AppLovin Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2024

There are 14 speakers on the call.

Operator

Welcome everyone to the AppLovin earnings call for the Q1 ended March 31, 2024. I'm David Shao, Head of Investor Relations. Joining me today to discuss our results are Adam Farrugi, our Co Founder, CEO and Chairperson and Matt Stumpf, our CFO. Please note our SEC filings to date as well as our shareholder letter and press release discussing our Q1 are available at investors. Applevin.com.

Operator

During today's call, we will be making forward looking statements regarding our products and services, market expectations, the expected future financial performance of the company and other future events. 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 ks for for the fiscal year ended December 31, 2023. Additional information may also be found in our quarterly report on Form 10 Q for the fiscal quarter ended March 31, 2024, which will be filed on or before May 10, 2024.

Operator

We will also be discussing non GAAP financial measures. These non GAAP measures are not intended to be a substitute for or superior to our GAAP results. Please be sure to review the reconciliations of our GAAP and non GAAP financial measures in our earnings release and shareholder letter 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.

Speaker 1

Welcome everyone and thank you for joining us. We're thrilled to report another record quarter in Q1, continuing our pattern of delivering strong financial results. With Axon II turning 1 year old and achieving nearly a full recovery in our share price after a very difficult 2022, I wanted to reflect on some key themes that we've consistently stated and now actively proven out. We believe our culture is unique. By staying lean and retaining key contributors, we have built an exceptionally high performing team of subject matter experts capable of innovating faster and more effectively than those at other companies.

Speaker 1

We believe our business is not limited by the size of the mobile gaming market, but rather that our business can drive market growth. Advertisers have increased their spend on our platform as a result of the improved performance from Axon, and now we are seeing the industry return to growth. We stated the operating leverage of our software platform business is as good as any technology company in the world. In 1 year, our quarterly software business revenue grew from $355,000,000 to 678,000,000 dollars Of this incremental $323,000,000 of revenue, 84% or $273,000,000 flowed through to adjusted EBITDA. Now, 2 more themes that are important to understand as our business goes forward.

Speaker 1

1st, a key driver of our growth will be the ongoing improvements to Axon. Our models are still in an early stage and will continue to improve themselves, but more importantly, our teams are still finding ways to materially improve these algorithms. While these gains may not be predictable, they may sometimes lead to quarters like Q1 where we far exceed expectations. 2nd, there is nothing that limits our models to just gaming. By expanding into web based marketing and e commerce, we expect our AI models to improve with added demand diversity.

Speaker 1

As we continue to execute on the previously discussed themes, we expect to see further growth in our business. While our early days in the public markets were volatile, since we started this company 12 years ago, our business has consistently remained strong, and we hope over time all of our shareholders and prospective investors will gain the same confidence in our business and vision that we have always had. I can promise you that we've never been more excited about our prospects. With that, I'll hand it off

Speaker 2

to Matt to run you through the financial highlights.

Speaker 3

Thanks, Adam, and good afternoon. I'm happy to share we had another quarter of exceptional financial results, generating total revenue of $1,060,000,000 and adjusted EBITDA of $549,000,000 which is a 52% margin. Our revenue grew nearly 50% from the same period last year, while adjusted EBITDA has doubled. During the Q1, we generated $388,000,000 in free cash flow. That's an incredible 71% flow through from adjusted EBITDA.

Speaker 3

Our software platform also had another excellent quarter with revenue of $678,000,000 and adjusted EBITDA of $492,000,000 retaining our 73% margin and more than doubling our adjusted EBITDA from the same period last year. This represents a 71% flow through of revenue from the prior quarter. While we remain diligent about cost discipline, we did have a slight step function increase in our cloud data center costs at the end of Q4 to reserve GPU capacity to support future growth. We saw the full impact of the cost increase during this quarter and expect future flow through to improve. Our business was reinforced by strong market conditions, including expansion in the mobile advertising market and continued adoption of real time bidding.

