AppLovin Touts AXON-Led Growth, Consumer Ad Expansion and Buybacks

Key Points

• AXON 2.0 is the main growth engine for AppLovin’s ad business, with executives saying the machine-learning platform has helped scale advertising revenue from the hundreds of millions in 2022 to roughly $8 billion projected this year.
• The company is still rooted in mobile gaming, but it expects its expanding consumer advertising business to offset slower gaming growth over the next three to five years and eventually become a scaled alternative to Meta and Google.
• AppLovin says it can sustain an approximately 80% adjusted EBITDA margin and is prioritizing shareholder returns, having spent nearly $7.5 billion on buybacks since 2022 while keeping M&A selective.

AppLovin NASDAQ: APP executives outlined the company’s growth strategy at the Nasdaq London Investor Conference, emphasizing the role of its AXON machine learning platform, expansion beyond mobile gaming advertising and a continued focus on high margins and shareholder returns.

Co-Founder and Chief Executive Officer Adam Foroughi said AppLovin’s core advertising proposition has long centered on performance marketing, where advertisers can measure whether spending produces profit. He contrasted that model with brand advertising, which he said is harder to prove in terms of direct financial returns.

“If you tell a customer, ‘You spend $1 million on us in a month, you’re going to make more profit from that million than what you spent,’” Foroughi said, advertisers will want to increase spending. He said the company has scaled with a global sales and business development team “well under 100 people” and no commission-based sales staff because the value proposition is driven by measurable returns.

AXON 2.0 Drives Scale in Advertising

Foroughi said AppLovin’s AXON 2.0 model, launched in 2023, moved the company from what he described as “Machine Learning 1.0” to a more advanced system capable of automating advertiser campaigns at much larger scale. He said the platform can take a new game with no prior downloads and attempt to achieve an advertiser’s return target with minimal spend.

Foroughi said the advertising side of the business has grown sharply since AXON 2.0 was introduced. He said that in 2022, advertising revenue was in the hundreds of millions of dollars, while analysts now project the company at around $8 billion of revenue this year.

He said continued model improvements depend on more data, more advertisers, greater ad scale and more compute, all of which can improve predictions and allow advertisers to spend more while meeting return targets.

Gaming Remains Core, But Consumer Expansion Is Key

Chief Financial Officer Matt Stumpf said mobile gaming remains the majority of spend on AppLovin’s platform. He said the broader mobile gaming ecosystem includes in-app purchases, which investors can track publicly, and in-app advertising, which he said is growing much faster than in-app purchases.

Stumpf said AppLovin remains comfortable with investor expectations for 20% to 30% growth over an extended period, though he acknowledged that mobile gaming growth rates may decelerate over time as the business scales. He said AppLovin expects growth in its consumer advertising business to offset any eventual slowdown in gaming over the next three to five years.

Foroughi said AppLovin launched into the consumer vertical with commerce about 18 months ago and is seeking to become a scaled alternative channel to Meta and Google. He said the company currently captures about 10% of customer wallet in that category, below the highest-performing platforms, but expects that figure to rise as its model improves and more customer data enters the system.

He also said AppLovin is developing a cost-per-lead model to support categories such as health insurance, auto insurance and healthcare, which do not necessarily buy advertising based on immediate purchases.

General Availability and New Tools

Stumpf described the company’s planned broader opening of the consumer platform as more of a product milestone than a customer-focused launch. He said AppLovin is working on tools for smaller advertisers, including generative AI creative tools to build interactive end cards and full video ad components.

Stumpf also said the company is developing MCP access for companies that want to run agentic-based campaigns and analytics, along with the lead-generation model. He said the goal is to have a first iteration of a full suite of tools available to consumer vertical advertisers by the end of June.

Foroughi said one constraint for new advertisers has been the lack of ad formats built for AppLovin’s platform. He said generative AI tools are intended to enable “one-click campaign creation,” allowing customers to automatically receive video and interactive ads out of the box.

Supply Expansion, CTV and Margins

Foroughi said supply expansion will be important over the next decade. He pointed to in-app purchase-focused games adding advertising, broader mobile app and mobile web inventory, and connected TV as potential growth vectors.

On connected TV, Foroughi said no true performance model currently exists for brands on television in the way AppLovin defines performance advertising. He said the challenge is proving incrementality without a direct call to action, such as a click, but added that if brands can determine with certainty that TV ad spending produces profit, the opportunity could scale.

Stumpf said AppLovin’s margin profile is supported by a lean operating structure and controlled infrastructure costs. He said data center costs have generally reflected about 10% of revenue growth, while the company has slightly more than 800 employees overall and around 400 across the ad tech business and corporate team.

“We don’t imagine that the overall margin profile of the business should change materially from here,” Stumpf said, adding that the company is comfortable around an 80% adjusted EBITDA margin.

Capital Allocation Focuses on Buybacks

Stumpf said AppLovin’s first capital allocation priority is ensuring it does not restrict organic growth, including hiring and marketing investments. He said the company is generating significant excess cash, with cash flow margin around 70%.

He said AppLovin continues to evaluate mergers and acquisitions but has a high bar, particularly because most potential targets would be dilutive to its operating efficiency and EBITDA margins. Stumpf said the company has instead returned capital through buybacks, spending almost $7.5 billion since 2022 and increasing buybacks to $1 billion in the most recent quarter discussed.

Foroughi said AppLovin has not completed an acquisition in four and a half years and would only pursue a deal that fits culturally, provides data or offers clear commercial benefits within the advertising ecosystem.

About AppLovin NASDAQ: APP

AppLovin Corporation is a Palo Alto–based mobile technology company that provides software and services to help app developers grow and monetize their businesses. The company operates a data-driven advertising and marketing platform that connects app publishers and advertisers, delivering tools for user acquisition, monetization, analytics and creative optimization. AppLovin's technology is integrated into a broad set of mobile applications through software development kits (SDKs) and ad products designed to maximize revenue and engagement for developers.

Key components of AppLovin's offering include an ad mediation and exchange platform that enables publishers to manage and monetize inventory across multiple demand sources, and a user-acquisition platform that helps advertisers target and scale campaigns.

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