Q1 2025 AppLovin Corp Earnings Call
Speaker Change: Welcome to Applovin's earnings call for the first quarter ended March 31, 2025.
I'm David Hsiao, Head of Investor Relations.
Speaker Change: Joining me today to discuss our results are Adam Foroughi, our co-founder, CEO and Chairperson, and Matt Stumpf, our CFO .
Speaker Change: Please note, our SEC following to date, as well as our financial update and press release, discussing our first quarter performance, are available at investors.applovin.com
Speaker Change: During today's call, we will be making forward-looking statements, including, but not limited to, the future development and reach of our platform are expected through opportunities that result in timing of our proposed sale of our game's business, the efficiency of our operations, the expected future financial performance of the company and other future events.
Speaker Change: 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.
Speaker Change: We encourage you to review the risk factors in our most recently filed from 10K for the year and in December 31, 2024. Additional information may also be found in our Quality Report on Form 10Q for the Fiscal Court and in March 31, 2025, which will be filed today.
Speaker Change: We will also be discussing non-GAAP financial measures. These non-GAAP measures are not intended to be superior to or substitute for our gap results.
Speaker Change: Please be sure to review the gap results and the reconcilations of our gap non-GAAP financial measures in our earnings release and financial update available on our investor relations site.
Speaker Change: Disconference call is being recorded and a replay will be available for a period of time on our IRO 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.
Thank you all for joining us today.
Speaker Change: Q1 2025 was another fantastic quarter marked by resilience and robust growth.
Speaker Change: After seeing the stock price rise roughly 50 times in two years, we faced short-sellers scrutiny, which we've addressed comprehensively and won't revisit here. Our mission remains clear, helping advertisers reach new customers profitably.
Speaker Change: It's important to remember, in our business, our only financial incentive is to drive measurable revenue and profitability to our advertisers.
Speaker Change: Without that, we could not scale our business, nor would we get paid. [inaudible]
Speaker Change: As a leading performance marketing platform, our technological innovations have catalyzed a return to growth in the gaming ecosystem, reviving an industry that would otherwise be struggling without our advancements over the past two years.
Speaker Change: We've empowered sophisticated media buyers investing over $10 billion annually with us driving strong returns and generating significant impact for their businesses.
Speaker Change: We're now expanding into broader categories, confident in our ability to fuel their growth as we did for gaming.
Speaker Change: Few platforms operated at our scale, and we're proud of our role in driving economic growth. Our partners vocal support this quarter was inspiring, and we're doing more business than ever.
Let's dive into our outstanding Q1 performance.
Speaker Change: The first quarter is typically challenging for advertising due to seasonality in fewer days compared to Q4, yet we achieved remarkable growth. How? We further refined our machine learning models enabling mobile gaming companies to scale their campaigns on our platform.
Speaker Change: West Significant, but impactful, was the full quarter of contribution from web advertisers. This diversification is transformative and fuels our excitement for what's ahead.
Speaker Change: Today we're thrilled to announce the signing of the definitive agreement to sell our games business in its entirety.
This strategic move sharpens our focus on advertising.
Speaker Change: To our studio teams, you've been instrumental in building the technology that powers our axon platform. As you transition to a company dedicated to game development, we're grateful for your contributions and excited for your future.
Speaker Change: Now, looking ahead, we're focusing all resources on three key priorities for 2025.
Speaker Change: First, we're relentlessly improving our machine learning models. Our research science team is leveraging rapid AI advancements to deliver even greater value to our partners, ensuring our platform remains a performance leader.
Speaker Change: Second, we're advancing our e-commerce and web advertising solutions with three areas of focus.
Speaker Change: We're continuously refining our models, while our product already works well for many advertisers, it's still early days, and we believe it can be significantly better. Each iteration brings us closer to that goal.
Speaker Change: We're enhancing integrations with third-party platforms and attribution vendors to provide to advertisers with a seamless measurement experience.
Speaker Change: The web advertising space is more fragmented than apps, so this will take time, but it's a straightforward task.
Speaker Change: We're also developing a self-service dashboard and we'll be launching at this quarter for select customers.
Speaker Change: Once fully rolled out, this tool will enable seamless automation, allowing new advertisers to set objectives, budgets, upload ads, and let our system deliver results.
Speaker Change: While we've seen great performance so far in our web advertising pilot, we're currently less than 0.1% of the potential market of total advertisers.
each new partner adds to our growth.
Speaker Change: It will take a few quarters to refine these tools for a broader release, but when we launch self-service globally, we expect it to unlock a massive opportunity.
Speaker Change: Third, we're enhancing ad testing and automated ad creation. Improving the creative experience is a priority this year, enabling advertisers to better optimize campaigns effortlessly.
Speaker Change: These initiatives are both immediate and long-term, positioning us for sustained success.
Speaker Change: Now let me address the potential impact of tariffs. 90% plus of our revenue and advertising comes from mobile games, which aren't directly impacted by tariffs. In web-based advertising, some assume we rely heavily on large Chinese e-commerce businesses, which are impacted by the de-minimist tariff exemption changes.
Speaker Change: In reality, we focus on mid-market web advertisers and aren't yet working with the largest players, as we're refining our tools first.
Speaker Change: It is absolutely possible some of the merchants we do work with will have their businesses impacted by tariffs. However, with such low market penetration, we're well positioned to grow through macroeconomic changes like tariffs without any visible impact on our business trajectory.
Speaker Change: I also want to address a few topics in the news.
Speaker Change: On competition, we embrace it. It drives innovation and pushes us all to improve. With our growing data mode and AI expertise, we're confident in our leadership and ability to grow rapidly, regardless of others' advancements.
