APP - Earnings call transcript Q2 2024

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David Hsiao

Welcome to the AppLovin Earnings Call for the Second Quarter ended June 30, 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 second quarter are available at investors.applovin.com.

future will market forward-looking financial expectations, the and we products regarding performance call, company services and the other today's be statements making our of During events. expected future our These statements assume obligation law. update to assumptions by beliefs, except required and no as current them are we and on based

ended the materially XX-Q our in most filed Form may Our results We factors actual differ results XXXX. encourage risk predicted. the March first quarter for the from you XX, to review recently

be our on also on report quarter for June XX-Q may be which Form information Additional found ended quarterly fiscal today. filed the later XX, will XXXX,

be We to also are a not measures. to discussing will These or non-GAAP GAAP measures non-GAAP financial our substitute superior be for intended results.

review financial of a reconciliations and and being and the GAAP a Relations our release earnings is will to measures for our our letter This be our non-GAAP period available shareholder on recorded, time website. replay site. on Investor of be IR Please call in conference sure available

turn over moderator opening the and then Adam Q&A. remarks, it to Matt have some us for we'll through take I'll Now

Adam Foroughi

Welcome, strong thank QX. quarter had everyone, We another in you for joining and us.

revenue improve. because growth had models continue our to business Software Our X% quarter-over-quarter

As growth. big in we step-up you'll recall, had a QX, in

grow So sign. to that continuing trend really to quarter-over-quarter promising a is continue

will EBITDA conversion As to cash is cash and our we've stated business, in margins previous high, and earnings calls, very improve. if software the to we keep flow-through business growing and continue the

at concept a doesn't explaining slower market We've shareholders to prospective constrain more noticed business. also we're for software Gaming times, needed and our our in, consistently opportunity this said investors. bit our Mobile that grow little growth that the We've

here. time to to do take wanted I that So

and performance-based. In from who words, our profit a Our the revenue measurable market on platform platform. advertisers they dollars our on platform generate spend is gaming entirely other

can target spend return deliver tend our platform campaigns marketing to we for appetite goals than on a much Our higher customers that today. run with have

And can will today? limited Because our why system users more who their can't meet goals. current a find of only revenue we deliver number

will As gaming resulting growth in improves, users more rate who mobile the increasing we higher our find than technology continue achieved the of advertiser market. goals, these growth spend, materially to

talked us. for I XX% in confidence communicating in long typically our don't term. a growing have externally I'm I software I see goals, of don't strong ahead quarter, many business goal confidence now to Last if years of it and do have of the about communicate because about our XX% I it. it, I growth

growth the drivers goal. that Here are of primary

data. they Continued from our models improvement for learn as more

our more become As for models users accurate find more gather our more they'll advertisers. data, and good

delivers through Games efficacy to enhancements. of that the our our team models

exceptionally Our our and are research and performance consistently core members science talented the models. to of engineering lifts delivered team

for launched We this it unlock while the new of just quarter. into expansion web us. a advertising we verticals. think pilot in And Demand demand shops will campaigns opportunities first for expansion right lot now,

of categories help expansion, our supply CTV broaden as our new gaming, outside then the we demand really base And footprint. will out grow expect we

able excited very our the be is prospects to deliver. We about and our continue team to performance

this how before will next just a quarters that not weren't because many opportunities work hope creates We achieve set we growth years, together, in the you sense tirelessly sophisticated. will and that over technologies and better to goals were of possible platform the advertising AI-driven have marketing an

financial Matt off I'll to With hand the you to that, through it run highlights.

Matt Stumpf

reaching period EBITDA from last the XX% to revenue adjusted XX% increase with same an Thanks, XX% total had another afternoon. Adam, revenue adjusted strong I'm $XXX quarter, adjusted report and EBITDA from adjusted good to EBITDA revenue flow-through EBITDA. in of to an increase XX% a translating marks year, and a billion pleased million, $X.XX we and achieving This margin. in impressive

to from the generated a $XXX from benefited flow base in which period, as cash relatively EBITDA. XX% quarter, stable a free the In is we compared of interest. tax EBITDA same cash million cash growth we Quarter-over-quarter, and grew flow, our flow-through in adjusted XX% free XX% adjusted first over

improvement disciplined from margin by quarter, platform, from growth year. the in During Axon generated our million revenue software remaining $XXX EBITDA, costs, million and growing ongoing contributed the last retaining flow-through prior revenue ability efficient. adjusted same XX% self-learning to revenue which period of driven our our illustrating the growing and of while This lean remain an represents technology, further with to $XXX our in in quarter, XX% XX% our and

from for an representing margin. $XXX the Apps million $XX with revenue quarter last million, in was a XX% X% Our year, EBITDA, increase of adjusted

have we our total resulting return decreased quarter, in quarter-over-quarter XX% costs, in acquisition while an the goals, revenue During X%. readjusted segment Apps user by decrease

over our XX% approximately profile We expect future long normalize margin the with to industry to consistent standards. term,

