Q3 2024 AppLovin Corp Earnings Call
David Karnovsky, David Karnovsky, David Karnovsky
and David Hsiao, Herald Chen, Matt Stumpf, and Herald Chen, Matt Stumpf.
Welcome to Apploven's earnings call for the third quarter and it's September 30th, 2024. I'm David Hsiao, Head of Investor Relations.
Joining me today to discuss our results are Adam Foroughi, our co-founder, CEO, and chairperson, and Matt Stumpf, our CFO.
Please note our SEC filings to date as well as our shareholder letter and press release discussing our third quarter are available at investors.applovin.com
During today's call, we will be making four looking statements regarding our products and services, market expectations, our share repurchase program, including future amounts available for repurchase, the expected future financial performance of the company, and other future events.
and Matt Stumpf. Thank you. Thank you.
These statements are based on our current assumptions and beliefs and we assume no obligation to update them except as required by law. Our actual results may differ materially from the results predicted.
We encourage you to review the risk factors in our most recently filed Form 10-Q for the second quarter ended June 30, 2024.
Additional information may also be found in our quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2024, which will be filed later today.
We will also be discussing non-GAAP financial measures. These non-GAAP measures are not intended to be superior to or a substitute for GAAP results.
Please be sure to review the reconciliations of our GAAP and non-GAAP financial measures in our Earnings Release and Shareholder Letter, available on our Investor Relations site.
This conference call is being recorded and a replay will be available for a period of time on our IR website.
Now I'll turn it over to Adam and Matt for some opening remarks, then we'll have the moderator take us through Q&A.
Speaker Change: Thank you all for joining us. We're excited to welcome a growing group of investors this quarter. Before we dive into our strong Q3 results, I want to emphasize the role that our culture plays as a fundamental strength in our business.
Speaker Change: Recently, in Silicon Valley, much has been said about the importance of founder mode. While I'm a very hands-on founder, I believe that the key to our success lies not only in my hands-on approach, but more importantly, in surrounding myself with a team that shares a similar mindset and drive.
Speaker Change: Here are some defining traits of that mindset.
Speaker Change: We act like owners, treating the business with personal accountability.
Speaker Change: We approach each day with urgency and purpose.
Speaker Change: We have an insatiable desire to learn.
Speaker Change: We are driven by a relentless pursuit of excellence.
Speaker Change: We're constantly optimizing for diversity of thought and unity of ambition.
Speaker Change: We prioritize automation wherever possible.
Speaker Change: We don't get bogged down in overthinking. Instead, we make decisions and take action, adjusting quickly when needed.
Speaker Change: Our managers aren't just managers, they're doers and expected to lead by example.
Speaker Change: We take pride in our profitability, with our business generating over $1.5 million in run rate adjusted EBITDA per employee, an efficiency we aim to improve. This quarter, I took on oversight of our HR function to ensure our culture thrives as we continue to grow.
Speaker Change: Now turning to our core lead performance.
Speaker Change: We continue to execute well, expanding our core business and laying the groundwork for sustained growth.
Speaker Change: Last quarter I shared our confidence in achieving 20-30% year-over-year growth for the foreseeable future.
Speaker Change: We continue to expect 4-5% quarterly growth through self-learning and market growth, with occasional step changes resulting from enhancements to our Axon algorithm.
Speaker Change: This quarter, we saw one of those step changes, with meaningful growth driven by advancements to Axon.
Speaker Change: While we can't predict the timing of these breakthroughs, we are in the early stages of AI software development, both within our company and in the broader industry.
Speaker Change: We expect ongoing research advancements to continue driving our technology forward.
Speaker Change: While we remain confident in 20-30% growth for mobile gaming advertisers alone, we're also exploring new areas, as shown by our recent e-commerce pilot.
Speaker Change: Early data has exceeded our expectations, with advertisers and the pilot seeing substantial returns, often surpassing those from other media channels, and in many cases experiencing nearly 100% incrementality from our traffic.