Speaker Change: Regarding potential alternative payment systems in the app store, we see this as a positive. Lower fees for content developers are customers, means they can invest more in user acquisition, which benefits our platform. [inaudible]
Speaker Change: For context on our TikTok bid, please see my blog post we published a few minutes ago.
Speaker Change: Our lean team continues to impress, showcasing a model for how AI-based businesses can operate efficiently.
Speaker Change: Our run rate adjusted to evita per employee in our advertising business has risen to approximately $4 million annually, reflecting our commitment to operational excellence and robust economics.
Speaker Change: Thank you for your continued support as we execute our vision to build one of the world's most influential marketing platforms with each quarter I grow more confident in our ability to deliver incremental value to our partners.
Speaker Change: With that, I'll turn it over to Matt for a deeper dive on our financials.
Thanks Adam.
Speaker Change: And thanks everyone for joining us today. We're thrilled to share that Q1 was another outstanding quarter for us, showcasing the strength and efficiency of our business model.
Speaker Change: Total revenues soared 40% from the same period last year to $1.5 billion and adjusted EBITDA increased to remarkable 83% to an impressive $1 billion, achieving a fantastic 68% adjusted EBITDA margin.
Speaker Change: We've driven a 600 basis point increase in our EBITDA margin over the previous quarter, a testament to our ability to leverage our primarily fixed cost base, while fueling revenue growth through cutting edge technology.
Speaker Change: In the first quarter, we generated $826 million in free cash flow, up a staggering 113% year per year.
Speaker Change: At the end of the first quarter, we had $551 million in cash and cash equivalents.
Speaker Change: This quarter we repurchased and withheld a total of 3.4 million shares for a total cost of 1.2 billion dollars.
Speaker Change: primarily funded through our free cash flow, as well as a temporary draw on our revolving credit facility which we've now repaid.
Speaker Change: As a result of our strategic share management activities, we were able to reduce the total outstanding shares net of share issuances to employees.
Speaker Change: Demonstrating our commitment to delivering value to shareholders and ended the quarter with $338 million shares outstanding.
Speaker Change: Shifting to the advertising business, we generated $1.16 billion in revenue and $943 million in adjusted EBITDA, achieving an incredible 81% margin.
Speaker Change: Our revenue growth in the quarter was driven by a combination of factors, including continued enhancements in our AI driven technology, which has delivered even better performance for the advertisers using that discovery.
Speaker Change: and the full quarter impact of our web-based advertising solution which continues to perform strongly while coming off a seasonally high spend period for e-commerce.
Speaker Change: Porter Recorder flowed through from revenue to adjusted EBITDA, was an exceptional 104%
Speaker Change: which is slightly higher than our normal levels, due to certain non-recurring costs last quarter. However, after adjusting for these costs, our flow through was still a robust 100%. Despite the step up in data center costs I mentioned last quarter, highlighting our dedication to operating lean while scaling smartly.
Adam Foroughi: As Adam mentioned, we're excited to share that we've signed a definitive agreement with triple dot studios to divest our apps business. Consideration includes 400 million cash at a 20% ownership stake in the combined business.
Adam Foroughi: Subject to regulatory clearance, we anticipate closing this transaction in the second quarter, and we're confident that the success of this business will achieve under new leadership, while we sharpen our focus on advertising.
Adam Foroughi: Finally, turning to our financial guidance for next quarter. In light of the app sale and our strategic focus on the advertising business, we will only provide guidance for our advertising segment.
Adam Foroughi: In the second quarter of 2025, for the advertising business, we anticipate delivering between $1 billion and $195 million.
Adam Foroughi: and $1 billion in $215 million in revenue, with adjusted EBITDA between $970 and $990 million, targeting an adjusted EBITDA margin of 81%.
Adam Foroughi: We're confident these targets position us to continue driving strong growth and value for our partners and shareholders.
Adam Foroughi: We will now begin the question and answer session. Please be sure.
Adam Foroughi: To unmute and turn on your video before asking your question, we will take as many questions as time permits.
First up is Jason Bazinet at Citi.
Jason Bazinet: Afternoon, guys. How are you? I just had one quick question, maybe two parts. On the guidance for next quarter, I think it implies something maybe I'm doing the math wrong, 3 to 5% sequential
Jason Bazinet: which seems a little bit slower than I think your aspiration just on the mobile only part of the business, but maybe I'm misinterpreting something or maybe something else is going on. That's the first part of my question. And then the second one is...
Jason Bazinet: I was just looking back towards your historic financials and there have been some quarters.
Jason Bazinet: And so, do you think investors should sort of brace for maybe somewhere down the future? There could be a sequential decline in ads revenue but it's not really thesis changing. I guess that's my question. I think it was 2022, was the year.
Speaker Change: because we got a clip. So I can answer the second part, Matt can jump in if you want to show a guidance, but
Speaker Change: Jason, 2022 was a lot different. It was pre-axon model and since we've released it, we've obviously seen an immense amount of growth. This thing continues to get better as it scales.
Speaker Change: and you get a really strong flywheel embedded into this type of machine learning model, as we get more impressions, more engagements with the ads, more conversions, the thing just continues to get smarter and smarter, and then you pair that self-learning with the technological gains that our team continues to layer on top, and the growth of the business has obviously been phenomenal since, so I wouldn't look back at 22 and before.
Speaker Change: Bennett, to your first question, building you got in our businesses in terms of seasonality, we have a bit of a unique advertising business, could you typically expect?
Speaker Change: Q1 to be your worst season. And our seasons are tied to time spent on mobile device.
Speaker Change: and Q1 gets the benefit of a whole bunch of holiday days at the beginning of the quarter and then you've got other things like Ramadan and spring break to take effect in Q1. Q2 you actually don't have almost anything is only the tail end gets into summer. Q3 you get summer, Q4 you get the holiday. So if you look last year at our quarter of our quarter sequential growth. [inaudible]
The only single-digit quarter was Q2.