Speaker 3

Our software platform also benefited from technology improvements, including ongoing self learning, additional data and enhancements by our engineering team. We continue to be optimistic about our ability to drive compounding efficiencies, leading to improved performance for our advertising partners. Our apps portfolio remained stable from last quarter, maintaining 15% adjusted EBITDA margin. Turning to our capital structure. During the quarter, we amended our term loans, capitalizing on favorable market conditions to further reduce interest expense, while at the same time amending our loans to include outstanding revolver borrowings previously used for share repurchases.

Speaker 3

Continuing our commitment to share management, in Q1, we repurchased and withheld a total of 14,900,000 shares of our stock. Net of issuances during the quarter, we reduced our total shares outstanding by approximately 3%. Since we began our share management activities in early 2022, we have spent nearly $2,600,000,000 to repurchase and withhold a combined 79,000,000 shares. That's a remarkable 20% pro form a reduction in our total shares outstanding. Turning to our Q2 guidance.

Speaker 3

We expect to deliver between $1,060,000,000 and $1,080,000,000 in revenue. Adjusted EBITDA is expected to be within the range of $550,000,000 $570,000,000 That represents an adjusted EBITDA margin between 52% and 53%. In conclusion, we continue to have confidence on our ability to drive growth from our core business, while we work to expand our long term opportunities. Now with that, we'll move on to Q and A.

Speaker 4

Thank you so much, Matt. And now we will take your questions. When I call your name, please turn your video and unmute. And again, we will take as many questions as time permits. Our first question is going to come from Clark Lampen with BTIG.

Speaker 4

Clark, please go ahead.

Speaker 5

Okay. Can you guys hear me okay?

Speaker 2

Hear you, Clark.

Speaker 5

Perfect. Perfect. Okay. Or anything specific that you might call out for us amongst the sort of key sources of outperformance? And then I guess sort of second and bigger picture as we think about the trajectory for software and app discovery after a couple of quarters of really strong sequential revenue growth.

Speaker 5

I think there's there's some concern percolating that once we anniversary the start of the axon cycle that maybe growth starts to asymptote. Could you help us frame up, I guess, current momentum and the runway that you see within both the core gaming market and new channels like e commerce?

Speaker 2

Yeah. Thanks. Thanks, Clark for the question. So, on the first one, I touched on this in the script, but we've got a few growth factors. One's going to be adding more advertisers both within gaming and then breaking out to these new verticals that we're working on and quite excited about.

Speaker 2

Secondarily and more importantly, anytime we see improvements in our core models, we see gains in our business. And there's 2 forms of improvements. These models are self learning. So So we've got them in the marketplace. We're serving a ton of, impressions every single day.

Speaker 2

And there's a feedback loop that gets us data back into the model and it improves itself. So there's a component of that. That's why the system continues to get better since we launched it. And the second piece is our team obviously is still working every single day. So every time our research science team creates some sort of innovation or breakthrough on those models, that ends up a step function gain in the business.

Speaker 2

If you think about these models, it's all math. And if the math gets more accurate, then we're going to see a gain in the business. And these are very high margin gains because there's no cost associated with that gain. There's no sales process to go bank that gain. It's just a gain in the business.

Speaker 2

And so, I try to tie it back to the Q1 and performing really well against obviously the toughest quarter in advertising against Q4. The gain we saw in the Q1 was predominantly due to just enhancements to the models themselves. And so that's going to be one of our core drivers going forward. Now to the question of the software growth slow, look, software is growing about 90% 100% year over year and it's a 73% margin business. So we don't need it to grow double every single year.

Speaker 2

It's a net revenue reported business on the vast, vast majority of the revenue. So every incremental dollar is very, very high margin. We'd love to be in the neighborhood of a 20%, 30% long term grower for many years to come. In order to do that, how do we think about the business longer term? It's the same building blocks that we just talked about.

Speaker 2

We're going to get more advertisers in gaming that are buying on our platform because now at this point, our platform is the best channel for a mobile gaming customer to go buy advertising. Now, if we're the best in the world today at driving value to mobile gaming How good could we be in other verticals? So the vertical expansion is a key part of the how good could we be in other verticals? So the vertical expansion is a key part of our focus. And then beyond that, we're in the business of creating improvements to our technology.

