AppLovin Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 7, 2025
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David Hsiao
David Hsiao
Head of Investor Realtions at Applovin

Welcome to AppLovin's earnings call for the first quarter ended 03/31/2025. I'm David Shao, head of investor relations. Joining me today to discuss our results are Adam Frueghi, our cofounder, CEO, and chairperson, and Matt Stumpf, our CFO. Please note our SEC filings to date as well as our financial update and press release discussing our first quarter performance are available at investors.app11.com. During today's call, we will be making forward looking statements, including, but not limited to, the future development and reach of our platform, our expected growth opportunities, the result and timing of our proposed sale of our games business, the efficiency of our operations, the expected future financial performance of the company, and other future events.

David Hsiao
David Hsiao
Head of Investor Realtions at Applovin

These statements are based on our current assumptions and beliefs, and we assume no obligation to update them except as required by law. Our actual results may differ materially from the results predicted. We encourage you to review the risk factors in our most recently filed form 10 k for the year ended 12/31/2024. Additional information may also be found in our quarterly report on form 10 q for the fiscal quarter ended 03/31/2025, which will be filed today. We will also be discussing non GAAP financial measures.

David Hsiao
David Hsiao
Head of Investor Realtions at Applovin

These non GAAP measures are not intended to be superior to or a substitute for our GAAP results. Please be sure to review the GAAP results and the reconciliations of our GAAP and non GAAP financial measures in our earnings release and financial update available on our Investor Relations site. This conference call is being recorded and a replay will be available for a period of time on our IR website. Now I'll turn it over to Adam and Matt for some opening remarks, then we'll have the moderator take us through Q and A.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Thank you all for joining us today. Q one two thousand twenty five was another fantastic quarter marked by resilience and robust growth. After seeing the stock price rise roughly 50 times in two years, we faced short seller scrutiny, which we've addressed comprehensively and won't revisit here. Our mission remains clear, helping advertisers reach new customers profitably. It's important to remember in our business, our only financial incentive is to drive measurable revenue and profitability to our advertisers.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Without that, we could not scale our business nor would we get paid. As a leading performance marketing platform, our technological innovations have catalyzed the return to growth in the gaming ecosystem, reviving an industry that would otherwise be struggling without our advancements over the past two years. We've empowered sophisticated media buyers investing over $10,000,000,000 annually with us, driving strong returns and generating significant impact for their businesses. We're now expanding into broader categories, confident in our ability to fuel their growth as we did for gaming. Few platforms operate at our scale and we're proud of our role in driving economic growth.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Our partners' vocal support this quarter was inspiring and we're doing more business than ever. Let's dive into our outstanding Q1 performance. The first quarter is typically challenging for advertising due to seasonality and 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Less significant but impactful was the full quarter contribution from web advertisers. This diversification is transformative and fuels our excitement for what's ahead. 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. To our studio teams, you've been instrumental in building the technology that powers our Axon platform.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

As you transition to a company dedicated to game development, we're grateful for your contributions and excited for your future. Now looking ahead, we're focusing all resources on three key priorities for 2025. 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. Second, we're advancing our e commerce and web advertising solutions with three areas of focus.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

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. We're enhancing integrations with third party platforms and attribution vendors to provide advertisers with a seamless measurement experience. The web advertising space is more fragmented than apps, so this will take time, but it's a straightforward task.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

We're also developing a self-service dashboard and we'll be launching it this quarter for select customers. 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. 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. 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

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. These initiatives are both immediate and long term, positioning us for sustained success. Now let me address the potential impact of tariffs. 90% plus of our revenue in advertising comes from mobile games, which aren't directly impacted by tariffs.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

In web based advertising, some assume we rely heavily on large Chinese e commerce businesses which are impacted by the de minimis tariff exemption changes. 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. 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. I also want to address a few topics in the news.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

On competition, we embrace it. It drives innovation and pushes us all to improve. With our growing data moat and AI expertise, we're confident in our leadership and ability to grow rapidly regardless of others advancements. Regarding potential alternative payment systems in the App Store, we see this as a positive. Lower fees for content developers, our customers, means they can invest more in user acquisition, which benefits our platform.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

For context on our TikTok bid, please see my blog post we published a few minutes ago. Our lean team continues to impress showcasing a model for how AI based businesses can operate efficiently. Our run rate adjusted EBITDA per employee in our advertising business has risen to approximately $4,000,000 annually reflecting our commitment to operational excellence and robust economics. 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

With that, I'll turn it over to Matt for a deeper dive on our financials.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

Thanks, Adam, 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. Total revenue soared 40% from the same period last year to $1,500,000,000 and adjusted EBITDA increased a remarkable 83% to an impressive $1,000,000,000, achieving a fantastic 68% adjusted EBITDA margin. 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. In the first quarter, we generated $826,000,000 in free cash flow, up a staggering 113% year over year.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