Speaker Change: Now, we've said we're looking to grow 20-30%, but there's a whole bunch of unpredictable reasons why every year we think the growth could actually be materially higher.
Speaker Change: We almost grew 20% quarter of a quarter and a single quarter in Q1 over Q4, it'd be normalized by day, so the business is growing really quickly. We continue to see a lot of excitement from advertisers on the platform they're spending more than they've ever spent before on the platform both across games and the web advertising initiative and then even more exciting I touched on this in the talk script.
Speaker Change: We're finally going to be releasing our new dashboard to some select advertisers for feedback this quarter. That's a huge catalyzing effect.
when we do go to a full self-service state.
Speaker Change: We're going to open up our platform from a very small amount of advertiser penetration to the entirety of the world being able to come onto our platform. Now, there's a lot to do between here and there, but once we do that, again, we'll go through another one of those transformational moments where the business will just change a lot. So, the past in our business isn't really indicative of the future growth trends because we just haven't been in a stable place yet. [inaudible]
Thank you.
Next stop is Matthew Cost, Applovin Spoon.
Speaker Change: David Hsiao, David Hsiao, David Hsiao,
Speaker Change: Everybody, thanks for taking the questions. Maybe I'll start off just talking about category exposure. I think last quarter, you highlighted a couple of new categories included.
and others.
Speaker Change: What are the pain points that they're looking to have solved? Is it about onboarding those attribution partners? Is it about self-serve? And then I have one follow-up. Thank you.
Speaker Change: Yeah, so I would say, Matt, we're not looking to push.
Speaker Change: into any category of web advertising right now. We've got to line out the door of customers that have been waiting to come onto the platform and then we've onboarded, I think I said in a blog hundreds of advertisers, but our team is small. So when I say we're not looking to push, we're looking to push over time, but we need to get the self service tools into the market so that we can pair that with the team to automate a lot more of the processes. What we're excited about today is the model still in infancy when it comes to web advertising. Thank you very much.
Speaker Change: We think it can get a lot better, and then you layer on those attribution integrations and platform integrations.
and make the integration with advertisers more seamless.
Both those two things, the automated tools, better integrations.
Speaker Change: paired with a much better model, which our model is inevitably going to get better as the engineering team has more time to evolve it. We think we're going to get to a place in web advertising where we are in games. Today, if you're a game advertiser, we're the best destination in the world to spend money.
Speaker Change: Every type of game, regardless of whether it's launches today or launched years ago in any category, plugs into our system, puts in a return on ad-spend goals and scales of their goals.
Speaker Change: We're not there yet on web across categories, but we're seeing better performance than we expected this early. We're going to get there and when we get there and we pair that with the self-service dashboard and launch that product globally, you're going to have an effect that catalyzes a ton of long-term growth.
Speaker Change: Yeah, I mean, to enter the second bar first, we don't know cost benefit until we do it, but what we want to do is generative AI based ad creative, and if you think about
Speaker Change: The platform today we serve over a billion daily active users, we're serving a lot of impressions, but if you take a single advertiser, say Activision with Candy Crush, they upload 20 static videos, let's say for their campaign. And that's what their team can go create to run on our platform.
Speaker Change: and those videos go and serve and they drive a certain response rate. But on the world of large language models and customization
Speaker Change: We're not going to get to the extreme where every single end user can see a differentiated video, but we can certainly get to a place where you can take the best videos that an advertiser uploads, run them through a large language model, get now put a more videos that are dynamically generated, run those videos through a platform, let the model then personalize the add to the end user at a greater level.
Speaker Change: When you're able to test ad creative, it's one of the biggest levers that advertisers have to move the needle on growth on response rate. It's free effectively. It's a very low cost amount of production to get a much higher response rate on advertising.
Speaker Change: If we can systematically do it, and we're certain we can, it's just taking time to get this to market, we're going to be able to extract a lot higher response rate from the audience to see the advertisements, and again every time we have one of those events, it creates both the short term stuff up in growth, and then that compounds over time, because the system then starts getting more transactions through it, it learns better, and it continues to build on itself, so that's another one of those events that we think are going to be very impactful, and it's something that's a priority for us to work on across
Vasya, the rest of the year. [inaudible]
Speaker Change: David Hsiao, David Hsiao, David Hsiao,
Next stop is Omar Dessouky at Bank of America.
Hi, thanks for taking the question.
Speaker Change: You know, now that you've been in the pilot or excuse me, that e-commerce has scaled for a couple of quarters, I want us wondering whether...
Speaker Change: You had any updated points of view on churn among your advertisers.
Speaker Change: That's one. And then, you know, whether you're seeing the spend per advertiser increase, you know, as the months go by, or if that spend per advertiser is just, you know, affected by seasonal trends.
Speaker Change: Yeah, so we disclosed to you, Omar, I think I said 600 somewhat advertisers in the blog, billion dollar run rate, in terms of churn and web spend at growth quarter of a quarter.
Speaker Change: A Comp Against Q4 vs Q1 isn't particularly fair in shopping, so I'm not going to disclose growth by an advertiser, but when we think about churn with where we are in the advertising product for web.
Speaker Change: We're early, so inevitably we're going to have some customers where it doesn't work for. Now actually right before this call we pulled the number. For advertisers that spent, run rate $250,000 a year, we had sub 3% chart.
Speaker Change: So, very little. Now, that's not an acceptable number for us. In gaming, we have basically no churn, unless a game is not marketable and it's going to go out of business.
Speaker Change: Companies in gaming do not drop off our platform. We're basically a requirement.
to their success.