Speaker 2

So if you start adding all that up, how do we keep growing this business? There's a lot of levers that we have to pull to be really excited and that's why I ended with, we've never been more excited about the prospects we have in front of us than we are today.

Speaker 5

Thank you.

Speaker 4

And Ralph Schackart with William Blair has the next question.

Speaker 6

Good afternoon, Adam. Thanks for taking the question. You've been fairly consistent saying that Axon 2 engine works outside sort of the gaming vertical and you sort of touched on that in your last response. Can you maybe give an update sort of where you are in that effort outside of gaming? Do you need new sales force?

Speaker 6

Are you testing any results you could share? I want to get a sense of where you are in that effort. Thank you.

Speaker 2

Yeah. Thanks, Ralph. Good to see you. And a couple of things. One is we look at the advertising world with apps and websites, right?

Speaker 2

Like there's 2 forms of media that people are buying to the end destination. And today in the app marketing world, we're very good at gaming. We also work with non gaming apps and we've seen success once we rolled out Axon 2 across a variety of non gaming companies growing on our platform too. And I think last call we touched on that, that the non gaming app space is growing faster than the gaming app space on our platform just because it starts from a lower base. That success hasn't changed.

Speaker 2

We still see the same trajectory. Now, what has us excited and what we've been working on is launching the first form of web advertising on our platform. And if you think about, a lot of transactional industries, e commerce in particular, most of the transactions are still done on the website, not the mobile application because a lot of shops don't even have a mobile application. And so that's been work we've been doing. We will be bringing that product to market this quarter and it's something we're very, very excited about as a way to really build out a lot more demand density into our platform.

Speaker 6

Great. Thanks, Al. Moving on

Speaker 4

to Jason Bazinet with Citi.

Speaker 7

I'm afraid to ask this question because you guys are doing so well. But would you mind just giving us an update on your sales process? I remember several years ago, you sort of made fun of yourself because you didn't really have a Salesforce and didn't think about it. And I'm just trying to get a sense, you haven't talked about it as a vector, but is all of this growth we're seeing a function of sales and the technology? Or is it just purely the technology and it's sort of selling itself based on the return?

Speaker 2

So like since day 1, I know that I'm not a very good seller and it was something that we really focused on being product first at the company. We believe if we build great products and we innovate well, that if the advertisers are seeing success on our platform, they're going to tell their peers and their peers are going to come to our platform and this thing could self sell itself. And we've seen that happen in mobile gaming as Axon 2 continues to perform well. A lot of the mobile gaming customers who either hadn't heard of us or had chosen not to work with us have adopted our platform over the last year. So we haven't ramped up sales to go those relationships.

Speaker 2

And a lot of those relationships are still in an earlier stage than some of the companies that have been on our platform for years. So that will contribute to growth in the gaming vertical over time. When we look at outside of gaming, we're still we have no interest in getting into brand advertising. So everything is performance based. We fundamentally want to play replay the same playbook where we're not going to invest heavily in sales.

Speaker 2

Now in some of these transactional categories outside gaming, you do need some presence, some marketing, some sales, but it's not going to be a heavy investment. And we do believe that if we're able to go drive the same result where, for instance, in e commerce, the shops see a lot of benefit from marketing on our platform and they can measure the result and they see a stronger result on our platform as some of the other channels they buy on, there's going to be a lot of interest because these other transactionally charged categories desperately need more marketing available to them as those industries are struggling to grow themselves.

Speaker 4

Thanks, Jason. Omar Dusughe has the next question. And just to let you both know, he's on audio only, so you won't see him.

Speaker 8

Hey, thanks.

Speaker 9

Had a

Speaker 8

couple of questions about header bidding, AKA real time bidding, I guess those are the same term. What is the quarterly revenue run rate trajectory for the rest of this year for that? I think you guys said that you collect a 5% fee on header bidding into MAX supply. I was wondering where that stood and how that's going to move going forward?

