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    APP
    Earnings call· Dec 2024(Q4 FY24)

    AppLovin Corp APP

    Feb 12, 2025 Source

    Executive summary

    AppLovin Q4 FY24 — Strong Growth Driven by E-commerce and Strategic Divestiture

    AppLovin delivered a strong Q4 FY24, exceeding expectations with robust revenue and adjusted EBITDA growth, largely driven by the advertising business and early success in e-commerce. The company announced a strategic divestiture of its Apps business to focus on its core advertising platform, aiming for increased productivity and automation. Management is prioritizing the development of self-service tools to scale its platform to a broader range of advertisers beyond gaming.

    Highlights

    5

    • Total revenue increased 44% year-over-year to $1.37 billion in Q4 FY24.

    • Adjusted EBITDA increased 78% year-over-year to $848 million in Q4 FY24, achieving a 62% margin.

    • Free cash flow grew 105% year-over-year to $695 million in Q4 FY24.

    • Advertising business revenue reached $999 million with a 78% adjusted EBITDA margin in Q4 FY24.

    • Signed a term sheet to divest the Apps business for an estimated $900 million, including $500 million in cash.

    Concerns

    3

    • Apps business revenue decreased 1% year-over-year to $373 million in Q4 FY24.

    • Q4 FY24 advertising business flow-through from revenue to adjusted EBITDA was 75%, slightly lower than normal due to a step function increase in data center costs.

    • The e-commerce go-to-market team is small (roughly 20 people), limiting manual onboarding of new advertisers.

    Guidance & targets

    5
    CategoryTargetConfidence
    Advertising business revenue
    $1.030 billion to $1.050 billion
    high materiality
    High
    Advertising business adjusted EBITDA
    $805 million and $825 million
    high materiality
    High
    Advertising business adjusted EBITDA margin
    78% to 79%
    medium materiality
    High
    Apps business revenue
    $325 million and $335 million
    medium materiality
    High
    Apps business adjusted EBITDA
    $50 million and $60 million
    medium materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Advertising business
    Generated $777 million in adjusted EBITDA. Quarter-over-quarter flow-through from revenue to adjusted EBITDA was 75%, slightly lower than normal due to a step function increase in data center costs.
    		$999 million——78% adjusted EBITDA margin
    Apps business
    Generated $71 million in adjusted EBITDA. The company signed a term sheet to divest this business.
    		$373 million-1%—19% adjusted EBITDA margin

    Operational metrics

    11
    Cash and investments balance
    $741 million
    Q4 FY24

    At the end of the fourth quarter, we had $741 million in cash and cash equivalents.

    Free cash flow margin
    76%
    FY24

    Free cash flow for the year was $2.1 billion, representing an impressive 76% flow-through from adjusted EBITDA of $2.72 billion.

    Adjusted EBITDA
    $848 millionup 78% year-over-year
    Q4 FY24

    Adjusted EBITDA increasing 78% to $848 million, achieving a 62% adjusted EBITDA margin.

    Adjusted EBITDA
    $2.72 billionup 81% from last year
    FY24

    Adjusted EBITDA was $2.72 billion. That's an incredible 81% increase from last year at an adjusted EBITDA margin of 58%.

    Total Revenue
    $1.37 billionup 44% from the same period last year
    Q4 FY24

    Total revenue increasing 44% from the same period last year to $1.37 billion.

    Total Revenue
    $4.7 billionup 43% from last year
    FY24

    Revenue for the year was $4.7 billion. That's an increase of 43% from last year.

    Adjusted EBITDA per employee
    $3 million
    Q4 FY24

    In Q4, we had approximately $3 million in run rate adjusted EBITDA per employee in our advertising business, and we expect that number to rise.

    Shares outstanding
    340 million
    Q4 FY24

    At the end of the fourth quarter, we had 340 million shares outstanding.

    Shares repurchased
    1.6 million
    Q4 FY24

    This quarter, we withheld a total of 1.6 million shares for a total cost of $508 million.

    Shares repurchased
    25.7 million
    FY24

    For the full year, we repurchased or withheld a total of 25.7 million shares for a total cost of $2.1 billion at a weighted average price of approximately $83 per share.

    Flow-through from revenue to adjusted EBITDA
    89%
    Q4 FY24

    This represents an 89% flow-through from revenue to adjusted EBITDA.

    Industry KPIs

    3
    MetricValueDetails
    Revenue growth$1.37 billionUSD
    Customer account count1 billion+people
    Operating FCF margin rule of 4062%%

    Deals & partnerships

    1
    UndisclosedSale of entire Apps business$900 million

    AppLovin signed an exclusive term sheet to sell all of its Apps business for an estimated total consideration of $900 million. The transaction is subject to regulatory clearance and is hoped to close in the coming quarter.

    Risks & headwinds

    5
    Slightly lower flow-through from advertising revenue to adjusted EBITDAQ4 FY24

    75% flow-through, slightly lower than normal levels

    Mitigation: Flow-through will normalize as the company gains leverage on the increase in GPU costs.

