Thank You to Saul, the Moderators and to everyone on this board for all you do.
Original introduction by Mekong at Introducing AppLovin (APP)
Description
- AppLovin products arbitrate between Sellers and Buyers of mobile (“in-App”) advertising space.
- The Sellers of the advertising space are mobile-App (“App”) Developers.
- The Buyers of the advertising space are folks who want to advertise their wares on the screens of users using the Apps.
- They publish and operate tools that assist both Buyers and Sellers.
- I think the shares are about to land a massive one-two punch on the market: the jab is unforced own-goals committed recently by their only real competition ($U), and the cross is their recently leveled-up AI engine “AXON 2” which is producing excessively good results. I think the revenue numbers (…see charts below) don’t really betray the growth explosion $APP is about to see.
Rapidly improving metrics: Revenue Growth
2019: $0.994B
FY2020: $1.45B
| Rev$M | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2021 | 604 | 669 | 727 | 793 |
| 2022 | 625 | 776 | 713 | 702 |
| 2023 | 715 | 750 | 864 | 953 |
| YOY% | Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|
| 2021 | 132 | 123 | 90 | ? |
| 2022 | 4 | 16 | -2 | -11 |
| 2023 | 14 | 23 | 21 | 35 |
Gross Margins
67.74%
Recurring Revenue model and numbers
“Software Platform revenue”
2021: $700 million
2023: (almost) $2,000 million
(Software platform revenue grew by 76% in 2023.)
Their Sales Pitch
Refer to quotes from CC, below. They have a massive global audience of about a billion people, and the efficiency/effectiveness with which they can market/sell to those billion people has just-now taken a quantum leap forward. Revenue is accelerating rapidly, and they are in the early stages of a huge greenfield opportunity.
Moat
They have a much better sales engine than their only real competition ($U), who in any case has recently managed to alienate itself from its Customers (App Developers).
Founder-Led / Inside Ownership
I still need to look into the CEO, Adam Foroughi. I think he owns about 10% of $APP shares, but I need to verify.
From the latest CC:
"…we launched AXON 2, the upgrade of our AI platform in Q2 last year. From that point to Q4, the business – the software business grew almost 50%. And obviously, you know, the impact on margins. We’ve talked about a huge flow through in dollars. The incremental dollars of growth there coming in at 80% roughly in the quarter. This is an early-stage technology. It’s only been live for a little over half a year. It’s growing exceptionally quickly, very high margin. We think the applications of this core technology are much broader than what we do today. "
…and:
“Look, I mean, what people don’t understand about our platform, and I guess we don’t tend to articulate to is the MAX business sits on top of over 1 billion daily active users, 1 billion users playing games. So if you think about in the U.S., roughly 170 million daily active users. So you’re talking about the majority of American adults are playing games daily in mobile apps, and we’re able to service them.
Historically, in this channel, the modernization has been very low per 1,000 impressions, compared to what the social networks and the search engines and the video apps have gotten to. And those companies had very sophisticated technology and a lot of data. We’ve been able to get to a point now where our technology has become much more efficient. So we’re just monetizing this audience more effectively.
What gets us really excited is we’re a couple of quarters in. We’re really starting from a low monetization point. The whole market is monetizing these users playing games at a low point. When you have that much reach, 170 million daily actives in the states, these aren’t people that are just playing mobile games. There’s just no way. It’s a very, very widespread audience, predominantly adult that are doing other things.
And as these technologies get to a point of predicting more broader application of advertising to this audience, not only will it get more efficient, it will expand out the reach for a company like ours to other verticals, and it will create more efficiency for the publisher, we should grow everything. And so that’s what gets us really excited is it all comes down to efficiently monetizing a huge audience that we have access to.”
…and the numbers reflect that: incremental revenue growth in their Software segment is dropping straight to the bottom line.
My commentary:
They have a major tailwind that is not accounted for in any of their reported metrics: their main competitor, Unity, recently alienated a huge percentage of their customer base; those customers are flocking to $APP as I type this.
That said, their numbers (low P/E for such good margins etc.) have attracted a LOT of attention; there seemingly is a geometrically increasing number of authors writing up BUY recommendations on SeekingAlpha, including THREE NEW ARTICLES JUST TODAY.
Bert published a SA article about them recently as well.
They eat their own dogfood: they have a stable of Apps they have developed, which collectively serve as a flywheel, because as users of their own software they are able to understand, from their Customers’ POV, which challenges most need to be addressed and which can most profitably be monetized.
AppLovin has aspirations to expand into adjacent revenues: Connected TV, Streaming, “Carrier & OEM” and (they assert): “new applications of our AI technologies in the coming quarters and years, which has the potential to significantly broaden our TAM and opportunities.”
They assert that their AI advertising engine (“AXON”) is largely responsible for the re-acceleration of platform growth in 2023. IMO this could be very analogous to the $META, which is benefiting from an acceleration in ad sales driven by a recently improved AI.
They have made some acquisitions (…they even tried/failed to buy $U), and they have a term loan that they recently extended; it matures in 2030.
There’s additional exciting stuff I’ll post, but don’t want to make this one too long.
I’ve taken a (for me) medium-sized position.
- -intjudo