Speaker Change: We're increasingly confident this vertical will scale significantly in 2025 and become a strong contributor for us over the next year and beyond. To support this, we've streamlined resources and are reallocating talent from other initiatives to our e-commerce go-to-market team.
Speaker Change: In the next few quarters we'll launch a self-service platform opening global opportunities for advertisers of all sizes.
Speaker Change: Next, an update on our earnings communication.
Speaker Change: While we've been issuing quarterly shareholder letters, we believe businesses are built over years, not quarters, and to align with this vision, we will shift to an annual shareholder letter.
Speaker Change: Financial results and guidance will still be released quarterly, but each year will provide a comprehensive summary of the past year and our plans for the future in the form of an annual shareholder letter.
Speaker Change: Finally, I'd like to thank our team for their outstanding execution and relentless drive.
Speaker Change: After 13 years, I'm continually inspired by the passion and excellence that define our company.
Speaker Change: We're in the early stages of building one of the world's most innovative technology platforms.
Speaker Change: The future is incredibly bright, and we have the right team to seize every opportunity in front of us.
Speaker Change: Now I'll hand it off to Matt to run you through the financial details.
Matt Stumpf: Good afternoon. We had another fantastic quarter, with total revenue reaching $1.2 billion and adjusted EBITDA of $722 million, achieving a 60% adjusted EBITDA margin.
Matt Stumpf: This marks a 39% increase in revenue and a 72% increase in adjusted EBITDA from the same period last year, translating to an impressive 91% flow-through from revenue to adjusted EBITDA.
Matt Stumpf: In the third quarter, we generated $545 million in free cash flow. That's up 182% year-over-year. Quarter-over-quarter, our free cash flow grew 22%, consistent with adjusted EBITDA growth over the same period.
Speaker Change: and representing 76% flow-through from adjusted EBITDA to free cash flow.
Speaker Change: At the end of the third quarter, we had $568 million in cash and cash equivalents.
Speaker Change: and 335 million shares outstanding.
Speaker Change: During the quarter, improvements in our Axon technology, driven by ongoing self-learning and enhancements by our engineering team, contributed to further growth of our software platform.
Speaker Change: This segment generated $835 million in revenue and $653 million in adjusted EBIT debt, achieving a 78% margin and growing 66% in revenue and 79% in adjusted EBIT debt from the same period last year.
Speaker Change: https://www.youtube.com.au
Speaker Change: Quarter-over-quarter flow-through from revenue to adjusted EBITDA was 107%. Our software platform adjusted EBITDA this quarter was positively impacted by several non-recurring cost benefits associated with the renewal of our Google Cloud contract.
Speaker Change: PSU vesting in the prior quarter, and foreign exchange. On a normalized basis, we estimate our quarter-over-quarter flow-through would be approximately 100%.
Speaker Change: As our core advertising business now represents substantially all of our software platform revenue and future focus for the company, starting with our next shareholder letter, an annual 10k, we will rename our software platform and associated revenue to advertising to better align with the nature of this business.
Speaker Change: Our app's revenue for the quarter was $363 million, a 1% increase from last year, with $68 million in adjusted EBITDA, representing a 19% margin. We continue to expect the app's business to be stable in the future.
Speaker Change: We believe a strong capital structure and effective capital allocation plan are crucial to the creation of long-term shareholder value. To that end, we're focused on a few areas.
Speaker Change: First and foremost, to drive organic growth by recruiting top talent and investing in our technology in the most lean and cost-efficient way possible.
Speaker Change: Second, to manage our outstanding shares through ongoing repurchases funded from free cash flow and prudent equity grants to employees.
Speaker Change: This quarter, we retired and withheld a total of 5 million shares for a total cost of $437 million.
Speaker Change: to further our share management efforts.
Speaker Change: We also received our board's approval to increase our repurchase authorization by $2 billion, bringing our remaining authorization to a total of $2.3 billion.
