AppLovin Corporation: Q1 2022 Form 10-Q Summary
Business context and reporting period
AppLovin develops software that helps mobile-app developers market and monetize their applications and operates a portfolio of more than 350 free-to-play mobile games through owned and partner studios. The filing covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021. The financial statements are unaudited and prepared under U.S. GAAP.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $625.4 million | $603.9 million | 4% |
| Software Platform revenue | $118.8 million | $88.4 million | 34% |
| Apps revenue | $506.6 million | $515.5 million | (2%) |
| Net loss | $115.3 million | $10.6 million | Loss increased |
| Net loss attributable to AppLovin | $115.3 million | $10.5 million | Loss increased |
| Loss per diluted share | $0.31 | $0.05 | Loss increased |
| Adjusted EBITDA | $276.2 million | $131.1 million | 112% |
| Adjusted EBITDA margin | 44.2% | 21.7% | Up 22.5 points |
| Net cash from operating activities | $(31.7) million | $61.8 million | Declined |
GAAP cost of revenue was $281.8 million, or approximately 45% of revenue, compared with 37% in the prior-year quarter. Sales and marketing was $290.1 million, research and development was $126.3 million, and general and administrative expense was $55.2 million. Total costs and expenses were 120% of revenue, producing a 20% operating loss margin and an 18% net loss margin.
Cash and cash equivalents were $1.41 billion at March 31, 2022, compared with $1.52 billion at December 31, 2021. Total debt under the credit agreement was approximately $3.27 billion, consisting of term loans. The balance sheet reported $4.15 billion of total liabilities and $2.01 billion of stockholders’ equity.
Material changes versus the prior comparable period
- Software Platform revenue increased 34%, primarily reflecting higher AppDiscovery installations and pricing, as well as contributions from MoPub and Adjust.
- Apps revenue declined 2%. Consumer revenue decreased 5%, driven primarily by a 12% decline in in-app purchase volume, partly offset by an 8% increase in price per purchase. Apps Business revenue increased 6%.
- Monthly Active Payers declined to 2.7 million from 3.1 million, while average revenue per monthly active payer increased to $41 from $38.
- Cost of revenue increased 26%, reflecting higher amortization of acquired technology, network infrastructure costs, and professional services.
- Research and development expense increased 107%, primarily due to third-party app-development services, higher headcount, and stock-based compensation.
- Operating cash flow declined from $61.8 million provided to $31.7 million used, mainly because of the net loss and increases in accounts receivable and prepaid assets.
- Investing cash outflows increased to $1.06 billion, including approximately $1.05 billion for acquisitions, compared with $18.3 million in the prior-year quarter.
- Stock-based compensation increased to $44.6 million from $30.0 million.
Guidance, outlook, commentary, risks, and unusual items
The filing does not provide clear quantitative revenue or earnings guidance. Management stated that it expects continued investment in product development, research and development, sales and marketing, infrastructure, and strategic acquisitions. Management believed cash and cash equivalents were sufficient to meet anticipated working-capital and capital-expenditure needs for at least the next 12 months, while noting that additional financing could be required sooner than anticipated depending on growth, investment, acquisition, and operating needs.
- MoPub acquisition: AppLovin acquired specified MoPub assets from Twitter on January 1, 2022, for approximately $1.03 billion in cash. The transaction added approximately $632.5 million of preliminary goodwill and generated $44.1 million of reported revenue during the quarter. The company also incurred $7.0 million of transition-services expense and $12.8 million of acquisition-related transaction costs.
- Publisher bonuses: AppLovin paid or committed to pay $209.6 million of primarily non-recurring publisher bonuses to migrate publishers to MAX. These amounts reduced reported revenue and were excluded from Adjusted EBITDA, materially affecting the comparison of reported revenue and non-GAAP profitability.
- Apps portfolio review: Management was reviewing the Apps portfolio and its cost structure. Potential outcomes included retaining, restructuring, or selling certain assets, with no specific transaction or final outcome disclosed in this filing.
- Wurl acquisition: In April 2022, after quarter-end, AppLovin acquired Wurl, a connected-TV software platform, for approximately $379.0 million, including $220.0 million in cash, $137.0 million of Class A stock, and a $22.0 million indemnity-holdback liability. A performance-based incentive plan could result in up to $600.0 million of additional Class A shares through 2025 if specified targets and employment conditions are met.
- Commitments: The company had $226.8 million of remaining cloud-services purchase commitments through May 2026, $44.1 million of unfunded private-equity commitments, and $11.1 million of outstanding letters of credit.
- Principal risks: Key risks include substantial leverage and variable-rate debt, acquisition integration and goodwill impairment, dependence on Apple and Google distribution platforms, privacy and data-protection regulation, changes to advertising tracking and IDFA, cybersecurity incidents, intense competition, user engagement and in-app-purchase volatility, revenue concentration, macroeconomic and geopolitical conditions, and the strategic review of the Apps portfolio.
Most important facts for investors to verify
- Whether Software Platform growth and MAX publisher migration can offset declining payer volumes and Apps consumer revenue.
- The recurring versus non-recurring components of Adjusted EBITDA, particularly the $209.6 million publisher-bonus adjustment and MoPub transition costs.
- The impact of MoPub and Wurl integration, including acquisition accounting, synergies, incremental amortization, dilution, and potential performance-based Wurl share awards.
- Debt maturities, interest-rate exposure, covenant compliance, refinancing capacity, and the effect of LIBOR replacement on borrowing costs.
- Whether operating cash flow recovers after the quarter’s working-capital investment and whether acquisition spending remains sustainable.
- The outcome of the Apps portfolio review and any related restructuring, divestiture, impairment, or revenue effects.
- Exposure to Apple and Google policy changes, privacy regulation, tracking restrictions, cybersecurity events, and advertiser demand volatility.
- The sustainability and comparability of management’s non-GAAP metrics and internally calculated operating measures.