Speaker Change: We want to be that in web advertising as well, but again remember this product is months old. As the model gets better we think we're going to be a destination for any type of advertiser that has a website or an app or both to come market themselves and have success where we become a required marketing destination for them in their business. [inaudible]
Speaker Change: Okay, and if I could just ask a quick follow-up on a different topic, you disclosed 49%
Speaker Change: You're on your growth in that revenue per install. However, your e-commerce advertisers don't drive installs, they drive actions.
you know, veterans that are driven by e-commerce.
Speaker Change: No, it's not. Omar, so it's inclusive of the revenue associated with those web-based advertisers, but that's driving then an increase in the net revenue per install because the installation volume in that metric is staying stagnant, right? It's only based on the CPI-based advertisers.
Thank you very much.
Next up is Chris Kuntarich at UDA.
Thanks for taking the time.
Speaker Change: question. Adam did mention that advertising could be better for some of the advertisers.
Speaker Change: on the web-based experience. Curious if there's kind of a common thread that you would identify across those advertisers that we should be thinking about in some of the progress you could be making as we look forward in the two Q and later this year for just kind of road signs of progress for those advertisers.
Speaker Change: Yeah, I wouldn't say it's trans or anything specific because it's just not the way the models work.
But if you think back on the game, have a look
Speaker Change: Pre-Axon 2 and what happened when we released the new version of the technology and what's built?
Betta Roas, and...
Adam Stumpf, David Hsiao, Adam Foroughi
Speaker Change: That doesn't mean that row-ass is 30%, 40% better because usually we achieve in advertisers row-ass goals, but it means at the comparable row-ass they get 30%, 40% more skill.
Speaker Change: then that starts compounding, but that ends up universal on the platform.
Speaker Change: and maybe just one follow-up as we talk to advertisers, one of the common feedbacks we hear is the desire to have exclusionary audience is curious kind of if you're thinking around offering that to your advertisers specifically on the web-based side as evolved since we last spoke.
Yeah, so this is an interesting offering because it's—
Speaker Change: Related to how they're used to buying on Metta's properties, and across Metta this is just common. Advertisers upload an exclusion list and say, I want to target new audiences at this percentage of dollar spent versus retargeting.
Speaker Change: The way we look at our product again is it's early, so our best gauge of success.
Speaker Change: is how we can scale at the ROAS so they want, not by giving up audiences but by just making the model better at matching.
Speaker Change: Now, over time we may introduce things like exclusionary targeting and we played around with some of it over the last few months as well, but it's not a focus for us because we're still too early in the product. If our products performance continues to improve, we ramped up on hundreds of advertisers to a billion-dollar run rate. And I mentioned we're sub 1.1% penetration in the market. So despite being really early and despite having some bumps with some advertisers where we can look across the advertisers race and no, we're not
Adam Stumpf, David Hsiao, Adam Foroughi
Very helpful. Thank you.
Next up is James Heaney at Jeffries.
Jayme P.: Great, thank you guys. Just be great to get an update on the velocity of new web advertiser editions in the quarter. Just interested to hear how the pace has changed since you last reported 600 customers in December and anything around how to think about that going into Q2 and second half of the year. And then I had a follow-up.
Jayme P.: Yeah, so pace has slowed down because we just don't have the resources. So, team is still about 20 people, so if you think about like what a team consists of, there's sales engineering, integration, people, BD analysts that sales, so there's not a lot of people in any one of those groups across this team.
Jayme P.: The objective right now is to give them the self-service dashboard, the automated tooling, so then they could start onboarding at the pace that they were able to do to get up to the 600 and change.
Jayme P.: The reality is, we don't have the manual resources to onboard the line out the door, but we're there now with the dashboard that can really help the team. We're going to be in testing with it, we'll get early feedback. It looks quite good to us and we believe it will be quite good for the advertisers. Once we get that in the hands of advertisers where they can manually automate however they work with us. We're going to be in testing. We're going to be in testing. We're going to be in testing.
Jayme P.: Then the team is going to be able to onboard a lot more quickly and so you'll start seeing phases of how we roll this out. You'll hear about it on Twitter I'm sure with people playing around with the new dash and then us getting it into the hands of the advertiser base this quarter and then in the coming quarters we'll start opening it up more and more and that'll really help onboarding of advertisers to the point where eventually we will completely open it up go global with the product and then start really onboarding at a quick rate. [inaudible]
Jayme P.: And then just as another question, we've heard from a lot of your ECOM advertisers that the web product works.
Adam Stumpf, David Hsiao, Adam Foroughi
Speaker Change: Well, look, we don't have a conversion API. We don't have what other companies have with email address and phone number, so we can't attribute back anything outside of a cookie window. And the cookie window in this day and age, especially on Safari, is a very short window.
Speaker Change: What that means is that our model has to drive actions quickly. That's great for most advertisers. Most advertisers aren't selling a $20,000 product, but if you're selling a $20,000 product you're probably not going to sell it in the matter of few hours.
Speaker Change: So on the one hand, because of our limited view on attribution, the model has to be really good at going ad to transaction in a very short window.
If you can do that for a $200 shirt...
Speaker Change: That's a great outcome because the advertiser knows ad-created actual intent and outcome. If that sale had happened two weeks later, it'd be very hard for the advertiser to say, I can justify the whole value that sale back to the Applovin channel because there's been a whole other bunch of other things that have happened in the middle there.
what that does force us to do though.
Adam Stumpf, David Hsiao, Adam Foroughi
That's great. Thank you.
Next up is Ralph Schackart at William Blair.
Rolf Schackert: Afternoon, thanks for taking the question. I'm just a question on self-service model. When you go live with that obviously you're testing right now, how do you expect the platform to sort of respond, or maybe better question is the advertisers. You expect them to come with substantial budgets that you describe a line up the door. Do you think it'd be more like a dimmer switch where they would test and then add more budgets, just trying to understand your best thoughts on what happens when you go live there? Yeah, yeah, like advertisers need to... [inaudible]
David Stumpf, David Hsiao, Adam Foroughi
Rolf Schackert: Now, remember, we've constrained the audience in web advertising to US only. That's by design, our business itself.