Speaker 3

Yes. So, Omer, we don't disclose that level of detail, the revenue for specifically the MAX business or for header bidding, But we have continued to see that trend that we've been talking about historically, the trend of people shifting over to header bidding with an acceleration in Q1. So we're continuing to see that positive trend.

Speaker 8

Okay. Sven, I've heard that Unity will be bidding into AppLov and Mac supply. And I was wondering if you could maybe describe the strategic implications or importance of that to you, right, because they're viewed as a competitor. Is there any new data that you'll be getting about your primary competitor, as a result of this? And why does it take so long for this to happen?

Speaker 2

Yes. So a bunch of questions embedded in there. But for one, let's just start with the market. The vast, vast majority of the market bids today, 80% plus. So the transition, there was a multi year effort to get the market to go from traditional ad tech in mobile app to go to real time format is nearly complete at this point.

Speaker 2

2, Max is by far the largest mediation solution in mobile gaming. We've touched on this in the past, and it continues to be a very strong platform. So as a marketplace, 3rd parties want to buy on our platform in a real time format. It's just more efficient. And when any company ends up buying on our platform, they're an advertising solution that's competitive with us.

Speaker 2

And so I wouldn't call any one company a primary competitor. We're all friendly competitors. And we've also talked about what drives this market in particular that's quite unique to other markets is there's no zero sum in this ecosystem. If the whole market is buying efficiently and the publishers are making more, the publishers reinvest more into user acquisition, the pie grows and all of us advertising companies are hopefully benefiting from that. The last point to make, and I think there's a misunderstanding in the marketplace on this, we don't have some sort of data advantage with any of the companies that are buying into our platform.

Speaker 2

We're very secure about data. Our partners can audit us when it comes to our data practices. The data that we have available to us is the same data that any bidder on our platform gets available to them. And so therefore, there isn't some data advantage from a Unity or anyone else buying on our platform. It's a completely fair, transparent and clean auction and it provides a huge benefit to the publisher.

Speaker 2

And for us, it's been a very good product that we have in market and is continuing to do well.

Speaker 8

Do you have time for one, just one quick one. I didn't see net revenue for installed growth or installed growth on your letter. Could you update us on that and give us any kind of the puts and takes around that?

Speaker 3

Yes. So the numbers will be disclosed within our 10 Q, Omar, so you can see all the actual figures there. But similar to prior quarters, we've had an increase in both the net revenue per install as well as the volume of installations and that's through the continued improvement of Axon that we've been talking about. As the technology continues to improve, we should see both a growth in the amount of money that we're making per installation and volume of install as we see more advertisers increasing their spend.

Speaker 8

Thanks a lot guys.

Speaker 4

And we will now hear from Tim Nollen with Macquarie.

Speaker 10

Hi guys, thanks for taking the question. I'd like to pull a few strings together from what we've been hearing already. And I'd like to ask about going beyond mobile gaming base of advertising. You answered the question about having access to you know Salesforce and accessing other verticals and you've spoken in the last couple quarters about expanding your world business into bringing some more demand into CTV. So can I just sort of combine these into a question to ask why does that need to be focused on performance based advertisers and not brand advertisers?

Speaker 10

I mean, I understand the difference, but if you've got an expanded advertising base, more verticals, moving into connected TV, I'm just wondering if you could update us on what you're doing with World and why you couldn't become more of a competitor in that CTV ad buying space?

Speaker 2

Yeah, so world to us has just added eyeballs. It's added supply at CTV channel versus the mobile app ecosystem. We touched on we have over a 1,000,000,000 daily actives in the mobile app ecosystem. We've got a lot of access to eyeballs, but 5 hours a day of TV watching is inaccessible if we don't get to an SSP that sits in connected TV. So that was the idea with Whirl is bringing a lot of supply online.

Speaker 2

Now it's our job to go monetize it. We've never wavered from being focused on performance advertising at the company and a couple of reasons. One, again, I didn't want to build out a Salesforce and if you're selling someone to buy a brand advertised spent dollar, you have to really convince them that that dollar is well spent. There's no data that backs it up. The attribution is murky at best.