Speaker Change: And third, to build a strong capital foundation with sufficient liquidity to support financial flexibility with a net debt leverage ratio below two times.
Speaker Change: Finally, turning to our financial guidance for next quarter.
Speaker Change: In the fourth quarter of 2024, we anticipate to deliver between $1.24 and $1.26 billion in revenue, with adjusted EBITDA between $740 and $760 million, targeting an adjusted EBITDA margin of 60%.
Speaker Change: Now with that, let's move to Q&A.
Speaker Change: Okay, we will now begin the question and answer portion of our call. Be sure to unmute your equipment, turn your video on before asking your question.
Speaker Change: Hey, can you guys hear me all right?
Speaker Change: We can't hear you, we can't hear you well.
Speaker Change: Okay, sorry, having some tech issues tonight, which is something that you guys based on these quarters results is you're completely unfamiliar with, I just wanted to.
Speaker Change: If I could, I wanted to unpack 3Q performance a little bit, Adam. At the risk of asking, you know, kind of an obvious and dumb question, I would assume that while commerce is in pilot phase, there's really very little revenue contribution. Is that right? And then if so,
Speaker Change: you know, for the existing gaming and non-gaming businesses, was one a bigger contributor this quarter, meaning was, you know, was one more responsive, I guess, to the performance improvements that you delivered?
Speaker Change: And then Matt, I'll just ask, you know, amidst my tech difficulties, a second question and then get out of the way here.
Speaker Change: The capacity increase that you took down this quarter, is it possible to contextualize for us how big the cluster expansion was? And was this earlier than you expected also? Thanks a lot.
Speaker Change: Yeah, so e-commerce is still in pilot, as we touched on last quarter. I'll say before it jumps into impact this quarter, it's
Speaker Change: It's a super compelling product. Our team has done an amazing job building it. In all my years, it's the best product I've ever seen released by us, fastest growing, but it's still in pilot. So compared to the scale of our business inside gaming, it's too early for e-commerce to make a financial impact that's material. The step up this quarter was entirely on the gaming side, which obviously is the vast majority of our advertising business today. We've talked for multiple quarters now about how there's a long runway in gaming.
Speaker Change: The gaming category has a need for more UA dollars spent.
Speaker Change: But it's constrained by the return on ad spend goals of the advertisers and the technology capabilities that a platform like us has today.
Speaker Change: Now, our technology continues to improve. We've got a long roadmap of enhancements that we can deliver to this platform, because like I said in the talk script, these AI technologies are just really, really early in existence, both internally and externally, and all research advancements are going to let us really expand the business inside the gaming category.
Speaker Change: ecommerce on the other hand is looking so strong that it's something that we think will be impactful to the business financially 25 and then for the long term
Speaker Change: And in terms of the Google Cloud question, Clark, that you asked, so the renewal of our contract was slightly earlier than the planned renewal.
Speaker Change: But that was for us to really get capacity to support future growth. So we signed up the contract and renewed in advance of kind of the normal timing of the end of that contract. But
Speaker Change: That was because we've had such fantastic success with the software platform thus far and we wanted to continue to support that growth over the next
Speaker Change: A couple of years.
Speaker Change: The only thing I'd add there, too, is Google's been a great partner for us on the cloud side. They've gotten us the compute that we need. We've got one of the largest GPU deployments in the world at this point, and we like to invest ahead of our needs so that we can continue to build more complicated models that'll help the business scale. So when we make these investments, we're investing in infrastructure that is quarters ahead of where we are today in terms of consumption.
Speaker Change: and David Hsiao. Thank you. Thank you.
Speaker Change: Okay, our next question comes from Jason Bezinet with Citi. Jason?
Jason Bezinet: It's exciting to hear that you're
Jason Bezinet: Excited about your e-commerce pilot. I just had one question.