Rolf Schackert: It is probably, I want to say, I'll pop my head, half half US versus international and we don't operate inside China. So there's a lot of opportunity to just put that switch and go global. So, let's go global.
Rolf Schackert: Now, we'll pair the self-service dashboard with that. That'll allow us to really quickly dramatically increase the audience's disease kinds of ads.
Rolf Schackert: and Parrot with the types of advertisers and count of advertisers that are onboarding into the system. Then it's up to them to find their own way. The good news is, we're the last big advertising company that has a self-service dashboard. All the other ones, the social companies, search...
Rolf Schackert: Any display channel that's of any sort of scale has this type of ads manager product?
Rolf Schackert: Once we've released that, agencies and advertisers will know what to do.
Speaker Change: Great. Maybe a question from Matt Matt. I think the story we've talked about the growth algorithm being around 20 to 30 percent obviously the business is growing very robustly. Is that still the right sort of framing for the model? It's kind of curious on your thoughts there. Yeah, I mean we continue to believe that 20 to 30 percent is the right long-term growth rate for the company is we as we've talked about before that's comprised of two components. One is the ongoing reinforcement learning right from the model just that we've talked about.
Speaker Change: Transacting and then teaching itself and improving over time, and that component we think is about kind of three to five percent, which is how we're guiding on a quarterly basis. That's the component that we know is very stable, very predictable, and so that's what we've included within our guidance above and beyond that are directed enhancements right models going from chat GPT three to four. All right.
You and our engineering team are working on all the time when they watch a new model.
Adam Stumpf, David Hsiao, Adam Foroughi
Speaker Change: A lot of those quarters, luckily, were the engineers that launched those model enhancements, and we've seen those stop function increases. So we think that we should be able to do at least one of those stop function increases per year going forward. And it's a relatively conservative assumption from our perspective given where we've performed thus far over the past couple of years.
Okay, great, thanks Adam, thanks Matt.
Next up is Rob at Sanderson, at Leap Capital.
Probably you're muted.
Next up is Matthew Thornton at SBN Security.
Speaker Change: They add on Matt David. Hope everyone was well, good to see you guys.
maybe two if I could, I guess first one maybe for Adam, if we think about some of the
Adam Stumpf, David Hsiao, Adam Foroughi
Speaker Change: Yeah, the question on the new stuff that we're really prioritizing, I don't know if it's new just expansion of what we're working on. I said in the talk script that focus is for this year to execute on that list.
Speaker Change: If we do that well, we're set up to have a fantastic 2026.
Speaker Change: Rory on the way to have a fantastic 2025. I don't know of any other tech company with the financial profile that we have at scale growing the way we are. I think it's on a rule of 150 or something. And what we're focused on when we talked about priorities is how's 2026 going to be. How's 27 going to be? [inaudible]
Speaker Change: If we execute on self-service dashboard, put it out into market, automate media buying on our platform, make it simple for advertisers of any kind, let them come in and put in their goals off they go.
Speaker Change: The business is going to have many quarters and years ahead of it of immense growth.
Speaker Change: At some point, we're going to become a marching based business. We can run Applovin ads.
Speaker Change: for any sort of small business to come in and buy on us, and you'll have an LTV to hack model because the value of every one of those advertisers given where we're starting an advertiser penetration to the millions that we can go after would be immense and then pair that with dynamic ad creative continued model improvement, the self learning in the system and we've got a lot of vectors of growth that we're really excited about for the rest of the year and then beyond.
Speaker Change: And in terms of web-based advertising and contribution, Matt, and we had mentioned previously, right, that we thought that they would become kind of 10% of the overall contribution and revenue.
Speaker Change: It's very difficult to guess where that might go within the year because we've got a lot of factors on both the existing mobile gaming business, how that develops over time based on these model enhancements that we're launching. [inaudible]
Speaker Change: You know, to the extent that we launch significant model enhancements, that business could grow at a faster pace than e-commerce. But we're very optimistic about the e-commerce business.
Adam Stumpf, David Hsiao, Adam Foroughi
Great. Appreciate it. Thanks, guys.
[inaudible]
Speaker Change: Well, good afternoon, Matt. To follow up on what you said a couple of questions ago, I think last year we had two quarters where there was, I think, the term is human directed enhancements, right? So I think it was Q1 and Q3.
Speaker Change: And they're under the same record that you're saying that that that can happen even like three, four, five years into X on two. It's not a functional life stage of the machine. It's a function of its completely constantly learning and then a related question. So.
Speaker Change: Help us understand, or at least me, is it the same learning that applies to gaming and e-commerce?
Speaker Change: Or are those two different processes that can happen? Let's say in one quarter, like e-commerce, learn something and step up and gaming Denmark. Yeah, that's a great question. I'll address the second one first, so there are two separate models.
Speaker Change: So both models are learning at the same time, so you've got reinforcement learning occurring to both models, and then you also have directed enhancements that the team could launch on either model.
Speaker Change: We have a team that's working on both models at the same time similar to what Adam mentioned about our business development team. We run Lean and so we have a very small team that's working across both but they're constantly testing potential changes to the model that we could launch on either to provide the step function increases at any point in time and there's a laundry list of these things that they're testing at any given point in time.
Speaker Change: to assess whether or not they could potentially have an impact and then we launch those model enhancements. So you could have the mobile gaming, the existing mobile gaming model and proven one-quarter and the commerce model only have reinforcement learning and that more kind of stable growth.