Speaker 2

And so you have to have a salesperson that convinces the other side that dollar spent was well spent. Our model is the advertisers spend a dollar and everything is measurable. It's all closed loop is real time reported. And they know if they spend a dollar and they made more than a dollar, they're buying as an arbitrage marketer. And there's not a whole lot of selling to do in the middle there.

Speaker 2

If you have someone spend a dollar and earn 2, they will spend that dollar as many times a day as you will spend it on their behalf. And so all of our algorithms, our entire system is predicated on that concept. And what's powerful about that concept is when we can create lifts in our business, as you've seen over the last year and I touched on the incredible flow through of this business that we've consistently set as a theme in our business model, we don't have to go convince advertisers to spend more. They will automatically spend more. So our constraint is just how many dollars can our systems accurately on their behalf place in the universe.

Speaker 2

To create growth, the systems have to improve, which we've shown can drive a lot of growth and we have to go access more eyeballs. And that's the goal around the world. We do think in connected TV advertising, as we get into e commerce and prove an efficient model for shops to advertise on our platform, that will extend very naturally to the e commerce yet to the CTV landscape because a shopping ad could be very beneficial for consumers in that media.

Speaker 10

Okay, that makes sense. Thanks. Any comments on world's growth or contribution to revenues or anything you can share?

Speaker 2

It's still too small to break out, so we don't talk about it, but they've done a great job of bringing a lot of supply online. So now the other side is the opportunity is bringing the demand on.

Speaker 11

Got it. Thank you.

Speaker 4

Moving on to Eric Sheridan with Goldman Sachs.

Speaker 12

Thank you very much. Maybe following up on Tim's question, but asking a little bit different way, Adam, when you think about entering new verticals or new canvases, we've seen you've taken a number of different approaches, purchasing companies, taking stakes in companies, partnerships. How we be thinking about the capital allocation dynamics around thinking through organic versus inorganic growth and where the how to sort of maximize for ROI when you think about how far reaching the platform can become as you look at some of these canvases over the medium to longer term? And then second question would just be incremental margins. Obviously, you guys continue to produce very high incremental margins after the investment cycle you had been through in the prior 12, 18 months?

Speaker 12

Just continued thoughts on guideposts around incremental margins as the business continues to sustain relatively high levels of growth? Thanks so much, guys.

Speaker 2

Yes. I'll start with the first and Matt can answer the second. Thanks, Eric. That really, when we think about our business, we built a very, very compelling implementation of AI. One of the most powerful systems the world has ever seen in this space.

Speaker 2

And so organically, we have a huge advantage to continue to build on that. And how do we build on that? It'll come from a few different things, get more partnerships, get more data and get more reach. And so all of that in terms of like the way we think about it and getting more reach is accessing eyeballs. Well, we have a carrier OEM business now.

Speaker 2

We have a CTV business and we have our core business and there's over a 1,000,000,000 daily active users just on the core business. So we access a lot of eyeballs already. So the reach is sort of there sitting there for us to go capitalize on. Demand diversity is we fundamentally believe is an organic problem. The algorithms are going to be able to execute on any transactional vertical.

Speaker 2

And so we just have to get this product rolled out. The R and D effort was building the system to be able to do web marketing for the first time. This is that's just not something a company named AppLovin really thought about over the last 12 years. And so now as we go forward, we've got that technology. We're going to be able to execute in that space.

Speaker 2

And so that again is an organically charged effort. And the hardest part of all of this was building the algorithms, building that the AI models are incredibly complex. And a lot of companies obviously in the world today in technology, almost every company will talk about the AI strategy, but very, very few have been able to actually execute on a large scale implementation of complex systems like these. So having that at our disposal really keeps us excited about this organic path we've got going forward.

Speaker 3

And just in terms of expectations around margins, Eric, I mean, we expect the margins to continue to expand to the extent that we increased development for Axon, right? As Adam has talked about in the past, the improvements to the actual technology because we're already reporting net revenue essentially dropped to the bottom line. So what you're seeing is as margins margins grow through that development is that it should continue to expand. Obviously, as volume is growing, then margins should stay relatively flat. So at this point, we wouldn't expect any decrease from our existing level of margin.