X ahead plan key we Looking areas. capital on to to focus allocation,

and capital our specifically development development technology since and lean targeted very we support expansion count a engineering in teams here investment do initiatives, in We to investment Axon expect business growth the not head plan our significant organic e-commerce. First, manner. to and of our into expand

Second, liquidity a repurchases. withhold on operational net strengthening enhance our while to third, continued and balance reducing share flexibility debt. future cover activities strategic share with And combination vesting sheet of to management of and

$XXX in withhold we billion XXXX, $X of used and million XX% shares, invested have shares. million to XX.X combined million withhold management. X.X quarter about we the QX, Since to repurchase allocating cash nearly In free share a our to flow

EBITDA in and adjusted $X.XXX million, and XX%. in Finally, billion targeting $XXX $XXX an XXXX, we margin of third the million deliver adjusted of quarter with EBITDA between to anticipate revenue, between $X.XXX

Q&A. move with to Now let's that,

Operator

first Jason [Operator Bazinet Instructions] is with to from question come going Citi. Our

Jason Bazinet

refresh 'XX you gaming. us of are sort I said I of of of when in a and sort just be 'XX, it might some timing. were of far? that's But event? can what these early, is of sort some some bit learned sort know on a had little of and anything of on quick think large a question it, you ambitions could the Just care something initiatives it's Street outside where are pursuing The your beta. products you the still it that guys enough you And so you've dimensionalization a about

Adam Foroughi

user In active purchasing an to quarter, that -- in users see Good inventory, mobile the launched pilot gaming advertising user about QX, you, platform. the same video and X a their we that our that on e-commerce daily route our allows shop to see Yes. of mobile gaming, purchase advertisement buy talk the we in-app Jason. This shop allows in let's way and a to like a our users has first. web companies This program. on website that billion-plus e-commerce

and measurable that it's So doing performance it basis, I'd and say result. few then we're brand-new. in is This on a now. pilot for been delivering revenue months a

better have our looking expected in this than to really in materially what early are advertising. promising, we get trying progression web into would Results

to performance for this any So transactions that And material limited to our scaling product, to that we opens a think, It impact measurable basis on show door not behind, any and the drive it is invest e-commerce. something in will heavily type platform. wants hopefully website that are to on a going is out of 'XX advertising just we're start and beyond.

Operator

come will Lampen question Clark with next Our from BTIG.

William Lampen

first year, one, relatively of guidance primary Apps guess you be the last we and sort trends actually if sort driving on. maybe I and of you software what by an the driver sort to business. that assume it's that mentioned portends could I'm of half Adam, go similar we of going if that third comps the driven curious are then to reacceleration that improvements model acceleration of I'm sort we tougher adjusted a give of quarter us comp But and look sort of saw sort there's to guess into against in sense what at that 'XX. the And for implied back learnings that now, what's going

Adam Foroughi

Yes. quarter-over-quarter today, we've of as quarter-over-quarter. the are the improve goal if enhancements materially apply on goal, about every to gaming in have mean, getting growth that pretty quarter more. numbers growth a like We've mobile just big. enhancement. going growth we in single But always I about QX It we to terms about just when the business talked talked was is in grew -- to X% of think you model teens then and top. points that few from up the trying was just pick continue itself also the the like is this team

in QX saw lifts team, function. we When growth expect having over wouldn't can from QX. QX, Like we get you be those step the double-digit

advertising, and in in really also to channel category. still business just seeing advertising The and lot We've now that, see with main behind web our so strong. QX. we exciting the good as talked momentum And trends mobile got we're very what in now gaming really seeing the a customers. They continue trends of us we're around is about,

So we've the got optimism of going next quarter. lot a into

William Lampen

as business Okay. take we said. little as I price maybe a then guess, being could, bigger there about, think, implies in periods market billion view bit sort margins year-to-date, profile And you cash The How of in $X.X the as improving, dislocation guys the and what tactical if is an where a you between do buyback flow around free if value? guidance the Apps you've XX%, of incrementals more both the I stock. is with and you at intrinsic repurchased margins I higher Matt, think uptick just

Matt Stumpf

Clark. Sure, Yes.

