Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AppLovin Corp (APP, Financial) reported a strong quarter with total revenue reaching $1.08 billion and EBITDA of $601 million.
- The software business saw a 5% revenue growth quarter over quarter, indicating continuous improvement in their models.
- The company achieved an impressive 81% flow-through to adjusted EBITDA, translating to $446 million in free cash flow.
- AppLovin Corp (APP) launched its first web advertising campaigns for e-commerce shops, which showed promising early results.
- The company has a strong focus on expanding into new verticals beyond gaming, which could unlock significant growth opportunities.
Negative Points
- The mobile gaming market is experiencing slower growth, which could impact AppLovin Corp (APP)'s overall performance.
- The current system can only find a limited number of users who meet advertisers' revenue goals, limiting potential growth.
- There was an 11% quarter-over-quarter decrease in total app segment costs, indicating potential challenges in user acquisition.
- The future margin profile for the app segment is expected to normalize to approximately 15%, which is lower than current levels.
- The company is still in the pilot phase for its new web advertising campaigns, meaning it may take time before these initiatives contribute significantly to revenue.
Q & A Highlights
Q: Can you provide more details on your ambitions and progress with initiatives outside of gaming, particularly in e-commerce?
A: Yes, we have launched e-commerce advertising campaigns that allow shops to buy inventory on our platform. This initiative is in pilot but showing promising results. We expect it to have a material impact starting in 2025 and beyond. This opens the door to advertising for any website aiming to drive measurable transactions.
Q: What is driving the acceleration in your software business against tougher comps?
A: Our growth is driven by continuous improvements in our models, which gather more data and become more effective. We also see strong momentum with our customers, who view us as a primary channel for mobile gaming advertising. Additionally, we are excited about trends in web advertising categories.
Q: How do you plan to manage share repurchases given the improving free cash flow profile?
A: We plan to continue our historical trend of managing shares to cover quarterly vesting and will also conduct supplemental repurchases on a strategic basis.
Q: How dependent is your long-term software platform growth goal on verticals beyond gaming?
A: Our growth goal is not very dependent on non-gaming verticals. The mobile gaming category alone, with continuous model improvements and developer-driven enhancements, can achieve our growth targets. However, expanding into new categories could further boost our growth.
Q: Are you seeing any changes in the overall health of the mobile gaming market?
A: We are not seeing significant changes in the aggregate market, which is growing at low single digits. However, the advertising-supported market is growing faster, and our platform's efficiency is driving more investment from mobile gaming companies.
Q: What is the trajectory for your software business to achieve 20-30% long-term growth?
A: We expect consistent quarter-over-quarter growth driven by model improvements and enhancements. We also see potential for step-function gains from technological advancements and new category contributions, although these are not yet factored into our long-term views.
Q: How does your technology drive growth in the in-app advertising market?
A: Our MAX platform has made the in-app advertising market more efficient by transitioning from waterfall to programmatic bidding. This efficiency has led to increased investment in user acquisition and discovery, driving growth in the advertising-supported market.
Q: Are you seeing increased adoption from large publishers who previously viewed you as a competitor?
A: Yes, our platform's success has led to more adoption from large publishers. At this scale, it is hard for any publisher to look the other way, and we are seeing more collaboration across the board.
Q: What are the impediments to running e-commerce advertising in the in-app environment, and how are you addressing them?
A: Our technology is designed to drive measurable revenue, requiring an attribution framework and predictive models. We are currently in pilot with our e-commerce product and seeing promising results, indicating that we can build on this success.
Q: How accurate are your models in matching users to advertisers, and how do you see this improving?
A: Our models are very accurate, achieving revenue goals for advertisers with a low error rate. As our models process more data, they become more accurate, allowing advertisers to spend more on our platform. This continuous improvement drives our confidence in sustained growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