    Limited capacity for manual onboarding of new e-commerce advertisersNear term

    e-commerce go-to-market team is roughly 20 people

    Mitigation: Prioritizing development and rollout of automated self-service tools to handle growth at scale.

    Volatility in e-commerce advertiser spend due to seasonalityQ4 and Q1 seasonality

    spike. They'll drop. They'll come back.

    Mitigation: Expects consistent lines of revenue over time as seasonality normalizes and businesses grow, reinvesting in marketing. Continuous model improvement for e-commerce.

    Challenges in CTV advertising (attribution, lack of call to action)Building into this year

    not without its challenges

    Mitigation: Actively building capabilities to address these challenges, aiming to unlock performance advertising on the big screen.

    Fraud and content moderation challenges with opening up the platform to self-servicePrior to self-service launch

    would get a lot of fraud that came onboard if we didn't have a lot of tools written to prevent that

    Mitigation: Taking it seriously, building tools and content moderation controls, being conservative with self-service rollout.

    What to watch in Q1 FY25

    5

    Apps business divestiture closure

    Q2 FY25
    CurrentSigned term sheet
    TargetTransaction closed

    Why it matters

    This strategic divestiture will allow AppLovin to focus entirely on its advertising platform and impact its financial structure.

    Subject to regulatory clearance, we hope to close this transaction in the coming quarter and look forward to seeing the success of this business under new leadership.

    Q&A highlights

    6

    Does the early success with various brands suggest that as AppLovin scales its non-gaming business and moves to self-serve, it won't be limited to DTC marketers?

    Adam confirmed that the platform's technology, initially proven with DTC commerce, is now showing success across any category. This gives confidence that as self-service tools are rolled out, AppLovin can target a very large set of advertisers beyond DTC, while maintaining a lean, automated approach.

    “when we put the platform together, we really strategically made a choice to go after DTC commerce, but what we knew is that if the tech works there, it's going to work on everything.”

    asked by William Lampen · answered by Adam Foroughi

    2 min read7 chapters

    Detailed Narrative

    01

    E-commerce Expansion and Non-Gaming Verticals

    AppLovin captured meaningful holiday shopping advertising dollars from e-commerce in Q4 FY24, validating its platform's performance beyond gaming. Early pilots show positive outcomes for a range of advertisers, suggesting the platform can serve any business in any vertical. This opens up a massive opportunity with over 10 million potential online advertisers worldwide, as the platform generates incremental demand by enabling new product discoveries for users.

    02

    Strategic Divestiture of Apps Business

    The company signed an exclusive term sheet to sell its entire Apps business for an estimated $900 million, comprising $500 million in cash and a minority equity stake in the combined private company. This strategic move, expected to close in Q2 FY25 subject to regulatory clearance, allows AppLovin to focus resources on its pure advertising platform. The Apps business had been instrumental in training early machine learning models for the AXON platform.

    03

    Focus on Productivity and Automation

    AppLovin is emphasizing productivity, automation, and lean, high-impact teams, highlighted by its focus on 'adjusted EBITDA per employee.' The advertising business achieved approximately $3 million in run-rate adjusted EBITDA per employee in Q4, with expectations for this number to rise. The company's priority for the year is to develop and roll out automated self-service tools to onboard new businesses at scale, rather than relying on extensive hiring.

    04

    AXON Model Enhancements and Seasonality

    Q4 growth was attributed to continuous model learning, iterative improvements, and seasonality. The e-commerce product began to take off during the holiday shopping season, and increased mobile device usage during holidays also boosted mobile game marketing. The company expects continued growth into Q1 FY25 despite typical Q1 seasonality and fewer days, driven by its rapidly expanding business and ongoing model advancements.

    05

    CTV Advertising Opportunity

    While not a current focus, AppLovin sees a significant future opportunity in Connected TV (CTV) advertising. The Wurl acquisition provides supply access, and as non-gaming advertisers (D2C, fintech, automotive) come onto the platform, extending their creatives to the big screen could unlock performance advertising in CTV. This presents a challenge due to attribution and call-to-action issues, but the company is actively building capabilities to address these.

    06

    Competitive Landscape and Economic Expansion

    AppLovin views its platform as expanding the overall economy rather than taking market share from competitors. By delivering incremental, measurable profits to advertisers through performance-based marketing, it enables businesses to increase their total ad spend and grow. This approach fosters broader economic growth without causing detrimental harm to other ecosystem players like social media platforms.

    07

    Impact on Gaming Publishers and Supply

    The expansion into non-gaming categories is expected to benefit gaming publishers. By offering non-competitive ads (e.g., e-commerce ads instead of competitor game ads), AppLovin anticipates attracting more gaming publishers to its MAX platform. This will bring additional supply online and further monetize the existing 1 billion+ daily active users, addressing publishers' historical reluctance to run ads that promote competitors.

    AI-generated summary of the company’s earnings call. Not investment advice.