Quarter over quarter, our free cash flow grew 19%, representing an impressive 82 flow through from adjusted EBITDA to free cash flow. At the end of the first quarter, we had $551,000,000 in cash and cash equivalents. This quarter, we repurchased and withheld a total of 3,400,000.0 shares for a total cost of $1,200,000,000 primarily funded through our free cash flow as well as a temporary draw on our revolving credit facility, which we've now repaid. As a result of our strategic share management activities, we were able to reduce the total outstanding shares net of share issuances to employees, demonstrating our commitment to delivering value to shareholders and ended the quarter with $338,000,000 shares outstanding. Shifting to the advertising business, we generated $1,160,000,000 in revenue and $943,000,000 in adjusted EBITDA, achieving an incredible 81% margin.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

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 App Discovery 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 ecommerce. Quarter over quarter flow through from revenue to adjusted EBITDA was an exceptional 104%, which is slightly higher than our normal levels due to certain nonrecurring 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. 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 400,000,000 in cash and a 20% ownership stake in the combined business.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

Subject to regulatory clearance, we anticipate closing this transaction in the second quarter, and we're confident in the success this business will achieve under new leadership while we sharpen our focus on advertising. 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. In the second quarter of twenty twenty five, for the advertising business, we anticipate delivering between 1,000,000,000 and 195,000,000 and 1,000,000,000 and $215,000,000 in revenue, with adjusted EBITDA between $970,000,000 and $990,000,000 targeting an adjusted EBITDA margin of 81%. We're confident these targets position us to continue driving strong growth and value for our partners and shareholders. Now with that, let's move to Q and A.

Operator

We will now begin the question and answer session. Please be sure to unmute and turn on your video before asking your question. We will take as many questions as time permits. And since we have so many questions today, please be patient as we move through this list. First up is Jason Bazinet at Citi.

Jason Bazinet
Jason Bazinet
Analyst at Citigroup

Good afternoon, guys. How are you?

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

Good.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Hey.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

How are you, Jason?

Jason Bazinet
Jason Bazinet
Analyst at Citigroup

So I just had one quick question, maybe two parts. On guidance for next quarter, I think it implies something, maybe I'm doing the math wrong, 3% to 5% sequential growth, 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, I was just looking back towards your historic financials and there have been some quarters where there were like sequential declines in ads revenue, but it ended up not being indicative at all of how much you are going to grow.

Jason Bazinet
Jason Bazinet
Analyst at Citigroup

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 doesn't it's not really thesis changing. I guess that's my question. I think it was 2022 was the year. Those are my

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

two So I can answer the second part, Mac can jump in if you wanna show him guidance. But, Jason, twenty twenty two 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

And you you get a really strong flywheel embedded into this type of a a machine learning model. As we get more impressions, more engagements with the ads, more conversions, the thing just get continues to get smarter and smarter. And then you pair that self learning with 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 and before. Then to your first question, building you got in our businesses, in terms of seasonality, we we have a bit of a unique advertising business because you typically expect q one to be your worst season.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

And our seasons are tied to time spent on mobile device, and q one 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 q one. Q '2, you actually don't have almost anything as only the tail end gets into summer. Q three, get summer. Q four, you get the holidays. So if you look last year at our quarter over quarter sequential growth, the only single digit quarter was q two.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Now we've said we're looking to grow 20 to 30%, but there's a whole bunch of unpredictable reasons why every year we think the growth could actually be materially higher. We almost grew 20% quarter over quarter in a single quarter in q one over q four if you normalize 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

And then even more exciting, I touched on this in the talk script, we're finally gonna 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, we're gonna 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

So the past in our business isn't really indicative of the future growth trends because we just haven't been at a stable place yet.

Jason Bazinet
Jason Bazinet
Analyst at Citigroup

Great. Thank you.

Operator

Next up is Matthew Cost at Morgan Stanley.

Matthew Cost
Matthew Cost
Analyst at Morgan Stanley

Hey, 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, including fintech and health care and insurance that you're having success moving into. So I guess, are you continuing to push into new categories beyond the ones that you've talked about?

Matthew Cost
Matthew Cost
Analyst at Morgan Stanley

And then when you're having those conversations with new types of advertisers, 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Yeah. So so I would say, Matt, we're not looking to push into any category of web advertising right now. We've got a line out the door of customers that have been waiting to come on to the platform. And then we've onboarded, I think I said in a blog, hundreds of advertisers. But our team is small.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

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's still in infancy when it comes to web advertising. We think it can get a lot better. And then you 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 paired with a much better model, which our model is inevitably gonna get better as the engineering team has more time to evolve it.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

We think we're gonna 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. Every type of game, regardless of whether it launches today or launched years ago in any category plugs into our system, puts in a return on ad spend goals goal and scales at their goals. We're not there yet on web across categories, but we're seeing better performance than we expected this early. We're gonna get there.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

And when we get there and we pair that with the self-service dashboard and launch that product globally, you're gonna have an effect that catalyzes a ton of long term growth.