Jason Bezinet: as investors sort of think about the ramp of that business. Is there anything about it
Jason Bezinet: that could could ramp more slowly even if you're more excited about the efficacy of the product.
Jason Bezinet: and I'm thinking specifically
Jason Bezinet: about, you know, your brand just not being known in e-commerce circles, and maybe you have to spend marketing dollars or hire a sales team or something that's just different than the brand name you have within the gaming ecosystem that could make it
Jason Bezinet: Ramp more slowly even though it might be a better product or as good of a product. Thanks.
Speaker Change: Yeah, good to see you, Jason.
Speaker Change: Look, e-commerce is a new category for us, so we do need brand awareness. That's a given. But our products are really good, and the key to when we started the business and doing so well in gaming is we took a really long-term approach. We said we're going to build a product that's so good that advertisers have to have it. We're not going to invest heavily in sales, and we're going to organically grow over the years.
Speaker Change: And we've done that. And you can look at the trajectory of the company since we've been public, but even if you backdate it to when we started, every year we've gotten bigger and gotten more penetration into the gaming category and done it organically. So when we look at e-commerce, we're not in any sort of rush.
Jason Bezinet: Now, that said, if you check even Twitter today, there's tons of noise from e-commerce brands.
Jason Bezinet: saying, in our pilot, they're seeing as much scale and as strong of ROAS as they're seeing anywhere in the world today on their user acquisition bias. So when you have that kind of performance, you're delivering an automated return on ad spend model approach to a very large fragmented category like e-commerce. That desperately needs another marketing channel after having so many promises in the past that haven't panned out. It's something that's probably going to get a lot of noise and be very attractive to the other side very quickly.
Speaker Change: Thank you.
Speaker Change: Okay, our next question comes from Matthew Kost with Morgan Stanley. Matthew?
Matthew Kost: Great, thanks for taking the questions. I guess the first one is just on that e-commerce pilot. Sorry, can you guys hear me? Yeah, we can hear you fine, Matt.
Matthew Kost: So the question is just on that e-commerce pilot.
Speaker Change: Given that you're, based on the results of the pilot, successfully expanding into other verticals and using Axon and the data available to you to target other types of advertising outside of gaming, do you have any reason to believe or any doubt about the ability to expand the model to cover other verticals, other than just e-commerce? Because it seems like, given the size of the audience and just the amount of data that you have to observe,
Matthew Kost: It shouldn't necessarily just be limited to e-commerce. If you can move beyond gaming, do you believe you can move to other verticals? And I have one follow-up. Thank you.
Speaker Change: Yeah, great question. 10 years from now, we think every advertiser that has a transactional model, whether it's collecting an email address for a newsletter or a local pizza shop,
Speaker Change: Great, thanks. And then Matt, I just want to revisit, and you talked a little bit about this in the prepared remarks, capital allocation.
Speaker Change: on your guys' mind on the advertising side, or do you have what you need?
Speaker Change: Yeah, maybe I'll do answer those in inverse order, Matt. So on the M&A's front, you know, we've been pretty consistent in communicating that, you know, our focus is really on growing the organic business, and we have no plans, right, to do any M&A at this point on the advertising side of the business, and obviously we've communicated in the past about the apps business.
Speaker Change: that we've optimized that for profitability and we're comfortable in divesting that business if the opportunity arises.
Speaker Change: In terms of the buyback, really the stock price increase has no impact on our decision to continue to.
Speaker Change: to buy back our own shares. You know, if we look at the company's long term trajectory and the, you know, our goal in the future of growing the business 22 to 30% plus, you know, we still feel like our stock is a great investment for shareholders.
Speaker Change: Great, thank you.
Speaker Change: Okay, thanks. Thank you. Guys, I wanted to ask whether the timing of your e-commerce
Speaker Change: solution for general availability has shifted at all, you know, since the last earnings call.
Speaker Change: And also, if you could update us on your thoughts about your go-to-market partners, if there's any more specificity you could give on that, that would be great. And then I have a follow-up, which is more of an educational question for new investors.
