AppLovin Corporation — Form 10-Q Summary
Business context and reporting period
AppLovin operates a software platform that helps mobile app developers market and monetize their apps, together with a portfolio of more than 200 free-to-play mobile games. The filing covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods. The financial statements are unaudited and prepared under U.S. GAAP.
The company completed its initial public offering in April 2021. Class A common stock began trading on Nasdaq on April 15, 2021, and the IPO closed on April 19, 2021.
Financial performance and liquidity
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Revenue | $668.8 million | $299.3 million | $1,272.7 million | $559.5 million |
| Net income (loss) | $14.4 million | $(21.7) million | $3.8 million | $(17.0) million |
| Income (loss) from operations | $35.0 million | $(6.8) million | $46.4 million | $18.4 million |
| Net income (loss) margin | 2.1% | (7.3%) | 0.3% | (3.0%) |
| Adjusted EBITDA | $183.7 million | $60.9 million | $314.8 million | $123.3 million |
| Adjusted EBITDA margin | 27.5% | 20.3% | 24.7% | 22.0% |
- Business revenue was $307.9 million in the second quarter, comprising 46% of total revenue; consumer revenue was $360.9 million, or 54%.
- Second-quarter Software Platform revenue increased 256% year over year to $145.7 million. Apps business revenue increased 70% to $162.2 million, and consumer revenue increased 122% to $360.9 million.
- Operating expenses were $633.8 million in the second quarter, including $265.5 million of sales and marketing expense, $77.5 million of research and development expense, and $45.1 million of general and administrative expense.
- Six-month operating cash flow was $152.3 million, compared with $85.3 million in the prior-year period.
- Six-month investing cash flow was $(1.023) billion, primarily reflecting $1.017 billion of acquisitions.
- Cash and cash equivalents were $1.184 billion at June 30, 2021, compared with $317.2 million at December 31, 2020. Management stated that existing cash was sufficient for anticipated working capital and capital expenditures for at least the next 12 months.
- Total debt under the Credit Agreement was approximately $1.79 billion at June 30, 2021, consisting of term loans. The $400.0 million outstanding revolving facility was repaid with IPO proceeds. The company was in compliance with its debt covenants.
Material changes versus the prior comparable period
- Revenue increased 123% in the second quarter and 127% for the first six months, driven by growth in the Software Platform, advertising from Apps, and in-app purchases.
- AppDiscovery installations increased 91% and price per installation increased 57% in the second quarter. Advertising impressions from Apps increased 30% and price per impression increased 31%.
- Monthly Active Payers increased to 2.7 million from 1.3 million, while Average Revenue Per Monthly Active Payer increased to $44 from $42.
- Enterprise Clients increased to 247 from 153. The company reported a Net Dollar-Based Retention Rate of approximately 157% for Enterprise Clients for the twelve months ended June 30, 2021.
- Cost of revenue increased 108% in the second quarter, principally from payment processing fees, amortization of acquired technology, and network infrastructure costs. Sales and marketing increased 96%, largely due to higher user acquisition spending.
- Stock-based compensation increased to $27.1 million in the second quarter and $57.1 million for the first six months, compared with $5.0 million and $8.5 million, respectively, in the prior-year periods.
- The company acquired Adjust GmbH in April 2021 for preliminary fair value consideration of $967.8 million, including cash and convertible securities. The acquisition added $21.6 million of revenue and generated a $19.2 million pretax loss from the acquisition date through June 30, 2021.
- The company also completed several mobile App asset acquisitions, including transactions involving $300.0 million of upfront cash in April and $130.0 million in June, plus potential earn-outs.
- Goodwill increased to $1.016 billion from $249.8 million at year-end 2020, primarily due to the Adjust acquisition.
Guidance, outlook, commentary, risks and unusual items
- The filing does not provide clear quantitative revenue or earnings guidance for future periods. Management expects continued investment in the Software Platform, research and development, sales and marketing, new Apps, and strategic acquisitions and partnerships.
- Management expects operating expenses to increase in absolute dollars and notes that public-company costs, user acquisition spending, international expansion, and acquisition activity may pressure near-term profitability.
- The company’s growth strategy depends on retaining and expanding existing business clients, adding new clients globally, increasing user engagement and monetization, launching or acquiring Apps, and integrating acquisitions.
- Apple’s App Tracking Transparency changes and broader privacy and data-protection requirements may reduce access to advertising and attribution data. Management stated that the impact had been relatively muted through the reporting period, but future effects remain uncertain.
- Key risks include intense competition, reliance on Apple and Google distribution platforms, concentration in a limited number of games and clients, cybersecurity and privacy exposure, regulatory changes, acquisition integration risk, and volatility in user acquisition costs and advertising demand.
- Three games—Project Makeover, Matchington Mansion, and Wordscapes—collectively represented approximately 34% of six-month revenue.
- The company has a $300.0 million cloud-service-provider spending commitment through May 2026, $11.1 million of outstanding letters of credit, and contingent earn-out obligations tied to acquired Apps. Potential earn-out amounts are not clearly quantified in aggregate.
- Unusual items included a $16.9 million loss on debt extinguishment in the first quarter, fair-value changes on convertible securities and derivatives, and significant acquisition-related amortization. Acquired intangible-asset amortization was $101.2 million in the second quarter and $186.6 million for the first six months.
- The company reported no material legal proceedings, no material off-balance-sheet arrangements, and effective disclosure controls and procedures as of June 30, 2021.
- Class B stockholders collectively held approximately 93% of voting power at June 30, 2021, creating substantial control by the founders, executives, and KKR affiliates.
Important facts for investors to verify
- Whether the rapid revenue growth and 27.5% second-quarter Adjusted EBITDA margin are sustainable after acquisition-related effects, rising user acquisition costs, and changing privacy rules.
- The integration, performance, and final purchase-price accounting for Adjust and other acquired Apps, including possible goodwill or intangible-asset impairments.
- The company’s ability to service approximately $1.79 billion of term debt while continuing to fund acquisitions, development, and user acquisition.
- Future trends in Monthly Active Payers, Average Revenue Per Monthly Active Payer, Enterprise Client retention, and revenue concentration among leading games.
- The effect of Apple’s tracking-policy changes, privacy regulation, platform fees, and access to attribution data on advertising efficiency and margins.
- The amount and timing of potential earn-out payments, cloud-service commitments, and other acquisition-related contractual obligations.
- The impact of stock-based compensation, equity issuance, lock-up expirations, and the dual-class voting structure on dilution and shareholder influence.