Matthew Cost
Matthew Cost
Analyst at Morgan Stanley

Great. Thank you. And then I think you mentioned in the prepared remarks something about automated ad creation. So is that essentially tailored creative? And if so, what is the cost benefit analysis given the cost of generating creative, you know, for for advertisers in real time?

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Yeah. I mean, the to answer the second part first, we don't know the cost benefit until we do it. But what we wanna do is generative AI based ad creative. And if you think about the platform today, we serve over a billion daily active users. We're serving a lot of impressions.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

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. And those those videos go and serve, and they drive a certain response rate. Well, in the world of large language models and customization, we're not gonna 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, can now put more videos that are dynamically generated, run those videos through our platform, let the model then personalize the ad to the end user at a greater level. 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

It's free effectively. It's a very low cost amount of production to get a much higher response rate on advertising. If we can systematically do it, and we're certain we can, it's just taking time to get this to market, we're gonna be able to extract a lot higher response rate from the audience that sees the advertisements. And again, every time we have one of those events, it creates both a short term step 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

So that's another one of those events that we think are gonna be very impactful, and it's something that's a priority for us to work on across the the rest of the year.

Matthew Cost
Matthew Cost
Analyst at Morgan Stanley

Great. Thank you both.

Operator

Next up is Omar Dosuki at Bank of America.

Omar Dessouky
Omar Dessouky
Analyst at Bank of America

Hi, thanks for taking the question. Now that you've been in the pilot or excuse me, that e commerce has scaled I was wondering whether you had any updated points of view on churn among your advertisers, whether you're seeing any churn? And what would your go forward assumptions on on churn be? That that's one.

Omar Dessouky
Omar Dessouky
Analyst at Bank of America

And then, you know, whether you're seeing the spend per advertiser increase, you know, as the months go by or they they may or or if that spend per advertiser is just, you know, affected by seasonal trends.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Yeah. And so we we disclosed to you, Omar, the the I think I said 600 somewhat advertisers in the blog, billion dollar run rate. In terms of churn and and web spend growth quarter over quarter, our comp against q four versus q one isn't particularly fair in shopping, so I'm not gonna disclose growth by advertiser. But when we think about churn with where we are in the advertising product for web, we're early. So inevitably, we're gonna have some customers where it doesn't work for.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Now actually, right before this call, we pulled the number. For advertisers that spent run rate $250,000 a year, we had sub 3% churn. So very little. Now that's not an acceptable number for us. In gaming, we have basically no churn.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Unless a game is not marketable and it's gonna go out of business, companies in gaming do not drop off our platform. We're we're basically a requirement to their success. We want to be that in web advertising as well. But but again, remember, this product is months old. As the model gets better, we think we're gonna 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 and their business.

Omar Dessouky
Omar Dessouky
Analyst at Bank of America

Okay. And if I could just ask a quick follow-up on on a different topic. You disclosed 49% year on year growth in net revenue per install. However, your e commerce advertisers don't drive installs, they drive actions. So is that metric inclusive of the actions you know, that are in that are driven by ecommerce?

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

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.

Omar Dessouky
Omar Dessouky
Analyst at Bank of America

Thank you very much.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

You're welcome.

Operator

Next up is Chris Kuntaruk at UBS.

Chris Kuntarich
Chris Kuntarich
Internet Equity Research at UBS Group

Thanks for taking the question. Adam, you did mention that advertising could be better for some of the advertisers 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 and some of the progress you could be making as, we look forward into 2Q and and later this year, for just kind of road signs of of progress for those advertisers.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Yeah. I wouldn't say it's trends or anything specific because it's just not the way the models work. But if you think back a couple of on the game advertising model, pre Axon two and what happened when we released the new version of the technology and what's built, the customers get better ROAS and more scale. Every time the model becomes more predictive, that's what happens. So I sort of rate us as, like, a b plus right now with where we are.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

For how little time we've had in market with the web based model, it's performing really well. But we think it can perform a lot better. Now games have grown a ton over the last couple years. I don't know exact number, but I think I put in the blog ad spend on the platform is roughly quadrupled since we rolled out Axon two. Now that happens because you have better ROAS and better scale because the model evolves and gets better.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

So if we get to a place where tomorrow one of our engineers release a new version of the web model that's 40% better, I wouldn't be surprised. That doesn't mean that ROAS is thirty, forty percent better because usually we achieve an advertiser's ROAS goals, but it means at the comparable ROAS, they get 40% more scale. Then that starts compounding, but that ends up universal on the platform.