Speaker Change: All right. Good to see you, Omar. Good questions.
Speaker Change: So, timing-wise, we're still on track, we're approaching it the same way as we always have. In pilot, we look at it as, what we define as a pilot, is what our people on the business team, which we run pretty lean, as you know, can handle in terms of onboarding and really working with the advertiser closely to scale.
Speaker Change: General availability to us is a self-service state where advertisers of all types can just come into the platform and start marketing. And so that's some point next year, as we've touched on before. The one thing I'll say in terms of partners, we haven't disclosed any partners.
Speaker Change: But I referenced this a couple seconds ago, if you search Twitter, you're going to start seeing more and more noise because the customers are seeing a lot of success, and we're not going to be able to stop social media from talking about the successes that they're having on our platform. So that's the way you can really decipher which customers, how are they performing, and then what else is out there.
Speaker Change: Awesome, thank you. So just one more like educational question, you know now you know the market cap of your stock has gone up much higher and is is a lot closer and has eclipsed some.
Speaker Change: Some of them are in the open web, and I was wondering if you could explain what are some aspects of...
Speaker Change: The DSP ecosystem that you're in that lend itself to
Speaker Change: an arbitrage model, which is what I understand how it's run, as opposed to a percentage of gross ad spend model like we see in open web DSPs.
Speaker Change: Yeah, I guess.
Speaker Change: More specifically, you're referencing trade deaths versus our business models, like, it's just two different approaches to the market. They've targeted the big agencies.
Speaker Change: and taking a very smart software-as-a-service type of approach.
Speaker Change: and we've targeted brands and direct-to-consumer and e-commerce, gaming, game developers on the gaming side. And what these companies care about is not the media dollars or percentage markup. They care about optimization and automated advertising to a revenue goal. And that's really like what our system is predicated on is that.
Speaker Change: We take all the risk on the media side. We have to deliver a really compelling performance on the technology side.
Speaker Change: What's most exciting for me on what we built, and where we are in terms of, like you said, market cap and scale of the business today, is we're on top of 1.4 billion daily actives. So it's really easy to forget the scale of the audience reach that we have on our platform. We've got the largest mediation solution in the sector, and our team's built maybe the most innovative advertising technology that the world's yet seen.
Speaker Change: and we're now scaling it out. And so if you sort of just fast forward over the quarters and the years from here, we're going to be able to service tens of thousands to hundreds of thousands to millions of advertisers on our platform to access this audience that they had never accessed before. And now, mobile devices, you think about the four hours to five hours a day of time spent, this is a 45-minute component of that four hours.
Speaker Change: that is untapped for most of these advertisers, our technology can now unlock it for them. And this was never possible historically on any platform. So it gives us a lot of excitement that not only are we performing today, we've got a long runway to expand this platform and become one of the strongest companies the world's seen.
Speaker Change: Thanks a lot, Adam. Appreciate it. Yep. Thanks, Emmer.
Speaker Change: Our next question comes from Chris Kuntarich with UBS. Chris.
Speaker Change: David Hsiao, David Hsiao, Matt Stumpf, Tim Nollen,
Chris Kuntarich: Great. Thanks for taking the question. Maybe another one here on e-commerce.
Speaker Change: Adam, I think you had said on 2025, we should be starting to see a material contribution. We've been getting a lot of questions from investors just kind of how to be thinking about material and
Speaker Change: Just in any tighter of a time frame, you could maybe help us understand. I know 1Q is seasonally weak for e-commerce, but could it be as soon as 1Q that we start to see a contribution from that business?