Speaker Change: Plus adding new advertisers there, which is obviously going to increase at a faster pace than the mobile gaming side of the business where we basically have all mobile gaming advertisers at this point. So those two things are moving independently.
Yeah, I'm mostly, I would add a couple things, too, is-
Speaker Change: Let's not forget this form of understanding how to work with Neural Nats.
Speaker Change: There's a lot of research in the space that is guiding engineers across companies that have gotten very good with models to build new versions of the models and as you build new versions of the models you train them on the data.
Speaker Change: The beauty of our business model is that one we're cutting edge. We're on a lot of the latest research. We built an exceptional implementation of this kind of technology. We might be one of the best examples of how software can unlock value from this kind of AI movement, but the reality is it's really, really early. So there's plenty of research out there that our team still needs to parse to. There's internal research, so we pair with that.
Speaker Change: And this is never ending. I don't see any end in sight for us as human beings to be working on these types of AI technologies. The opportunity is just too great. And so we probably shouldn't call Axon 2 Axon 2 maybe it's just the Axon model. There's going to be many different iterations of this thing that we go through in the coming quarters and years. And every single time when we have a lift, something that's material where we can step it up, where you would say like Axon 3, not Axon 3 Axon 2, 2 Axon 2, 3 Axon 2, 4. Let's go.
Speaker Change: Those incremental changes have shown to be double-digit growth in a single quarter-a-quarter of a quarter. If we have a less incremental lift but a nominal enhancement where the team is still working on improving the model but it doesn't step up as much, it's still very impactful to our business at the scale that we operate at. So we have a long pipeline of things to work on and we expect that the research science team to land a time is going to be constantly improving this model.
So, very quick follow up. So, in simple terms.
Speaker Change: with Matt was saying that there's two different models, right? So is it possible that you have X on two running? And then there is a...
22.
Speaker Change: level of a van that happens with the e-commerce model, right? And it steps up in efficiency, and there will be not synchronized, but...
Speaker Change: Improving at a step function at different, is that what you're saying? Yeah, it's the reason why I keep saying E-Com model is early is exactly that. It's like when we launched Axon 2 for gaming, we're multiple iterations in now. So the team's had a lot more time to evolve the gaming model.
Speaker Change: The e-commerce model is a couple of quarters live now. It hasn't been around for that long. It also doesn't have as much of a data feedback loop, because it doesn't have as much impressions, transactions, scale to then retrain itself off of as well.
So you have two very strong lovers that are coming.
Okay, thank you very much. Thank you so much.
Next stop is Clark Lampen at BTIG.
Hey guys, good evening. Thanks for taking the question.
Speaker Change: Adam, as we are shifting to sort of Q1 performance for the advertising segment within the sort of 20% dish sequential growth that you referenced.
Speaker Change: I'm curious if that, you know, sort of as that put it before, did that include some benefit from step function rather than sort of reinforcement learning type improvements, i.e. sequential growth for gaming was probably a head of the typical load amid single digits rate rate of growth.
Yes, for sure. So, look, give two last days.
Speaker Change: Q1 even though it's a good season with some of those holiday days, it's not compared to Q4 a good season. So it was a huge step up quarter. I mean again we might be the fastest growing tech company anywhere at the scale that we operate out. So there had to be multiple drivers there and I mentioned on the talk script. [inaudible]
Speaker Change: that there was better efficiency in the model, so the team is constantly improving the model. Now, we don't call it like what self-directed lift or a model change. This wasn't a material change to the model, but the team found wins in the model and it became more effective.
Speaker Change: Self-learning is an aspect of it, and I did say the advertiser contribution from ECOM getting a full quarter of the run rate that I had gotten to in Q4 was also impactful, and I think I said it was less impactful than the gaming side. So with that you can infer the greater than 50% of the quarter's growth.
Speaker Change: to where we think we can get to even in the gaming category and so the technology is still early we're going to find more lifts.
Speaker Change: The team's got a long pipeline, so we're really excited about both the opportunity for the model to keep getting better in that flywheel effect because the scale has gotten so big paired with what the team is going to be able to unlock as they make the model better.
Speaker Change: Okay, that makes a lot of sense in the tell full color.
Any of the outside or recognition from legacy studio spend, I believe, you know, way back when you guys discovered a sort of total software transaction value.
Patrick, and for accounting purposes, you weren't recording revenue from first party studios. Now that they're third party.
Adam Foroughi: I would imagine that there probably will be some transition so long as they're still active. Is that in the numbers or is it material at this point? Yeah, so after signing the agreement today with Triple Dot to divest the app's business, our expectation is that the transaction is going to close.
Adam Foroughi: from having those studios be external parties and the premium rate on the user acquisition cost that we would normally charge. That being said, it will obviously depend on how triple dot runs those businesses as to whether or not they will continue to spend at the same level and it's not a material impact.
Adam Foroughi: on the business one or the other. It's a nice premium to have, but we don't expect that it will move the needle.
Thank you guys.
Next up, we have Alec Brondolo at Wells Fargo.
Alec Bondolo: Hey, thanks so much. Adam, if you can maybe elaborate on the App Store regulatory and do some of the fearily fit mobile games might enjoy as we move through the year. I guess one, how do you think about the potential impact on the business from the Ed Spent perspective?
Alec Bondolo: Yeah, so like we're the largest channel there is today from mobile gaming customers to spend their money and I think we're the best destination for it. So maybe we're likely to be the biggest beneficiary of this change and just in simple terms if you assume the fee isn't going to go to zero so let's just for my example assume you go to half 15% fee.
Alec Bondolo: You take a dollar that the customer was charging the mobile game developer was charging a consumer before they were getting 70 cents and then they would plug that into a row-ass model with us to go spend dollars.