Chris Kuntarich
Chris Kuntarich
Internet Equity Research at UBS Group

Got it. And then maybe just one follow-up. As as we talk to advertisers, one of the common feedbacks we hear is the desire to have exclusionary audiences. Curious kinda if you're thinking around offering that to your advertisers, specifically on the web based side, has evolved since we've last spoke.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Yeah. So this is an interesting offering because it's related to what how they're used to buying on Meta's properties. And across Meta, this is just common. Advertisers upload an exclusion list and say, I wanna target new audiences at this percentage of dollars spent versus retargeting. The way we look at our product again is it's early.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

So our best gauge of success is how we can scale at the ROAS that they want, not by divvying up audiences, but by just making the model better at matching. 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 product's performance continues to improve, we we ramped up on hundreds of advertisers to a billion dollar run rate. And I mentioned we're we're sub point 1% penetration in the market.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

So despite being really early and despite having some bumps with some advertisers where we can look across the advertiser base and know we're not making it work for everyone. If just open up the platform today, you're gonna see a ton of growth, and we're gonna be working for a lot of advertisers. Now we wanna make it work for every single one, but we don't judge ourselves by saying we wanna build products that are similar to what others do. We wanna build products that are improved to what others do for our advertisers. And so we take these points of feedback.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

We we think about them, but we're focused on our own path, is improve the model and give the advertiser what we think is the best outcome.

Chris Kuntarich
Chris Kuntarich
Internet Equity Research at UBS Group

Very helpful. Thank you.

Operator

Next up is James Heaney at Jefferies.

James Heaney
James Heaney
SVP - Equity Research at Jefferies

Great. Thank you, guys. It'd just be great to get an update on the velocity of new web advertiser additions 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

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, sales. So there's not a lot of people in any one of those groups across this team.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

The objective right now is to give them the self-service dashboard, the automated tooling, so that then they could start onboarding at the pace that they were able to do to get up to the 600 and change. And I'm sure we're above that at this point, but the reality is we don't have the 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 gonna be in testing with it. We'll get early feedback. It looks quite good to us.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

It's and we believe it'll 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, then the team is gonna be able to onboard a lot more quickly. And so you'll start seeing phases of how we roll this out. You'll 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.

James Heaney
James Heaney
SVP - Equity Research at Jefferies

And then just as a another question. We've heard from a lot of your e com advertisers that the web product works really well for advertisers that optimize for those twenty four hour conversion windows? I'd love to hear about any progress you're making with, you know, helping advertisers that have longer consideration windows and, you know, higher repeat purchases.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Well, look, we don't 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. What that means is that our model has to drive actions quickly.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

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 gonna sell it in a matter of a few hours. 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, that's a great outcome because the advertiser knows ad created actual intent and outcome.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

If that sale had happened two weeks later, it'd be very hard for the advertiser to say, I can justify the whole value of that sale back to the AppLovin channel because there's been a whole other a bunch of other things that have happened in the middle there. What that does force us to do though is have a challenge when it comes to an advertiser that's selling a much more expensive product. We probably have to go and optimize for that advertiser to something earlier in funnel. Maybe a phone call, maybe an email registration, but not all the way to the point of transaction if those transactions are basically impossible to drive in a matter of a few hours. Again, I remind you, we're hundreds of advertisers into this thing.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

So the world of advertisers here is so big. Most sell products pretty quickly. So this honestly isn't something that we're even thinking about right now because we have a lot of room to go get advertisers and grow this business before we get to the constraint of, okay, now we have to make the the product sell that are in the thousands or tens of thousands of dollars per product.

James Heaney
James Heaney
SVP - Equity Research at Jefferies

That's great. Thank you.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Yep.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

Thanks.

Operator

Next up is Ralph Schackart at William Blair.

Ralph Schackart
Research Analyst - Technology, Media and Communications at William Blair

Good afternoon. Thanks for taking the question, Adam and Matt. Just a question on self-service model. When you go live with it, obviously, you're testing right now. How do you expect the to sort of respond or maybe better question is the advertisers?

Ralph Schackart
Research Analyst - Technology, Media and Communications at William Blair

Do you expect them to come, you know, with with substantial budgets that you, described a line out 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, you know, your best thoughts on what happens when you go live there.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Yeah. Look. Look. Advertisers need to prove to themselves that the dollars are worth spending. So no one just comes and floods a new system.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

They usually build a budget over the weeks and months that they're live once they see that a campaign is actually achieving the goals that they have. Now remember, we've constrained the audience in web advertising to US only. That's by design. Our our business itself is probably, I wanna say off top of my head, half half US versus international. We don't operate inside China.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

So there's a lot of opportunity to just flip that switch and go global. Now we'll pair the self-service dashboard with that. That'll allow us to really quickly dramatically increase the audience to see these kinds of ads and pair it 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

All the other ones, the social companies search, any display channel that's of any sort of scale has this type of ads manager product. Once we release it, agencies and advertisers will know what to do.