Speaker Change: Title Microsoft Office Word Document MSWordDoc Word.Document.8
Speaker Change: Like we've said, we're confident in the 20 or 30% in gaming alone. This is sort of additive. I also just said it's the fastest growing product I've ever seen. So it looks really good. Now, if we were scaled in e-commerce, we'd have seasonality in the business. We don't today really have seasonality in the business. When you're in pilot, you're talking about tens to hundreds, total shops. And so
Speaker Change: We're really just early stages here, but the performance is really strong. So it's harder for us to predict how quickly it can ramp. And I do like to remind people that, you know, when you have a scaled business, I think run rate wise, now 3.3 billion or so on this advertising business.
Speaker Change: That's really a lot of net revenue that we're reporting, gross it up to total ad dollars on the platform, and for e-commerce to really drive material impact.
Speaker Change: and let's define that by 10% plus is going to take some time to ramp up to, but we've never seen anything that looks like this in terms of strength in market. And so if it does scale the way we think it will, it's going to make an impact in 2025.
Speaker Change: Got it. Very helpful. And maybe just one more.
Speaker Change: Shifting over to the licensing side, you've had this partnership with
Speaker Change: with Flip, the Flip app. Curious kind of what those learnings have been and kind of what that has influenced either from your e-commerce roadmap or how you think about potentially licensing Axon Q out to other platforms.
Speaker Change: Yeah, we talked about Axon licensing a couple quarters ago. It's still something that we're working on, but in all fairness to that product, it's sort of longer term focus, not short term focus.
Speaker Change: We're all hands on deck, both on the business side and the engineering side on scaling out what we think is this e-commerce scale-out, and then broader than that, as I touched on to Matt's question a second ago. So that's so just compelling that it's taken all of our resources now, and we're trying to speed it up as much as we can with the resources we have available. That doesn't mean we're not excited about Axon licensing. It just means that that's going to come secondary to the opportunity in front of us on the other side.
Speaker Change: Great, thanks.
Speaker Change: Great, thanks for the question. Based on the revenue guidance for Q4, it would imply, you know, you're at the very least going to enter 2025 growing software platform, you know, well above the 20 to 30% growth range that you've provided. Is there just any update you can share just in terms of how we should think about, you know, growth in 2025? Thank you.
Speaker Change: And we don't we don't provide long term guidance.
Speaker Change: including the existing mobile gaming opportunity.
Speaker Change: Herald Chen, Matt Stumpf
Speaker Change: It is based on either internal research or external research that's applicable to our tech stack. So when you have that, it's not predictable, but it's very impactful.
Speaker Change: And so when I talked about it last quarter, I said, you get to 30 if you get one of those.
Speaker Change: Well, we've had multiple of those this year, so obviously the growth rate's over 30, right? So there's no constraint on demand, there's no constraint on interest from our advertisers. If we're able to continuously improve the technology over the years faster than one material enhancement a year, then the growth rate is going to be higher than 30%.
Speaker Change: Great, and then maybe just one more, you know, we heard Metta call out, you know, that they have over a million advertisers.
Speaker Change: you know, using Gen AI for creative. And I'm just curious if you could talk maybe more about the timeline for potentially using Gen AI features across more of your products and then just any of the benefits that you could see over time. Thanks. Absolutely. On a road map.
Speaker Change: It's super exciting. You can imagine, today, we serve static advertisements to all this audience of 1.4 billion.
Speaker Change: Over time you'd imagine that the ad creative can become personalized and that would have a material lift to our business.
Speaker Change: We can't time it for you, nor can we size it, because it's in our roadmap, but it's not in the immediate future. But it's something that we think is going to be very impactful, and probably all advertising businesses are going to see a substantial response rate lift to the advertisements as that content gets personalized.
Speaker Change: Great, thank you.
Speaker Change: Okay, our next question comes from Alec Brandolo with Wells Fargo. Alec?
Alec Brandolo: Hey, thanks so much for the question. Can you hear me okay?
