Weekly Update August 25-29
AppLovin' + Portfolio Maintenance Research
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AppLovin is astounding to me. Despite being at a $5 billion revenue run-rate, its EBITDA run-rate is $4 billion. Yes, you read that correctly. I don’t understand how its EBITDA margins rival Visa and Mastercard. Typically, ad networks have a 20% take-rate, like The Trade Desk, but in mobile gaming, AppLovin built out and acquired a vertically integrated network, both buying and reselling gaming inventory. This enabled take-rates to reach 40% sometimes and fueled incredibly high margin growth. The company recently sold their first-party gaming business so now the programmatic software business makes up 100% of revenue.
Last quarter, FCF margins were 61% and revenue grew 77%. Not many companies out there almost have a rule of 140!! (Instead of just 40). The company is founder led by Adam Foroughi and my sense is that even he’s been surprised by the success. In the past, he’s tried to sell the business twice but he seems reinvigorated by AI and the ability to have incredible ROI on their platform. The company’s AXON 2.0 AI system is apparently insanely good at performance marketing, nearly a requirement to use if you want to get a mobile game downloaded. However, the company is expanding beyond just mobile gaming, into other app downloads as well as connected TV and even e-commerce. The self-service portal will be fully launched by Q4 and management was extremely bullish on this in the latest call.
The numbers are almost too good to be true. I have yet to see margins like that but it is a result of very high take-rates and VERY lean operations. The company spends just 5% of revenue on G&A and has revenue/employee numbers that rival Meta. Speaking of which, it’ll be interesting to see how AppLovin does with the e-commerce launch. Meta is extremely aware of competitors so I wonder if they’ll clap back or Zuck is too busy shelling out billions for AI talent. Either way, APP is one to watch.