Ralph Schackart
Research Analyst - Technology, Media and Communications at William Blair

Great. Maybe a question for Matt. Matt, I think historically you've talked about the growth algorithm, being around 20 to 30%. Obviously, the business is, you know, growing, very robustly. Is that still the right sort of framing for the model? Just kinda curious on your on your thoughts there.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

Yeah. I mean, we continue to believe the 20 to the 30% is the right long term growth rate for the company as we as we've talked about before that's comprised of two components. One is the ongoing reinforcement learning, right, from the model just transacting and then teaching itself and improving over time. And that component, we think, is about kind of three to 5%, 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.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

Above and beyond that are directed enhancements, right, models going from chat GPT three to four. The other engineering team are working on all the time. And when they launch a new model, those provide step function increases. And so those increase the the annual growth rate in addition roughly around 10% is what we've kinda seen thus far. But we've had a lot of those a lot of those quarters, luckily, where the engineers have launched those model enhancements, and we've seen those step function increases.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

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 years since launching.

Ralph Schackart
Research Analyst - Technology, Media and Communications at William Blair

Okay. Great. Thanks, Adam. Thanks, Matt.

Operator

Next up is Rob Sanderson at Loop Capital.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

Rob, you're muted.

Operator

Next up is Matthew Thornton at FBN Securities.

Matthew Thornton
Equity Analyst at FBN Securities, Inc

Hey, Adam, Matt, David. Hope everyone's well. Good to see you guys. Maybe maybe two if I could. I guess, first one, maybe for for Adam.

Matthew Thornton
Equity Analyst at FBN Securities, Inc

If we think about some of the the next layer of initiatives and what I'm getting at there is really the non gaming app to app user acquisition as well as the dynamic personalized ad creative that you alluded to earlier. Should we think of those as initiatives that that could actually start to contribute in 2025, or should we think of those as more of 2026 type of type of initiatives? And then just one quick housekeeping follow-up. Matt, I think you guys have talked about, the nongaming audience plus business maybe being 10% plus of total advertising revenue this year. Is that still how you're thinking about that business for for 2025?

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Yeah. On on, 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. If we do that well, we're set up to have a fantastic 02/1926. We're already on the way to have a fantastic 02/2025.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

I don't know of any other tech company with the financial profile that we have and scale growing the way we are. I think it's on a rule of one fifty or something. And what we're focused on when we talk about priorities is how's 02/1926 gonna be? How's '27 gonna be? If we execute on self-service dashboard, put it out in the market, automate media buying on our platform, make it simple for advertisers of any kind, let them come in, put in their goals, off they go.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

The business is gonna have many quarters and years ahead of it of immense growth. At some point, we're gonna become a marketing based business. We can run app loving ads for any sort of small business to come in and buy on us, and you'll have an LTV to CAC model because the value of every one of those advertisers, given where we're starting in 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.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

And in terms of web based advertising contribution, Matt, and we had mentioned previously, right, that we thought that they would become kinda 10% of the overall contribution and revenue. You know, it's very difficult to to guess where that might go within the year because we've got a lot of factors, right, on both the existing mobile gaming business, how that develops over time based on these model enhancements that we're launching. You know, to the extent that we launch significant model enhancements, that business could grow at a faster pace than ecommerce, but we're very optimistic about the ecommerce business. You know, after we launch the self serve model, you know, that business could grow quite significantly and outpace that 10% metric that we provided previously. So it's it's quite likely that it could represent a larger than 10% portion of the the revenue this year.

Matthew Thornton
Equity Analyst at FBN Securities, Inc

Right. Appreciate it. Thanks, guys.

Vasily Karasyov
Founder & Senior Analyst at Cannonball Research

Hello. Good afternoon. Matt, to follow-up on what you said a couple of questions ago

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

Sure.

Vasily Karasyov
Founder & Senior Analyst at Cannonball Research

I think last year, we've had two quarters where there was I think the term is human directed enhancements. Right? So I think it was q one and q three. And, do I understand correctly that you're saying that that that can happen even, like, three, four, five years into axon two? It's not a function of the life stage of the machine.

Vasily Karasyov
Founder & Senior Analyst at Cannonball Research

It's the it's a function of its complete constantly learning. And then a a related question. So help us understand, or at least me, is it the same learning that apply that's that's applied to gaming and, ecommerce, or are those two different processes that can happen? Let's say, in one quarter, like, ecommerce learned something and stepped up and gaming did not?

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

Yeah. Yeah. Those are great questions. I'll address the second one first. So they're two different two separate models.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

So both models are are learning 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. Obviously, the we've got teams we have a team that's working on on both models at the same time. Similar to what Adam mentioned about our business development team.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

We 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 these 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 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 improve in one quarter, and the ecommerce model only have reinforcement learning and that more kind of stable growth plus adding new advertisers there, which is obviously gonna 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Yeah. Lastly, I I I would add a couple things too is let's not forget these this form of understanding how to work with neural nets is really new. I mean, you've seen it, like, we all can play with it with ChatGPT. If you look at how quickly they're releasing models, 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

If they're more predictive, they'll be improved. 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

But the reality is it's really, really early. So there's plenty of research out there that our team still needs to parse through. There's internal research that we pair with that. 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

The opportunity is just too great. And so we probably shouldn't call Axon two Axon two. Maybe it's just the Axon model. There's gonna 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 that where we can step it up where you would say, like, Axon three not Axon three, Axon two two, Axon two three, Axon two four, those incremental changes have shown to be double digit growth in a single quarter, a quarter over quarter.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

And 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're we have a long pipeline of things to work on, and we expect that the research science team till the end of time is gonna be constantly improving this model.