Alec Bondolo: If that's 70 cents and a 15 cent fee structure becomes 85 cents, they make 20% more, it's an immediate 20% uplift to their revenues.
Alec Bondolo: Not 20% in some portion or in total is going to come back to a marketing platform that's the scale desires.
We run a dynamic auction. So,
Alec Bondolo: If one customer says, hey, I want to bid 20% more because I bank 20% more. I like the profit margins I run at. I want to get more growth.
Alec Bondolo: then every other customer has to do the same thing because it's competitive auction so over time what's going to happen is it's really good for the ecosystem it will create more growth. Thank you very much.
Alec Bondolo: and it's exceptionally good for the advertising businesses because the dollars will come into the marketplace and allow the advertisers to bid more competitively which benefits us and that feeds back to the publisher. It also feeds back obviously to our bottom line and benefits our shareholders.
Perfect. Thanks so much. Thank you
Next up, we have Jen Calla, at Piper Singler.
Speaker Change: Hi, thanks. I've been for taking the question. Big investor question we get is just your ability to sort of monetize a relatively like static base of inventory. Now there were a couple quarters and two sort of launching e-com would be curious or sort of thought or if that's changed at all.
Speaker Change: Well, look, we have a very large scale static base of inventory. I'd say, if you look at meta-the-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.
Speaker Change: We're starting at a very, very low place. I think in the past we've said, look we're driving a 1% transaction rate. Now we've grown a lot, so that's probably gone up a little bit. [inaudible]
Speaker Change: He doesn't have to go up a lot for a business to expand dramatically.
Speaker Change: We think that can go up to become 2, 3, 4, 5% over time.
Speaker Change: The odds are very, very impactful. It's full-screen video. It captures the users' attention. And the more advertiser demand we get, as we open up our self-service platform and hopefully ring on thousands, tens of thousands, eventually hundreds and thousands of millions of customers, we're going to have more content to show the unconcumer.
Speaker Change: We're going to pair that with personalized data 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. [inaudible]
Speaker Change: Got it, that is helpful. And then just a quick one on gaming macro, obviously not really seeing, you know, any signs of weakness in the results, but anything to call out with regards to like the studio launchers or geographies that are worth noting.
Speaker Change: I mean, our business is really diverse at this point. One game was never going to move the needle up the scale that we operate at, so there are, I guess there have been some bigger launches or marketing in the ecosystem around a couple games, but nothing dissimilar to the past.
Speaker Change: History of the Pace of Game Launches. I don't think the tariffs impact the digital economy here. And in terms of the economy and slowdowns, free to play gaming is a very cheap and accessible form of entertainment. So we've always felt that it's quite insulated from economic. Thank you very much.
that change or distress, and so we're confident with the position we have in the market.
Great. Thank you.
Next up is Martin Yang, Adolf Kup,
Speaker Change: I, Grafton, thank you for taking my question. A couple questions on the self-surf dashboard.
Speaker Change: First, has your view changed on who can have access first to the self-serve dashboard? Is it your existing customers primarily or are you applying this to anyone regardless of their annual spend budget?
Speaker Change: Yeah, we're gonna roll it out in stages, Martin, so right now [inaudible]
Speaker Change: It's current customers. We'll have a feedback group. Once it gets fast feedback group, it'll open up to all current customers. The goal with that is to just help our team.
Speaker Change: The team right now is to do a bunch of manual labor and we're cap, we're resource limited. So that's going to happen pretty quickly here over the coming weeks. I mean I mentioned it in my talk trip.
Speaker Change: We're getting this in the hands of clients now. So that's going to be short-term. And the medium to long-term will go through stages of opening it up.
Speaker Change: We're eventually long-term, and this isn't too long-term, but several quarters. We'll go completely open, but in between now and there, you'll have stages of opening it up to new types of clients.
Speaker Change: So that we ensure the quality of client is high. The platform can be bug free. It can work under all scenarios. The models have time to improve. We open it up and off we go.
Speaker Change: Got it. And the follow up on that is when you think about this potential to give you more data or maybe increase your capacity to process more.
Speaker Change: Do you think Neutron, this could be a near for a helpful Neutron boost to how you improve the performance of Web App, Web App basis.
But look, the more customers we got...
Speaker Change: The better the model will get. If you think about it just logically, if you've got ten beauty companies live or you have a thousand beauty companies live, you're going to be better in a category if you have a thousand lives than ten, could you have more diversity of product?
to show the unconcumer.
This type of a product is recommendation engine. This type of product is recommendation engine.
Speaker Change: give it more options to recommend something personalized and it's going to buy a fact get better.
Now...
Speaker Change: I've said this in the past, we're at a point where we're not perfect, we're not making it work for every customer.
whereas we do that inside gaming.
Speaker Change: So we don't want to go to a thousand beauty companies and say like 800 of you are going to work perfectly well, 200 of you are not going to work. Our shareholders will be ecstatic. If we open up the platform and become thousands to tens of thousands to hundreds of thousands of customers, the business is going to be multiple as big as it is today. The growth rate is going to be phenomenal.
Speaker Change: The problem is we want to make it work for everyone. We really set a high bar of perfection in anything that we do. We want to build the best performance product that these customers have ever seen. And so we're not there yet. We're going to get there. When we get there, we'll open it up and that's going to catalyze a lot of growth for the long term.
God, thank you.
Next up, we have Eric Sheridan at Goldman Sachs.
Speaker Change: David Hsiao, David Hsiao,
Eric Sheridan: Thanks so much for taking the questions, maybe two if I could, Adam, first for you, I got a chance to look at the blog post about...
Speaker Change: Tiktok, and I totally get your labeling as a bit of a long shot to use your phraseology from the end of the blog, but my understanding was you were more interested in the US ring-fenced process that's going on with the Trump administration now, and this seems like it's a bit of a broader...
