inventory is static, I don’t think it’s true, because Meta’s app family (including Facebook, Instagram, WhatsApp and Messenger) has been growing DAU and user engagement steadily over time.

It may be too early to worry about the inventory of AppLovin because, as the management said, their ad performance still has a ton of room to improve. But the inventory of ads can potentially set up a soft ceiling of this business’s market value and can be important for us to analyze its instinct value. And if the inventory ever starts to drop due to decline of DAU or app engagement, then it could be a big problem.

Luffy

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I have a question where are you seeing that Meta DAU growing steadily? I see that they stopped reporting it in December 2023. My thoughts is that it was not growing and they don’t want to keep reporting that. They switched to DAP (Family Daily Active People) which grew 5.8% year over year. Which to the growth of APP would seem like a static level.

Also I don’t think that APP has a set inventory. They are the middle men, they buy ad space and sell ad space more effectively than other. They way I read and understood their conference calls was that they were limited by people buying their ad space and sometimes they would limit how much someone could buy to maintain the quality of the results. When people bought their ad space they would find the best place for them to place their ads. But you could be on to something in the future that they might become limited on the amount of ad space they can procure. But the tone of the CEO was that opening up to e-commerce would allow them more inventory access because some companies don’t like selling advertisement to their competitors.

Drew,
Long

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Meta does still report family DAU each quarter, which is still steadily growing. It’s relevant as well because all of the 4 apps can be monetized, though Messenger and WhatsApp have way lower monetization efficiency than Facebook and Instagram. And Meta also reports Ad impressions, which is a direct metric in terms of inventory. It’s also still growing YoY. These can be found in Meta’s earning slides.

I hope AppLovin has at least static inventory base, but I’m also worried that it could shift down one day. Without these metrics, I think we lack of visibility of AppLovin’s real state of growth. Without inventory expansion, I think AppLovin’s revenue growth can get very slow once their ad performance optimizations get to a mature stage.

Luffy

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I guess I would disagree with you premise that inventory is the limiting factor. During the 2Q24 Omar Dessouky from BofA asked how they felt comfortable forecasting long-term growth at 30% - 50% per annum.

Adam Foroughi (CEO) provided this answer (I paraphrase): In order to achieve 30% - 50% YoY we need 5% - 7% QoQ (that’s just math). So where does that come from? The mobile gaming vertical reliably provides low single digit growth QoQ. Model enhancements due to growth in the training database drives ~3% QoQ. And as AXON gets smarter it brings ~4% QoQ via improved targeting.

And this does not include the step improvements gained from engineering improvements of the model. In addition, this was before there was any mention of new business from ecommerce.

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@brittlerock I’m not saying the inventory is limit factor right now but it could be in the future. This hypothesis is derived from the simple formula, ads revenue = inventory * CPM / 1000. So a company can grow revenue by either improving inventory or CPM. AppLovin’s current growth is driven by the fact that:

  • CPM is low and has a lot of room to improve (e.g. by model improvements)
  • Even the inventory may not be fully utilized yet, as they did not do global expansion or have a perfect 100% ad fill rate.

But every ad tech company would have this same stage. Meta also used to have the time when CPM was just so poor that they could grow quickly through model improvements or building necessary advertiser tools like the one AppLovin is currently building. In fact, Meta’s CMP is still growing and their model is still improving today. But what makes Meta’s ads revenue to grow at the rate today is driven by a combination of growth of inventory and growth of CPM.

Luffy

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OK - But the CEO says they have “decades” of future growth before them. He also says it’s not a layup, it will take a lot of hard work. I guess I’m prone to agree with him in that they are still growing based on their traditional market, just beginning to open the door on ecommerce and have only begun to get prepared to enter the CTV arena via the purchase of WURL. So even if “decades” is an exaggeration (I will add the observation that Adam is very measured in what he says and not prone to overstatements), but if it’s only a decade rather than decades, that’s a lot. And I don’t see why it couldn’t be decades, as you observed, META is still growing.

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