Vasily Karasyov
Founder & Senior Analyst at Cannonball Research

So very quick follow-up. So in, in simple terms, what Matt was saying that these are two different models. Right? So is it possible that you have Exxon two running, and then there is a 22 level of event that happens with the ecommerce model. Right?

Vasily Karasyov
Founder & Senior Analyst at Cannonball Research

And it steps up in efficiency, and they will be not synchronized, but improving at a step function at different is that what you're saying?

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

It's the reason why I keep saying e comm model is early is exactly that. It's like when we launched Axon two for gaming, we're multiple iterations in now. So the teams had a lot more time to evolve the gaming model. The the e commerce model is a couple of quarters live now.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

It's not 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 levers that are

Vasily Karasyov
Founder & Senior Analyst at Cannonball Research

Okay. Thank you very much.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

Thanks, Waseel.

Operator

Next up is Clark Lampin at BTIG.

Clark Lampen
Managing Director at BTIG

Hey, guys. Good evening. Thanks for, thanks for taking the question. Adam, as we are shifting through sort of q '1 performance, for the advertising segment within the sort of 20% ish sequential growth that you referenced, I'm curious if that you know, sort of as Matt 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 ahead of the typical low to mid single digits rate rate of growth?

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Yeah. For sure. So, like, you had two less days. Q one, even though it's a good season with some of those holiday days, it's not compared to q four a good season. So it was a huge step up quarter.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

I mean, again, we might be the fastest growing tech company anywhere at the scale that we operate at. So there had to be multiple drivers there. And I mentioned on the talk script that there was better efficiency in the model, so the team is constantly improving the model. Now we don't call it, like, what 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 got became more effective.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Self learning is an aspect of it. And I did say the advertiser contribution from e comm getting a full quarter of the run rate that it had gotten to in q four 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 came from the gaming side. There's still a lot of room to go there.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

I I mean, these advertisers, when we become the channel that they depend on, both the advertisers and publishers need us to do our job. We're doing it very effectively, but we're still at a very low conversion rate per thousand impressions to where we think we can get to even in the gaming category. And so the technology is still early. We're gonna find more lifts. The the team's got a long pipeline.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

So we're really excited about both opportunity for the model to keep getting better in that flywheel effect because the scale has gotten so big paired with what the team's gonna be able to unlock as they make the model better.

Clark Lampen
Managing Director at BTIG

Okay. That that makes a lot of sense, and it's helpful color. Maybe for a second question, just a quick housekeeping one. Does maybe this is for Matt. Does the guidance for the second quarter include any of the upside or recognition from legacy studio spend?

Clark Lampen
Managing Director at BTIG

I I believe, you know, way back when you guys disclosed the sort of total software transaction value metric, and and for accounting purposes, you weren't recording revenue from first party studios. Now that they're third party, 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?

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

Yeah. So after signing the the agreement, today with TripleDot to divest the the apps business, our expectation is that the transaction's gonna close, towards the end of the quarter, actually, Clark. So within the guidance, we we have not assumed any incremental uplift from having those studios be external parties and and the premium rate on the user acquisition cost that we would normally charge. That being said, you know, it'll obviously depend 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, on the business one way or the other. It's a nice premium to have, but we don't expect that it'll move the needle.

Clark Lampen
Managing Director at BTIG

Thank you, guys.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

Yep.

Operator

Next up, we have Alec Bondalo at Wells Fargo.

Alec Brondolo
Alec Brondolo
Director - Equity Research at Wells Fargo

Hey. Thanks so much. Adam, if you can maybe elaborate on the App Store regulatory news, some of the fee relief that 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 an ad spend perspective? And then two, how do you think about positioning the business to maybe assist in that transition, position yourself best to win some of that incremental spend to the extent that it materializes? Thanks.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Yeah. So so, like, we're we're the largest channel there is today for 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 you'd assume it's the fee isn't gonna go to zero. So let's just, for my example, assume you go to half, 15% fee.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

You take a dollar that the customer was charging the the the mobile game developer was charging a consumer before they were getting 70¢, and then they would plug that into a ROAS model with us to go spend dollars. If that 70¢ in a 15¢ fee structure becomes 85¢, they make 20% more. It's an immediate 20% uplift to their revenues. That 20% in some portion or in total is gonna come back to a marketing platform that's as scaled as ours. And remember, we run a dynamic auction.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

So if one customer says, hey, I wanna bid 20% more because I bank 20% more, I like the profit margins I run at, I wanna get more growth, then every other customer has to do the same thing because it's competitive auction. So over time, what's gonna happen is it's really good for the ecosystem, it will create more growth, 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.