Alec Brandolo: So a lot of questions on the call tonight about kind of expanding the business into e-commerce and potentially beyond e-commerce from a demand perspective. I was hoping to get your thoughts on potentially expanding supply. You know, my understanding is that almost all the ads are served in the mobile games ecosystem today. Obviously, you know, there's a lot of ad supply outside of mobile games and there's ways to tap into it programmatically. So as you expand demand outside of mobile games, how do you think about potentially expanding your supply outside of mobile games?
Speaker Change: Yeah, it's definitely another growth factor. So I think on my last earnings call, it was the last bullet of the growth factors I laid out in my talk track. And so supply expansion is something that's important to us. Right now, supply is in our constraint. We think there's a lot of room to improve the way we monetize the 1.4 billion daily actives. But we did buy a world to tap into CTV, that's an immense amount of supply. That category today still doesn't have a really strong performance marketing platform, helping brands reach that audience through television in a very measurable way. So you can imagine that's appealing to us.
Speaker Change: And then you can just go out from there. So if we fast forward five years from now, we're certainly gonna have more supply reach than just the mobile gaming site.
Speaker Change: Perfect, thank you so much. Thank you.
Speaker Change: Our next question comes from Mo Kalaf with HSBC.
Mo Kalaf: Good afternoon, gentlemen, and congrats on your strong results. Just a quick one for me. In terms of the growth you're doing, obviously it's phenomenal, but when we look at the mobile gaming market in terms of revenues or UA spend, the whole mobile market, it's well behind that. So I'm just wondering, is market share gains driving a lot of your growth, and can you continue to do that in terms of where you're positioned in the market?
Speaker Change: Look, we're really big in gaming at this point. So it can't be market share gains because there's not a whole lot to go take. We've created a bigger market. So we've talked about this, and I think there's been some really good research that's been put out too that shows this category is now accelerating its growth rate driven by user acquisition.
Speaker Change: That's what drives the growth in mobile gaming. There's not new device growth. There's not a new audience. The audience that we have is very stable. But these advertisers have a really deep and strong need for more user acquisition. That's what drives their revenue. And nobody discloses what that user acquisition amount is. But as our platform has been getting better and better, it unlocks more dollars. They don't go, I can double my spend on Applovin within my arbitrage goals.
Speaker Change: and then I'm going to go take from these other channels.
Speaker Change: They go, I can double my spend on App11 and keep spending on these other channels to expand my business and grow it faster. And so that's what you're seeing. And what you'll end up seeing over time is that the growth rates in the mobile gaming TAM will return to a pretty healthy clip, so long as our platform continues to improve, given we're the largest in the sector.
Speaker Change: Thank you.
Speaker Change: Thank you for watching.
Speaker Change: Okay, our next question comes from Vitsili Karaschev with Cannonball.
Vitsili Karaschev: Thank you, good afternoon. Adam, you spoke a couple of quarters ago about the fact that Exxon 2 is so good that...
Vitsili Karaschev: You could put the open code out and you don't think that there would be competitors who would be able to catch up with you, right? So can you help us understand this e-commerce opportunity? Is it just taking Exxon 2 as it is and just making minor tweaks?
Vitsili Karaschev: So that it just selects for targeted potential e-commerce customers or is it a big overhaul and then how much of an advantage?
Vitsili Karaschev: Will you be able to take from, you know, from the gaming and take it to e-commerce, and who, if you can, whom will you be competing against, who is currently taking up those budgets? Thank you.
Speaker Change: When they're marketing on our platform today, this is a new audience. They're not otherwise able to reach this audience in that moment in time.
Speaker Change: So when we're able to show an odd for them and do it precisely...
Speaker Change: and Measure It All, there's an immense amount of incremental value for them from that advertisement. So it's a really strong solution for them.
Vitsili Karaschev: So, it will continue to make our platform able to monetize that audience better, which is going to be a huge boon for our business and very healthy for the publisher as well.