Speaker 9

Thank you.

Speaker 4

Jefferies, James Heaney has the next question.

Speaker 11

Hey guys, this is Ed Alter on for James Heaney. Thanks for the question. From our piggybacking on some of the earlier questions from some of our checks, we're seeing that the bigger the app developer is, the more they actually are kind of spending share of app discovery. So like besides obviously Axon, what are you seeing is winning those incremental dollars versus others and where are the bounds of that?

Speaker 2

I mean, in our system, we don't really have a limit to what an advertiser spends. Most all of our partners don't set any sort of budgetary limitation. So the bigger advertisers obviously by definition have a better base business. They've got probably in mobile gaming and more successful games. So they're a bigger company then therefore they can spend more dollars per day.

Speaker 2

And the really nice thing about our system today is if somehow someone on our research science team tomorrow had a breakthrough and our models got twice as effective, the business would double overnight because there isn't a budgetary constraint. So we think like at this point, our job in mobile gaming to deliver value to the advertiser has been effectively accomplished. And now a lot of the growth is going to come from new advertisers, both in gaming. We don't work with 100% penetration of the market or even close to that. So gaming customers around the world now are hearing about this platform that a year ago didn't exist and now is outperforming every other platform in the world.

Speaker 2

And so that as we continue to see organic adoption of our platform in the gaming category, we will see growth from these new advertisers, which some are large, some are small, but all adds up. And then secondarily, again, this expansion outside the mobile gaming business is something we're really excited about.

Speaker 11

Yes, great, great. Maybe just to follow-up on your view of the where we sit in the mobile gaming market in general, after a couple of years of down, some are expecting growth this year. Is that what you guys see as well and what's driving that?

Speaker 2

Yes, totally. We said it on the talk track, but our platform is really large. If you think about a net revenue reported advertising network, which is the vast majority of our software business For us to have doubled the software business in the last year, there's 1,000,000,000 of incremental dollars that were spent in the mobile gaming category on our platform. That didn't pull from other channels. So companies in mobile gaming don't go today, I can spend $0.10 extra over here.

Speaker 2

Therefore, I'm going to take $0.10 from this other channel and move it over. They'll just say, I can spend $0.10 more on my goal. Therefore, I'm going to spend more on my goal and that's it. And so it takes a while for that to compound and be reflected in the $100,000,000,000 TAM that everyone looks at because these, the paybacks on the user acquisition tend to be somewhere between 3 to 12 months. So if you build out like, okay, well, what happened?

Speaker 2

Well, AppLovin doubled in a year their business. So 1,000,000,000 of more dollars were spent on an industry that spends tens of 1,000,000,000 of dollars of user acquisition. So there is certainly material amount of growth in the dollars invested because of the Axon breakthrough. Then you'll start seeing the TAM start expanding once that starts paying off, users are paying back into those cohorts, into the games that they downloaded. The cohorts start stacking and the whole category will expand.

Speaker 2

And so a lot of the TAM expansion you're starting to see reflected by single digit growth, which is what a lot of that is attributed directly back to the success our technology is having driving growth to these advertisers.

Speaker 11

Yes. Thanks. Congrats on the

Speaker 2

quarter. Thanks.

Speaker 4

Moving on to Vasily Karasyov with Cannibal.

Speaker 13

Good afternoon. I have a question about your Good afternoon. I have a question about your competitive dynamic. Obviously, your results are so good. Exxon 2 is working so well.

Speaker 13

Do you see any competitors ramping up to go after your business and put up a fight against you? And if so, how do you feel about it? And obviously, the returns are too good, right, to pass up. Do you see any changes in the competitive situation at this point? And how are you preparing for that?

Speaker 13

Thank you.