And manage cover we'll do So each basis, through that in quarter. our withhold of is quarterly of to to on are supplemental shares the to kind repurchases plan historical currently vesting. on shares trend continuing our addition a the to continue vesting continue strategic to then

Operator

to James Jefferies. on move We'll with Heaney

James Heaney

And XX% on how that talk I'm one just just I beyond more is the gaming, verticals more you and you referenced? software follow-up. about goal platform then long-term XX% growth curious to just that dependent have Could

Adam Foroughi

a of it's all. outside mobile think don't We got few year very dependent It's a We've points percentage gaming growth a Yes. got category. at of now. gaming

So more these let's data, we think quarter to call well. low We've X% digits. an that gathering continue a from got that as X%, as a business improve extra that's models single

then it that improving models the more working to gets models. developer-driven low end. the improvement And where actually up of that's enhancement that's accurate, higher them makes steps got the range. we've a the that that's And you on constantly then into you So team end to any

confidence put basis, a we baseline growth business. got there lot goal of we've the And out a current in just so on the

platforms going daily it and users. outside we're the We've that we technology performance of already disallow X would advertising value do gaming. nothing of and most sophisticated of of in got we're pilot. There's do, have seeing on one gaming, Now we that in from positive active mobile dollars sit in billions the world, billion-plus just about the driving trends

over platform our as we're about So out numbers time, these putting and we could pieces together the become. big really start excited broaden how

James Heaney

just then more follow-up gaming mobile one market. of the the just on And Great. health -- the overall

growth. X% I think you've, industry past, in about to the talked X%

So you're in any change curious seeing those if trends.

Adam Foroughi

any seeing market not active advertising-based by we're driven have change X in users applications in And is apps of different. daily audience, that but the our part No. that bit a billion little growing inside remember, so run plus advertisements. you aggregate, large We're to are also

with You partially that purchases, monetize those apps advertising. purchases partially with generate and games generate that games

number so And the overall low but and growing market also than look faster We're the market, documented can we're that reports everyone seeing IP anywhere, single that. see at digits. grow advertising-supported isn't it industry seeing

Operator

Omar hear from now Dessouky BofA. with will We

Omar Dessouky

out third kind is sort quarter, growth back at to looking I get off that's third still business, you to year-on-year from number about. guidance, Apps that XX% in far XX% if your pretty the Just which XX% the the long-term were talked of of quarter a I

lot Do any business have eventually to people a is to want of XX%, of quarters kind first of visibility share the you're from XX%. that I with that So of that and maybe year-over-year of myself to next what yet into couple potentially software know XX% would XXXX going like think trajectory able quarter, us? you

Adam Foroughi

don't a only ahead. provide looking quarter long-term we we're guidance. Obviously, So

start get It's still you business to guiding sort into on you see can if the can where deduce X%, be up confidently you X% upcoming in to XX%, opportunity touched Clark quarters time. the lot want think XX%, adding We -- on, see quarter-over-quarter of growth. to those quarter. to software X%, that grow. ranges We of for As a we some quite we're

of thought model Now the that not really That business they're what and team. to new also contribute function enhancements gains any again, step include in to long driven sort to removes our term are going for does because, by pilot. any frankly, opportunity given categories

business. the backing So on views those into longer-term we're not numbers

where cash to place to business -- this So to steady, growing going we're conversion flow at we very give a that exciting could in above lot going rate. even be The a we we've are think it's on nice be got going confidence a ranges. only other is to be be improve, and of going that is that things us to going those

Omar Dessouky

the Could the I terms you quick of ask there in-app suggest checks I there. improvements opportunity just did of Okay. some for So in advertising, another some that question? were

market that market, And between lot in-app drive growth $XX software your the business? potentially as into a technology is $XX that and publishers So estimate. could somewhere is a my turn in somewhere $XXX in-app I your difference think billion; maybe advertising purchase well major billion the for market? really smaller, and billion Does advertising revenues make around a

Adam Foroughi

mobile platform gone inefficient in-app MAX base. the running to bidding, majority state. of the MAX No. of through gaming because purchasing waterfall growing smaller a touched That that now on vast auction on auction We're the market at the faster that also the it's vast, market than is programmatic just the a Also, we've of auction. bidding in from -- the past, look, is is advertising already MAX much market in-app world has majority

continuously more efficient. it's so gotten And

Our also gotten advertising efficient. lot a more has

in doubled So discovery. as in There's investment gaming more happening last mobile our dollars business user of you've seen, companies billions of user from and acquisition year. the

are advertising-based portion be Some a more and now these systems this that's But are for of regrowing in-app effective part catalyst because of more is advertising in publishers that users as applications. that are advertisers, buying to in-app purchasing. that also our helped some whole industry a

our so this growth this large intertangled together, is of And we're scale and both inside all is of of because so main on category this the stuff catalysts one category in fronts.