Alec Brondolo
Alec Brondolo
Director - Equity Research at Wells Fargo

Perfect. Thanks so much.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Thank you.

Operator

Next up, we have Jim Kelly at Niagara Singular.

Analyst

Hi. Thanks 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 that we're a couple quarters into sort of launching ecom, would be curious your sort of thought or if that's changed at all.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Well, look, we have a very large scale static base of inventory. I'd say if you look at Meta's 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. We're starting at a very, very low place.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

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. Doesn't have to go up a lot for our business to expand dramatically. We think that can go up to become two, three, four, five percent over time.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

The ads are very, very impactful. It's full screen video. It captures the user's attention. And the more advertiser demand we get as we open up our self-service platform and hopefully bring on thousands, tens of thousands, eventually hundreds and thousands and millions of customers, we're gonna have more content to show the end consumer. We're gonna pair that with personalized ad creative.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

The consumer response is gonna go up. That's gonna help us. It's gonna help our publishers. It's gonna help our partners, and we think it's gonna catalyze potentially years and decade plus of growth.

Analyst

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, big studio launches or geographies that are worth noting?

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

I I mean, our business is really diverse at this point. One game was never gonna move the needle at the scale that we operate at. So there are, I guess, there have been some bigger launches or marketing in the the ecosystem around a couple games, but nothing dissimilar to to the past history of the pace of game launches. I don't think the 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

So we've always felt that it's quite insulated from economic change or distress. And so, we're confident with the position we have in the market.

Analyst

Great. Thank you.

Operator

Next up is Martin Yang at.

Martin Yang
Senior Analyst at Oppenheimer & Co. Inc.

Hi. Good afternoon. Thank you for taking my question. A couple question on the self serve dashboard. First, has your view changed on who can have access first to the self serve dashboard?

Martin Yang
Senior Analyst at Oppenheimer & Co. Inc.

Is it your existing customers primarily, or are you applying this to anyone regardless of their annual spend, budget?

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Yeah. We're we're gonna roll it out in stages, Martin. So right now, it's current customers. We'll have a feedback group. Once it get pass gets past feedback group, it'll open up to all current customers.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

The goal with that is to just help our team. The team right now is do a bunch of manual labor, and we're cap we're we're resource limited. So that's gonna happen pretty quickly here over the coming weeks. I mean, I mentioned in my talk script, we're getting this in the hands of clients now. So that's gonna be short term.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

In the medium to long term, we'll go through stages of opening it up where 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 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.

Martin Yang
Senior Analyst at Oppenheimer & Co. Inc.

Got it. And a follow-up on that is when you think about this potential to give you more data or maybe increase your capacity to process more, do think near term this is could be a near full helpful near term boost to how you improve the performance of web app web app basis.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

But, look, the more customers we get, the better the model will get. Just if you think about it just logically, if you've got 10 beauty companies live or you have a thousand beauty companies live, you're gonna be better in a category if you have a thousand live than 10 because you have more diversity of product to show the end consumer. The this this type of a product is a recommendation engine. Give it more options to recommend something personalized, and it's gonna, by effect, get better. Now I've said this in the past.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

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. So we don't wanna go to a thousand beauty companies and say, look, 800 of you are gonna work perfectly well. 200 of you are not gonna work. Our shareholders will be ecstatic.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

If we open up the platform and become thousands to tens of thousands to hundreds of thousands of customers, the business is gonna be multiples bigger than it is today. The growth rate's gonna be phenomenal. The problem is we wanna make it work for everyone. We really set a high bar of perfection in anything that we do. We wanna build the best performance product that these customers have ever seen.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

And so we're not there yet. We're gonna get there. When we get there, we'll open it up, and that's gonna catalyze a lot of growth for the long term.

Martin Yang
Senior Analyst at Oppenheimer & Co. Inc.

Got it. Thank you.

Operator

Next up, we have Eric Sheridan at Goldman Sachs.

Eric Sheridan
Eric Sheridan
Analyst at Goldman Sachs

Thanks so much for taking the questions. Maybe two if I could. Adam, first for you, I I got a chance to look at the blog post about TikTok, and I totally get your labeling. And there's a bit of a long shot, to use your phraseology from the end of the blog. But, you know, my understanding was you were more interested in The US ring fenced process that's going on under the Trump administration now, and this seems like it's a bit of a broader proposal, ex China globally as opposed to maybe what the Trump administration is trying to solve for.