Speaker Change: Proposal, ex-China globally as opposed to maybe what the Trump administration is trying to solve for. So I just want to make sure I understand a little bit of the messaging off the blog and how to reconcile it with what is going on in DC right now with respect to TikTok.
Speaker Change: U.S. and how you're positioning yourself vis-à-vis that. And then that, you know, you guys continue to produce a lot of efficiencies while growing your very high rates. Any updated views on how you guys are thinking about incremental margins in the business over the medium to long term or steady state rate on incremental margins. Thanks, guys. Thank you very much.
Speaker Change: Thanks Eric, I don't want to spend too much time on TikTok, but just briefly, yes we're going off for World Outside of China. We think the biggest priority is to solve national security concerns.
Speaker Change: with regards to biases in the Algo and data in the US, but that's important outside of China everywhere. And to do that, you really truly do have to have operational control. Unless the US app is a separate app from the rest of the world, which it cannot be, would just deflate the app's productivity.
Speaker Change: Then some company needs to have control to rewrite parts of the Algon to ensure that this thing complies with the standards around national security.
Speaker Change: We think our proposal is best suited to do that. In fact, we think we may be the only one who could do that with the knowledge that we have of models in the proposal we put forth. And on top of that, we think we would solve the present and be the best operator of this business long term through this type of partnership structure we propose. So I put the thoughts out there. I wanted people to have context. Let's go.
Speaker Change: It's absolutely a long shot. We do go after long shots. That shouldn't be surprising to our shareholders at this point. We think we've got the best performance advertising AI model the world has ever seen today. And that paired with an audience's large scale as TikToks could unlock immense economic potential and value for shareholders. So it's something that we're excited about and I put the rest of the details in the vlog for others to read.
Adam Foroughi: In terms of your second question, Eric, the margin profile of the business and expectations going forward, as Adam mentioned, we continue to expect to run the business lane and part of the ethos of the company.
Adam Foroughi: So, you know, as we continue to grow top line, we're trying to find a way to do that in an efficient manner, obviously we've been talking about the self-serve platform, that's one obvious way that we're planning to grow by not adding any to the cost base. So we do expect that the primary components of the cost base should remain relatively flat with obviously the exception of data center costs which are more variable. [inaudible]
Adam Foroughi: around kind of a 10% of the overall revenue growth, and we expect that that should continue, so the margin profile of the business should continue to grow from where we're at today on the advertising business up to that kind of asymptote, and then we'll see where we can take it from there.
The final question is from Rob Sanderson at Wolf Capital.
Rob Sanderson: Thank you. Can you hear me this time? We can. Oh, yeah. Okay. Sorry apologies for the technical difficulties. Don't worry. It's good to hear you're not being on camera because
Rob Sanderson: That's where I failed last time, so we're going to play safe. I have two questions please.
Speaker Change: Can you first help us understand maybe and delineate to the extent that you can sort of trends in the app product versus web and you know the lines obviously are really blurring here and Matt when you talk about potential for 10% contribution from web this year like you're talking gross or matter how to even parse out the difference.
Speaker Change: This is just content marketed through our platform using our models to drive a result. So whether the advertiser is an app, a website, a web and an app, the model should be able to deliver the result. Now, we started with mobile gaming advertisers who had apps.
Speaker Change: And so the first version of our business for 12 years was focused on one specific use case.
Speaker Change: upload a few videos, Applovin go take care of the rest, deliver results, create your own videos, personalize the advertising, and then I'm really happy. And so we think all of this stuff is going to merge together as we get to a place quarters or years from here.
Rob Sanderson: And to clarify on the 10% contribution, so that would be on a net basis, so we believe that the web-based advertising solution should contribute at least a 10% to the overall net revenue of the advertising solution.
Speaker Change: Good, thanks for that. And then question on sort of longer-term avenues for self-attribution.
Adam Foroughi: You know, it's sort of a little bit of a hole right now for you, just not having the identity and whatnot. But, you know, are you always going to be sort of dependent on third parties for this or, you know, are you limited to maybe lower consideration, high turnover products like you described earlier, Adam, you know, or you just sort of, you just got lots of demand to serve right now and years of growth in front of you and you'll sort through that challenge over time. Like, what can you share on that at this point? Yeah, so like the third is true. We've got lots of demand and opportunity in front of us. The products that we can service in front of us. We've got lots of demand and opportunity in front of us. We've got lots of demand and opportunity in front of us.
Adam Foroughi: on App, are attributing with third party companies like AppSfire and Adjust, so we were built for third party attribution on App. On Web, we built the product to be self-attributing, so our own attribution platform.
Adam Foroughi: and it's a high turnover product. I mean, like most products.
in the world are not selling something greater than 250 bucks.
Adam Foroughi: Our products, our models can go deliver something that's a couple hundred dollars.
Adam Foroughi: within a few minutes of the art being seen and it's happening.
Adam Foroughi: Quite often, I mean obviously scaled at the billion dollar run rate that I mentioned.
Adam Foroughi: So that's something where we don't get a long window today, but it's not harming us. In fact, it's forcing us...
Adam Foroughi: to work at a higher level. And that standard makes it so that our product is delivering a specific value in a short window which allows the advertiser to see more incrementality on the dollars that they spend in question attribution less. Now, over time though, we want our advertisers to be able to measure us
based on the way that they want to measure us.
Adam Foroughi: Companies use different attribution tools, some of them have internal tools. So the same way on mobile app we integrated with third party solutions, we are working on integrations in the web space as well so that the advertisers can have multiple reference points.
Adam Foroughi: They can feel confident in the dollars that they spend as they scale us and our aspirations are to become their biggest or their second biggest channel period and if you become that big you want them to have a lot of confidence in the dollars that they're spending.