Operator

Cannonball next Vasily with question. the Karasyov has

Vasily Karasyov

big with were I previous mentioned they the they and that on before you competitor. not call, you, think because as started a the saw spending you Adam, that, publishers

market continued them sort So I bigger that here. Do address quarter. buckets? appreciate the before? was I not wondering a see this you corner your you that still does And significant bigger, thoughts trend could in then how would up the open of coming of

Adam Foroughi

at -- dollars the the level you think dollars. Yes. advertiser businesses with of out mean, I like our look, it's you scale many in software backed are having that of platform, this in total billions

publishers. mobile usually there pretty competitor. that Like worked in the have publishers of look the is other with as at mobile some well-known platform way. penetration It's so always very So we've very very, large did publisher very to look large but some hard At our had for us successful we are gaming. deep gaming, in a this point, any

lot success today. of really across platform publishers. in does customer so gaming isn't And adoption mobile on There success a know scalable a find we've gotten not those even that and I point this that more at our

Operator

Moving on to Mohammed Khallouf with HSBC.

Cost no with to hearing Matt on move we'll Morgan Well, response, Stanley.

Matthew Cost

as the because like of I I people AppLovin in-game environment, guess open think exchange, allow seem environment or access Desk run in-app possible, that e-commerce of it Google to business Trade kind a understand it's the big e-commerce a on but an inventory I a or should like advertising today, very it today. which MAX when be an should ads about today, doesn't to

I since, guess it others environment what I running problems you product? an or preventing with in-game e-commerce are be possible? to from doing them e-commerce advertising how should those are believe already the to in-app then So that your aiming And impediments or solve in solving are it

Adam Foroughi

succeeding behalf models to prohibit technologies we we category, it them are categories Desk but in or on work comes in advertisers, gaming, from get able to to like products other things be able Trade any people's of ours. want can't to Look, When revenue. nothing our to being that drive to speak measurable

to attribution framework. got have you an So

now. this and You have product predict promising. work with with got you to user pilot quite revenue looking right It's models up to the it have that and together. in the can advertiser We're make match all

And as able it's build forward. on to on that be we aggressively going so to and build we're we go think very something

Matthew Cost

a is follow because data just I so much to perspective, to that's that. I have on matter up a from obviously, of it iterating mean, just relevant you guess data it? on specifically advertising that directly e-commerce advertising or iterating to the and set? of done that it kind Or kind verticals? gaming applicable historically. like of new data you've building And products Is about is other a

Adam Foroughi

Matt, plus see tens it's volume think already, X actives. I I billions combination both. a transactional we process of of dollars billion mean daily of we and of

So not our the female is at mobile and data and not just age. audience platform used be across anything. is human to this able middle gamers are point. small These beings, that skews And

completely is very large people what would at it's scale. a than audience so gaming different assume And a very,

e-commerce the are sophisticated something to that always should we've applicable than in is Axon past The X.X enable we've they hypothesized models so as much technologies possible. more there. success Directly in had that

and we're we're Now seeing in success pilot there.

at we're the of point it's less a more and pieces go-to-market in the now of know problem put now a problem. we place, we where So and technology

Operator

Matovic next Arsenije the Wolfe question. has with

Arsenije Matovic

Great.

So and strength aside it Apps installation? a into detail any a from AppDiscovery portion installation follow-up that you that, Then a I installations? in seeing on I little revenue and looking a installations know there just per material revenue then versus still per could tough of last how you're strength growth? strong installations the XX% of guess more smaller any business. terms base a installations nongaming? bit comp -- on revenue Is growing just And just types go from in more that of is on but today, AppDiscovery it's in accelerating quarter.

Matt Stumpf

Arsenije. Sure, Yes.

installations relatively the a still overall small business. you it's but grow, to the continues portion overall at software nongaming look the when So of

existing business, of it's previous relatively the like Adam's kind portion in mode pilot it's small comments, still and a still there. of to So

of continue really moving results, we to it's So not see a needle kind but today. promising

Arsenije Matovic

do Apps, Got it think you back sequentially. strength you just on Is support plans studios? capital you would out, also the term? wanting -- And people there Apps, medium despite then X.X? Axon allocation I Does it. in-app studios. payers, that dip when Some this monthly of divestiture the active your some talking function more on any the saw, And of that basically exploring from plan flat a were in on add in advertising about to

Adam Foroughi

to for the continue app And Apps M&A just in said optimizing over over divesting improve. we're market to the be year. the waiting we've and we've been Like really we and it, past open last businesses, to the studios about the a