Vitsili Karaschev: who will generate more dollars from their users, but also get more diversity of content to their users. And in this case, if you're a game publisher, an e-commerce ad is not for someone who is
Vitsili Karaschev: Building another game is for something that is completely different than your product. So it's a great win win for all parties involved
Vitsili Karaschev: On the technology side, I never like to talk about complexities of technology. I certainly wouldn't say anything we do is simple. I don't think a lot of people in the world, I mean maybe hundreds max,
Vitsili Karaschev: engineers understand how to build these types of platforms. We've seen very few, only a handful of software implementations that are compelling at scale inside what we're calling these AI technologies.
Vitsili Karaschev: And we're one of those. And our engineers are building really complicated technologies.
Vitsili Karaschev: they can do a lot more than just the first implementation did, which was drive performance marketing to gaming. So we think there's going to be a lot of expansion opportunity over time. The technology platform is really powerful, and math is not limited to categories. So there's going to be, I think, years of growth ahead of us.
Speaker Change: Thank you.
Speaker Change: Okay, our next question comes from Martin Yang with Opco. Martin?
Martin Yang: I have two questions. One on gaming, another on e-commerce. On gaming, do you think your customers are responding pretty consistently to step up in Exxon 2.0's performance? Is there certain customers that will ramp up spending faster than the others?
Speaker Change: So Martin, our whole system is automated. So there's not like, I think last time I also said like, every advertiser has more budget, interest in spending on our platform than we can deliver on a daily basis. So tomorrow if someone, one of our engineers, somehow finds some research that doubles the platform...
Vitsili Karaschev: In terms of ability to match up and drive spend, everything will just double, so it's not like a one or another.
Vitsili Karaschev: When we get these sub-functions, they all have a tolerance to spend more.
Speaker Change: Got it. And then on e-commerce, you know, where are you spending or investing in e-commerce and is there any bottlenecks you're trying to break through as you ramp up e-commerce and get it to commercial stage?
Speaker Change: Now, like I said, it's the most exciting product we've ever launched. We've never seen this kind of data on a new product.
Speaker Change: And if you recall, I mean, I don't I don't voice
Speaker Change: optimism much since we've gone public on new products. We've talked about a lot of products. We are a very entrepreneurial company. We will try a lot of things. But the last time I talked about a really good product was when we launched Axon 2. That turned out pretty good for us, our company, our partners, and our investors. So if we're talking about this product as being the most compelling one we've seen yet, you can assume we're not running into bottlenecks, other than we just don't have the capacity yet in terms of human capital and every solution component automated to scale it out as quickly as the market demands. We've got to line out the door of companies that want to jump onto this platform.
Speaker Change: Thank you.
Speaker Change: Okay, we will take our last question from Corey Carpenter with J.P. Morgan.
Corey Carpenter: Hey, good to see you all. I know this is a tough question to ask or answer, Adam, but just any insight you can give us into what the unlock was that contributed to the technical step function change in the quarter, or maybe why these unlocks seem to be happening more frequently now than they were going forward.
Corey Carpenter: and Matt Stumpf. Thank you. Thank you.
Adam Foroughi: Yeah, I mean, like our team on the engineering and the research science side in particular is one of the world's best. The people are really talented. They know these technologies, but it's a new field. And this field, both internally and externally, has just a lot of interest in it. So, if you look at all the research that's being done externally, there's an immense amount of research that's been published over the last few years. And every time there's something that's interesting that's published, or every time one of our researchers can figure something out from something published in the past,
Adam Foroughi: or they create their own research and then incorporate it into the technology stack.
Adam Foroughi: we get more effective in what we do. And so I'm not going to sit here and say I actually even understand this technology because it's way beyond my mathematical understanding. This team is exceptional and they've been able to unlock an immense amount of opportunity for our platform and our business.
Speaker Change: Mason, just a quick follow-up. The switch to probabilistic billing on iOS you made in August, is that something that had any notable impact on the business?
Mason: Not really. It was to make it more accurate and aligned with how advertisers tracked it, but the deltas were nominal.
Speaker Change: Great, thank you.