AppLovin reported a record quarter in Q1 2024 with significant financial growth and operational achievements.
Total revenue reached $1.06 billion, with a 52% adjusted EBITDA margin.
Revenue growth was nearly 50% compared to the same period last year, and adjusted EBITDA doubled.
The company generated $388 million in free cash flow, a 71% flow-through from adjusted EBITDA.
Software platform revenue was $678 million, with adjusted EBITDA of $492 million, retaining a 73% margin.
Adjusted EBITDA from the software platform more than doubled from the same period last year.
A slight increase in cloud data center costs was noted due to reserving GPU capacity for future growth.
Business Performance and Strategy
AXON 2, a key product, has significantly contributed to the company’s growth, with software business revenue growing from $355 million to $678 million in one year.
Improvements to AXON are expected to continue driving growth, with potential for unpredictable but significantly positive quarters.
Expansion beyond the mobile gaming market into web-based marketing and e-commerce is anticipated, leveraging AI model improvements.
Capital Management and Shareholder Value
The company amended its term loans, reducing interest expenses, and included outstanding revolver borrowings previously used for share repurchases.
AppLovin repurchased and withheld 14.9 million shares of stock, reducing total shares outstanding by approximately 3%.
Since early 2022, nearly $2.6 billion has been spent on repurchasing and withholding a combined 79 million shares, a 20% pro forma reduction in total shares outstanding.
Future Outlook
Q2 guidance predicts revenue between $1.06 billion and $1.08 billion, with adjusted EBITDA ranging from $550 million to $570 million, representing a margin between 52% and 53%.
Question and Answer
Strong Q1 Performance and Growth Drivers
Question
What were the key sources of outperformance in the recent quarter, and how does the company see the trajectory for software and AppDiscovery growth beyond the AXON cycle in the gaming and e-commerce verticals?
Answer
The outperformance was driven by adding more advertisers within gaming and expanding into new verticals.
Ongoing enhancements to the core models, which are self-learning and continuously improving, will be a key driver of future growth.
The company expects software to be a long-term 20%-30% grower with a focus on adding more advertisers, vertical expansion, and technology improvements.
AXON 2 Engine Expansion and Sales Strategy
Question
Can you provide an update on the AXON 2 engine’s expansion outside of the gaming vertical and the company’s sales strategy for new channels?
Answer
The AXON 2 engine has shown success with non-gaming apps, and the company is launching web advertising on its platform, particularly targeting e-commerce.
The company’s sales strategy remains focused on a product-first approach, leveraging successful performance in the gaming vertical to drive organic adoption and partnering with transactional categories that need more marketing solutions.
Header Bidding and Unity’s Involvement
Question
What is the quarterly revenue run rate trajectory for header bidding and the MAX business, and what are the strategic implications of Unity bidding into AppLovin MAX supply?
Answer
The company does not disclose specific revenue figures for header bidding but notes a positive trend and an acceleration in Q1.
Unity’s involvement is not viewed as a significant change in the competitive landscape, as the majority of the market already bids in real-time, and AppLovin operates a fair and transparent auction with no data advantage for Unity.
Net Revenue for Install Growth
Question
Can you provide an update on net revenue for install growth and any factors influencing it?
Answer
The specific figures will be disclosed in the 10-Q, but similar to prior quarters, there has been an increase in both net revenue per install and the volume of installations due to continued improvements in AXON.
Performance-Based Advertising and Brand Advertisers
Question
Why does the company focus on performance-based advertising in new verticals and not brand advertisers, and can you provide an update on the Wurl business and its contribution to revenues?
Answer
The company’s focus on performance-based advertising is driven by its product-first approach, belief in the power of measurable results and closed-loop attribution, and the ability to drive automatic spending increases for successful advertisers.
Wurl’s growth and contribution to revenues are still too small to break out, but the company is focused on bringing demand online to monetize the supply it has added.
Capital Allocation and Incremental Margins
Question
How does the company think about capital allocation for organic versus inorganic growth, and what are the expectations for incremental margins as the business sustains high levels of growth?
Answer
The company sees organic growth as the primary driver, leveraging its AI technology, building on partnerships, acquiring more data, and expanding its reach through existing channels like carrier OEM and CTV.
Incremental margins are expected to continue expanding with increased development of AXON and improvements to technology, while remaining relatively flat as volume grows.
Winning Advertiser Dollars and Mobile Gaming Market Growth
Question
Besides AXON, what factors are winning incremental advertising dollars, particularly from larger app developers, and what is your view on the growth of the mobile gaming market?
Answer
The company’s system does not have budgetary limitations, allowing larger advertisers to spend more based on their successful base business and the system’s ability to deliver value.
The mobile gaming market is expected to see growth, driven by AppLovin’s success in attracting billions of incremental advertising dollars through its technology and platform.
Competitive Dynamics and Future Outlook
Question
Do you see any competitors ramping up efforts to challenge your business, and how are you preparing for potential changes in the competitive landscape?
Answer
The company believes its technology is highly advanced and difficult to replicate, with a multi-year head start over potential competitors.
Even if the company were to open-source its code, the data and feedback loop required for AI models to improve are unique to AppLovin’s platform, further solidifying its competitive advantage.
The company remains focused on expanding its business outside of mobile gaming and sees its leadership position and AI capabilities as key differentiators that will continue to distance it from competitors.
Advertising Market Growth and MAX Marketplace as Proxy
Question
Can you comment on the underlying advertising market growth in 1Q and 4Q, and is the MAX marketplace a good proxy for the overall market?
Answer
The company does not have specific figures for overall advertising market growth but notes that the MAX marketplace is a good proxy for mobile gaming advertising growth, given its leadership position and market share.
Interpretation of Net Revenue per Install and Volume Growth
Question
How should we interpret the 5% net revenue per install and 87% volume of install growth, and is there a relationship between the two that provides insights into underlying market changes?
Answer
The significant increase in the volume of installations is correlated with an increase in advertiser spend, and the year-over-year rate change is influenced by the AXON 2 launch and subsequent spending growth.