So you as our see where in pretty UA margin we've materially spend. well right that quarter, the costs this We're return goals can our decreasing and increasing adjusted for profile.

continue we'll we'll those transactions profit, and to to maximize open be future. So the businesses for in

Operator

We have Yang additional Co. & for from with one question time Martin Oppenheimer

Martin Yang

underlying sequential behavior very market all I your type market basis. games want sorts a confidence on improvement I X% to gave little confidence X% deeper launches, at the look certain you doing What dig game to with that because and things. performing a your into on a constant that better new for worse of customer mobile are customers and dynamic -- or gaming it's of

on constant market that of type what improvement in pretty be basis? consistent the your you confidence So a that can that quarterly is gave

Adam Foroughi

quarter-over-quarter? sequential the... XX% said you think What I was

Martin Yang

X% to X%.

Adam Foroughi

accurate. right? models work. see single And -- more is is getting single just the components, because is get by that's data definition, Like digits. say X One quarter one models, better low which every they these market and more growth, we they can they how there's this all is So

accurate. And the to models so real that continue see time, get in more we

we spend in that on more them. advertisers said track, I will Now our this our advertisers, deliver my and today can to much platform our talk

many goals. more better, process users of for the The single can across at every revenue more those get those users models one limitation find up how advertisers. data to they're able If those the models match advertisers is and

all they're grow not buy to get we at So else more It's that that by and it's the are equal their better, on want stays platform. to expensive saying, a lowering cost them, more spend goals. will adding users it's not go advertisers the models up And budget, our these advertisers that definition, naturally. these the

we're very they're a advertisers. to spend that our And we platform incremental these because Their deliver for and marketing it. seeing real arbitrage profit, more appetite on models in so is buying there us, on will And profits if so at time. can very, large a a they do spend lot our

things good form up the the X can inside a very growth a the technology technology. those out sustainable so to end And materially that lift mobile that enhance then And is you piece using, rate gaming you're third you of build category. if having

ChatGPT function are understand as that to used And growth. X. and X.X, types world, that a because I enhancements are the technologies, to functions in technology, a there the is constantly I've making incremental But the in step could that analogy in people These use past, in like an these technology. be changes When of lift our we're step it.

For larger same models the behalf at will reason accurate spend more, and because more them. these our make can of scale it advertisers on

hopefully, you, that Martin. So for answers

Martin Yang

follow-up. quick A Yes.

that the primarily volume saying data inputs to is the So your model volume or driven? driven own improvement are you key

Adam Foroughi

Yes. a large look, to And get. more very, they're right? data better data models the scale, moat. creates a mean, or processed, we're that the I So very going

has and the bigger been So it's year lap we for every system, than month anniversary, prior just now went launch a plus. we in right? month. So Every X-year this quarter the single market been the

and more can drive stronger, So stronger, we those data math model data, With data. more it the get gets more incremental processes gets points, value. the

And very so technologies new. are consistently. These seen that we've AI very,

-- by world, how immense more And AI processes and it's works: technology doing that, and we to of amounts gets years stronger currently when accurate the go, these So on math do not nature, the predictive. That's data. XX have and back improving that this stop models that's are like themselves? today. of look They through more history in

core in underlying over that that And technology seeing that continue time. to we're grow confidence is to so time. this real And us going gives

Martin Yang

Got it.

to sense accurately can a how the matching. it can much and now more users you accurate about are future? there apps the be you the give You how in matching Is us talked

Adam Foroughi

days very, to Yes. our say increasing advertiser goal says, I we them. When in breakeven that an very look, today. match accurate When for on the XX mean, we're achieve "I platform," spend want in and let's means, says, back get "I want say, within days," advertiser want percent $X,XXX the XX and of that $X,XXX inaccuracy. today, we it I get that rate, to a to I

they So $X,XXX or XX it's whether -- get back $XXX days. in

have that can We a they the of much today, deliver low that $X,XXX spend only can the limit very with though system them. error rate for

tomorrow, data that say, XX-day processes enhancement. the team let's system the got the makes $X,XXX Now system deliver now more say, going And or breakeven. is ready an $X,XXX our advertiser to can go. same to at "I The

put XX continues in grow. even credit they equal. have unlimited remains will my Well, to improve, that continue card. all on if breaking business as And else tolerance You're spend to technology days, our I'll it to

Operator

you we all this participation, to quarter. next your today's and session look Well, you seeing concludes webinar. forward We our thank and for all question-and-answer

You may now Enjoy disconnect. your summer.

AppLovin (APP) 7 Aug 242024 Q2 Earnings call transcript