Speaker 2

Yeah, thanks, Cecilia. You know, we've been asked about competition for years. And we always say we don't necessarily pay attention to the competition because look, there's some people look at the technology that we have and when the industry that we do and they view it in an oversimplified manner and think one company builds some sort of algorithm and everyone else can just copy and everyone's going to catch up. These systems are really, really complicated. We built cutting edge AI technologies.

Speaker 2

It's a multi year effort anyone to be able to look at that and go be able to replicate that. And I don't even think it's conceivable that it's something that could be replicated. So by the time there's anyone that's actually going to be able to compete against our technology, we'll be years advanced from where we are today because we're continuing to evolve the technology. 2nd piece is we can open source our code tomorrow. We can hand out the code to competition.

Speaker 2

It still won't matter because these technologies need data that they're achieving in the marketplace to be able to drive themselves. So if you think about like AI models, like what makes an AI model impactful? Well, they're utilized and that data feedback that they get from human behavior retrains the model and allows the model to continue to improve itself. Chat gbt being a perfect example of an AI model that's super compelling. Every search that every word that we all type into it gets a result and that result in the efficiency of that result and the

Speaker 1

way the user engages with

Speaker 2

that result retrains that model. If you give it a thumbs up, thumbs down in our model, we're, we're, we're getting an insane amount of data into the system every single day. System is continuing to improve itself. So we sort of look at the world now and say we've got cutting edge technologies. We're in a leadership position in a category that's pretty large, isn't the largest and certainly isn't very fast growing, but we've got an opportunity to really go out and expand our business and go deliver value to companies all over the world well outside of mobile gaming and allow them to unlock value for their business through our use of AI.

Speaker 2

And that's something that we're very excited about and we think is going to continue to allow us to distance ourselves from other players in our ecosystem.

Speaker 13

Thank you very much.

Speaker 4

And our next question will come from Martin Yang with OpCo.

Speaker 9

Hi, thank you for taking my question. Your shareholder letter, you highlighted that underlying advertising market have grown year over year. Can you maybe comment on what's from your view, how much have that market grow in 1Q and you have the number, how much has the market grown in 4Q?

Speaker 2

You're asking how much does the market grow from quarter over quarter or year over year?

Speaker 9

If you have both year over year numbers for 1Q and 4Q respectively.

Speaker 1

It's very hard for

Speaker 2

us to understand the whole ad market. And it's also like the I'm not sure the whole ad market's ever been fairly defined. Is it the global advertising spend? Is it the global advertising spend in mobile apps? Like what we look at when we talk about growth are the 2 areas that drive our business.

Speaker 2

1, IAP category. So we talk about mobile gaming as a vertical a lot. When we talk about the advertising market, in large part, we're talking about the Max marketplace that's growing quite a lot, double digit plus year over year, but we don't disclose what the annual year over year growth is of the actual MAX marketplace.

Speaker 9

Got it. So, is it right to so are you assuming MAX Marketplace is a good proxy for the overall market?

Speaker 2

For mobile gaming advertising, yes. Given our leadership position in the category and what we've talked about, percentage of market share of the Max product. And we think it's so diversified at this point that it is a very good proxy for the growth in advertising based mobile gaming businesses.

Speaker 9

Got it. My next question is on your net revenue per install and volume of install. This quarter is 5% 87%, respectively. The net revenue per install change on a year over year basis is very different from preceding quarters. How should we interpret those two numbers and the changes?

Speaker 9

Is there any relationship between the two that tell us underlying changes in the market?

Speaker 3

Yes. So I think we've talked about this in the past, Martin, that when you see a very large increase in the volume of installations, as we were talking about in this quarter, that that's correlated to an increase in advertiser spend. So as a result, year over year rate comparing to Q1 of 2023 to Q1 of 2024, We saw the Axon on launch during that period. And so as a result of that, we saw advertisers increase their spend pretty dramatically over the last 4 quarters.

Speaker 9

Got it. Thank you.

Speaker 4

That concludes today's question and answer session and today's webinar. We thank you all for your participation and we look forward to seeing you next quarter. Take care until then.

Speaker 2

Thanks,

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Earnings Conference Call
AppLovin Q1 2024
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