Adam Foroughi, CEO of mobile ad tech business AppLovin, used the start of the company’s earnings call last night to address recent fluctuations in the company’s share price. The stock has fallen by around a quarter since the start of the year, prompted by investor speculation around the threat of AI, and the potential for competitors to encroach on AppLovin’s territory.
Speaking on the back of another bumper quarter, in which revenues were up 66 percent year-on-year, topping $1.65 billion, Foroughi argued that this speculation is unwarranted. “When I look at our internal dashboards, we are delivering the strongest operating performance in our history,” he said, adding that he sees “a real disconnect between market sentiment and the reality of [the] business”.
If Foroughi feels short-changed by the stock market, imagine how other CEOs in the advertising business might feel. Despite recent headwinds, the gap between AppLovin and the rest of the publicly traded ad tech specialists has grown wider since VideoWeek profiled AppLovin’s rise last May.
At its current market cap of over $154 billion at the time of writing, AppLovin is worth almost three times as much as the five largest agency holding groups (Omnicom, Publicis, Dentsu, WPP, and Havas) combined.
Undervalued? Foroughi seems to think so…
The growth button
AppLovin’s skyrocketing growth in recent years has come as the company has strengthened its entrenchment in the mobile advertising world. It works across the ecosystem, facilitating both the buying and selling of ads, primarily for its core customer base of mobile gaming businesses. It doesn’t hurt that in the mobile world, buyers and sellers are usually the same companies: apps running user acquisition campaigns, in order to fuel their own ads and microtransaction sales.
It’s a massive market. In Q3 this year, the company’s revenues topped $1.4 billion, not far from double the $739 million The Trade Desk brought in during the same period. And it’s a very profitable one too. AppLovin’s net income in Q3 was $836 million. For comparison, The Trade Desk’s $116 million.
AppLovin attributes its market position to the years of training its ad tech tools have had from buying and selling mobile gaming inventory. Its products understand the value of an impression to a given advertiser well, judging the expected value and likelihood of each conversion, and using that data to inform bidding. Thus, customers can see the real business growth they can expect from their ad investment.
Calling for competition
AppLovin’s position has been helped over the years by the travails of competitors in the space. Meta lost a significant share of the mobile ad market following the introduction of App Tracking Transparency on Apple devices, which hurt its ability to run deterministic targeting. Meanwhile game engine owner Unity, which bought ad tech business IronSource in 2022, somewhat shot itself in the foot a few years back with the introduction of a “fee-per-download” pricing model.
Now, some analysts see potential threats on the horizon. Factors mentioned on last night’s earnings call include the potential for new AI-powered competitors to enter the space (namely CloudX, an AI startup founded by Jim Payne, the man who created both MoPub and MAX, both of which are now owned by AppLovin), the prospect of Meta making more aggressive moves to take share, and the threat of AI devaluing the mobile games industry as a whole.
Adam Foroughi, however, remained bullish on the earnings call. If anything, he says, more competition will actually be beneficial to his company, thanks to its ownership of mediation layer MAX.
“We operate a foundational piece of the ecosystem: the MAX auction,” he said in his opening remarks. “It is critical for the ecosystem that the MAX auction improves through more competition, which in turn helps publishers make more money, leading to more user acquisition. Now, in a typical zero-sum auction-based market, if one improves, another loses. In our case, as bid density goes up, the pie expands, and while our share of the auction may shrink, our economics actually grow.”
“There are impressions our model understands extremely well and it values highly, and others where we have less signal and value them less,” he explained. “When competition wins an impression, it is very likely to be the one that we value less. This leads to the publisher making more, and in many cases, we do as well, because instead of winning a low-value impression, we get to charge the winning bidder five percent. When you hear about a start-up coming for our business, you should be asking how their value proposition can be stronger than ours.”
On the Meta question, Foroughi played down the threat. Meta’s tools are built for social, while AppLovin’s are trained on the mobile app ecosystems specifically, giving it the edge. And when it comes to AI’s impact on game creation, Foroughi said that an explosion in content would be good for his business, since “when content becomes abundant, discovery becomes a scarce resource”.
Mobile: the new TV?
Whether competitors are able to encroach on AppLovin’s existing market or not, the company also sees further growth opportunities as it expands its customer base beyond its gaming specialism.
E-commerce has been a focus recently. As mentioned, AppLovin’s tools are trained on mobile gaming, so moving into a new category takes time. The more campaigns it runs, the more its models learn what works and improve. “It takes us a while to continuously iterate to improve the model,” said Foroughi. “In fact, just a few weeks ago, we had a pretty sizeable uplift. So those same customers from the prior-year cohort saw a big growth.”
The company is looking at further category expansion, too. “I think we are going to be going after anything that is not brand dollars,” said the CEO. “Whether they optimise to a point of transaction or something performance-based like a lead, we are going to go after them.”
There’s always been plenty of scepticism about the ability of mobile advertising to work for non-endemic brands. But Foroughi argued the case for mobile through a somewhat unexpected comparison: TV.
“You would say the closest to our ads is television because you have got a 30-second clip,” he said. “But as we know, most people are ADD and do not really watch the ad on TV these days. Our ads are over 30 seconds of engagement. The user cannot do anything else. They are already on their phone. It is a full-screen lockup. It gives the advertiser somewhere between 30 to 60 seconds plus to engage the consumer with their content. They cannot get an experience like that anywhere else.”
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