Eric Sheridan
Eric Sheridan
Analyst at Goldman Sachs

So I just wanna 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 US and and how you're positioning yourself vis a vis that. And then, Matt, you know, you guys continue to produce a lot of efficiencies while growing at 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Yeah. Thanks, Eric. I don't wanna spend too much time on TikTok, but just briefly, yes, we're going after world outside of China. We think the biggest priority is to solve national security concerns 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Unless The US app is a separate app from the rest of the world, which it cannot be, it would just deflate the app's productivity, then some company needs to have control to rewrite parts of the algo and to ensure that this thing complies with the standards around national security. 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 and 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

I wanted people to have context. 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 as large scale as TikToks could unlock immense economic potential and value for shareholders.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

So it's something that we're excited about, and and I put the rest of the details in the blog for others to read.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

And in in terms of your your second question, Eric, further the margin profile of the business and expectations going forward. I mean, as Adam mentioned, we continue to expect to to run the business lean, and and it's part of the ethos of the company. So, you know, as we continue to grow top line, we're trying to find ways 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 to grow by not adding any any to the cost base.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

So we do expect that the primary components of the cost base should remain relatively flat with, obviously, the exception of data center cost, which are more variable. What we've seen thus far as we grow revenue is that we've been adding on data center cost on an annual basis at least around kind of a 10% of the overall revenue growth, and we expect that that should continue. So margin 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.

Operator

The final question is from Rob Sanderson at Loop Capital.

Rob Sanderson
Managing Director at Loop Capital

Thank you. Can you hear me this time?

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

We can, Rob. Yeah.

Rob Sanderson
Managing Director at Loop Capital

Okay. Sorry. Apologies for the, technical difficulties.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

No worries. Good to hear you.

Rob Sanderson
Managing Director at Loop Capital

Not being on camera because that's where I failed last time, so we're gonna play it safe. I have two questions, please. Can you first, can you 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 net, or how do you even parse out the difference as, you know, there's there's you're obviously serving a lot of ads on inventory you'd be buying otherwise. And I've got a follow-up as well.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Yeah. Rob, I'll go with the first, Mac can go with the second. Look. Over time, 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.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Now we started with mobile gaming advertisers who had apps. And so the first version of our business for twelve years was focused on one specific use case. Now we built into the web use case. Now we're also building into the web and app use case. But over time, the way we envision our product is that advertisers come in, they say, here's where I want the user to go.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Here's my app. Here's my website. Here's the return on ad spend target that I want or the cost per purchaser that I want. Here's my budget. Upload a few videos, upload and go take care of the rest.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Deliver result, create your own videos, personalize the advertising, and then I'm really happy. And so we think all of this stuff is gonna merge together as we get to a place quarters or years from here.

Matt Stumpf
Matt Stumpf
Chief Financial Officer at Applovin

And to clarify on the 10% contribution, contribution, Rob, so that would be on a 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, the advertising solution.

Rob Sanderson
Managing Director at Loop Capital

Good. Thanks for that. And then question on sort of longer term avenues for self attribution. You know, it's sort of a it's a little bit of a hole right now for you just, not having the identity and whatnot. But, you know, are you always gonna be sort of dependent on third parties for this, or, you are you limited to maybe lower consideration, high turnover products like you described earlier, Adam?

Rob Sanderson
Managing Director at Loop Capital

You know, or is it 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?

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

Yeah. So so, like, the third is true. We we've got lots of demand and opportunity in front of us. The products that we can service is on app are are attributing with third party companies like Appspire and Adjust. So we were built third party attribution on that.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

On web, we built the product to be self attributing, so our own attribution platform. And it's not high turnover products. I mean, like, most products in the world are not selling something greater than $250. Our product, our our models can go deliver something that's a couple hundred dollars within a few minutes of the ad being seen, and it it's happening quite often. I mean, obviously, scaled at the billion dollar run rate that I mentioned.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

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 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 and question attribution less. Now, over time though, we want our advertisers to be able to measure us based on the way that they wanna measure us. And companies use different attribution tools, some of them have internal tools. So the same way on mobile app, we integrated with third party solutions.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

We are working on integrations in the web space as well so that the advertisers can have multiple reference points. 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.

Rob Sanderson
Managing Director at Loop Capital

Thank you, guys.

Adam Foroughi
Adam Foroughi
Co-Founder, CEO & Chairperson at Applovin

That's it. Thanks everyone for joining us today.

Operator

This conclude

Analysts
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Key Takeaways

  • Q1 revenue surged 40% year-over-year to $1.5 billion, with adjusted EBITDA rising 83% to $1 billion, free cash flow up 113% to $826 million, and a 68% EBITDA margin.
  • AppLovin signed a definitive agreement to sell its games business for $400 million in cash plus a 20% stake, sharpening its focus on the higher-margin advertising platform.
  • Ongoing machine learning and AI innovations continue to drive performance for mobile gaming advertisers, enabling superior return-on-ad-spend and strong operational leverage.
  • Web and e-commerce advertising is gaining traction, with over 600 pilot customers at a $1 billion annual run rate, and a self-service dashboard set to launch this quarter to unlock massive market potential.
  • For Q2, the advertising segment is guiding revenue of $1.195 billion–$1.215 billion and adjusted EBITDA of $970 million–$990 million, targeting an 81% margin.
AI Generated. May Contain Errors.
Earnings Conference Call
AppLovin Q1 2025
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