AppLovin CEO Says New AI Models Are Only A 'Partial Rollout' — And Floats Buying Data
Adam Foroughi said the model transition is far from done, as AppLovin lifted its buyback authorization by $3.2 billion to $3.6 billion.
AppLovin, which sells AI-driven advertising software, has only partly rolled out its next-generation ad models, CEO Adam Foroughi told analysts on the company's third-quarter earnings call on Wednesday, adding that it could buy customer-data relationships to speed its e-commerce push. The quarter's $2.18 billion in revenue, up 55% from a year earlier, came before the full rollout.
A rollout still in front of it
"This was a partial rollout. The transition is still in front of us," Foroughi said, adding that the new generation gives AppLovin more room to optimize than the architecture it replaces. He said it helps most where data is sparse: newer and smaller advertisers and newer categories, which is where the consumer vertical sits.
He would not commit to a timeline. "Model gains won't land on a perfect quarterly schedule," he said, while reiterating a long-term goal of compounding at roughly 30% annually.
CFO Matt Stumpf reported net income up 72% to $1.44 billion, a 66% net income margin, and adjusted EBITDA of $1.84 billion, up 59%. Free cash flow was $1.4 billion, or 77% of adjusted EBITDA.
Shopping for data
Asked by a Wells Fargo analyst about tuck-in acquisitions, Foroughi pointed to the MoPub deal, which he said "paid for itself many times over." The company would look to "buy data relationships, customer relationships that are valuable for us," he said, to bring customers and their data onto the platform faster.
On the Deutsche Bank analyst's question about data, he said the new architecture lets AppLovin train bigger models, so "we're going to be starved for data," and that data acquisition is one route. A Loop Capital analyst pressed on it; Foroughi said the models "just need more data," though "we're not rushed."
On why the company does not optimize take rate, he said conversion runs a little over 1%, so on 1,000 impressions bought, roughly 987 lose money.
Guidance and a bigger buyback
Fourth-quarter revenue guidance of $2.365 billion to $2.395 billion implies 8% to 10% sequential growth, against 14% in the third quarter. Asked about the slowdown by a Jefferies analyst, Stumpf said, "We're guiding to what we know at that point in time," citing normal seasonality, model updates already live and higher data center costs.
The board raised the repurchase authorization by $3.2 billion, bringing it to $3.6 billion as of the end of October. AppLovin bought back or withheld 4.1 million shares for $1.4 billion in the quarter and ended with 331 million shares outstanding. Stumpf told a BTIG analyst the step-up reflected a gap between the stock price and intrinsic value.
Foroughi said consumer advertisers typically follow a big fourth quarter with a weaker first quarter. AppLovin's market value was $82.2 billion at the time of the original report.
Stumpf expects full-year free cash flow conversion of roughly 70% to 75% of adjusted EBITDA.
Sources
- AppLovin shares rally as Q3 results top estimates, Q4 outlook beats (APP:NASDAQ) | Seeking Alpha — seekingalpha.com
- AppLovin Stock Surges on Q3 Double Beat, Strong Outlook — benzinga.com
- AppLovin Stock What Changed After Its Earnings Beat — Yahoo Finance
- This year’s worst-performing S&P 500 stock is finally seeing some major relief — MarketWatch
- AppLovin Is Raking in Cash as AI-Driven Revenue Accelerates — Barron's
