AppLovin Corporation — Q2 2022 Form 10-Q Summary
Business context and reporting period
AppLovin operates a software platform that helps mobile-app developers market and monetize their applications, alongside a portfolio of more than 350 free-to-play mobile games operated through owned and partner studios. The unaudited report covers the three and six months ended June 30, 2022, compared with the corresponding 2021 periods.
Beginning in May 2022, AppLovin reported two segments: Software Platform and Apps. Prior-period segment information was revised to conform to the new presentation.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $776.2 million | $668.8 million | $1.402 billion | $1.273 billion |
| Revenue growth | 16% | — | 10% | — |
| Income (loss) from operations | $53.4 million | $35.0 million | $(74.6) million | $46.4 million |
| Operating margin | 6.9% | 5.2% | (5.3)% | 3.6% |
| Net income (loss) | $(21.8) million | $14.4 million | $(137.1) million | $3.8 million |
| Net margin | (2.8)% | 2.1% | (9.8)% | 0.3% |
| Adjusted EBITDA | $269.7 million | $183.7 million | $546.0 million | $314.8 million |
| Adjusted EBITDA margin | 34.8% | 27.5% | 39.0% | 24.7% |
| Cash flow from operations | Not separately provided | Not separately provided | $75.1 million | $152.3 million |
Q2 revenue consisted of Software Platform revenue of $317.5 million, up 118%, and Apps revenue of $458.7 million, down 12%. Apps revenue included Consumer revenue of $303.3 million, down 16%, and Business revenue of $155.4 million, down 4%.
Q2 cost of revenue was $303.9 million, or 39% of revenue, compared with 37% in the prior-year quarter. Sales and marketing was $232.1 million, or 30% of revenue; research and development was $141.1 million, or 18%; and general and administrative expense was $45.7 million, or 6%.
At June 30, 2022, cash and cash equivalents were $951.6 million, compared with $1.521 billion at December 31, 2021. Total debt was approximately $3.26 billion, consisting primarily of senior secured term loans. Total assets were $5.931 billion and stockholders’ equity was $1.907 billion.
Material changes versus the prior comparable period
- Software Platform growth was driven primarily by AppDiscovery, with installations up 47% and price per installation up 58% in Q2, plus contributions from Adjust and Wurl.
- Apps revenue declined primarily because the volume of in-app purchases decreased 19%, partially offset by a 4% increase in price per purchase. Advertising impressions declined 46%, while price per impression increased 78%.
- Research and development expense increased 82% in Q2 and 93% for the six-month period, reflecting higher third-party development costs, headcount, and stock-based compensation.
- Cost of revenue increased 24% in Q2 and 25% for the six-month period, primarily due to higher network infrastructure costs and amortization of acquired technology.
- Interest expense and loss on settlement of debt increased 92% in Q2, primarily because of higher LIBOR, and increased 27% for the six-month period.
- Six-month results included $209.6 million of publisher bonuses related primarily to migrating publishers to MAX. The bonuses reduced GAAP revenue and were excluded from Adjusted EBITDA.
- AppLovin completed the $1.03 billion cash acquisition of the MoPub business on January 1, 2022, and the $378.2 million acquisition of Wurl on April 1, 2022. Wurl contributed $11.4 million of revenue and a $4.6 million pretax loss from acquisition through June 30.
- Goodwill increased to $1.803 billion from $966.4 million at year-end 2021, primarily from acquisitions, partly offset by foreign-currency translation.
- The company repurchased 6.64 million Class A shares for $254.5 million through June 30, 2022, under a $750 million authorization.
Cash flow, debt, liquidity, and commitments
- Operating cash flow fell to $75.1 million from $152.3 million, despite substantial noncash amortization, depreciation, write-offs, and stock-based compensation.
- Investing cash outflows were $1.352 billion, including $1.294 billion for acquisitions and $56.5 million for non-marketable investments.
- Financing cash outflows were $335.0 million, including $244.0 million of share repurchases and $71.7 million of deferred acquisition-cost payments.
- Management stated that cash and cash equivalents were sufficient for anticipated working-capital and capital-expenditure needs for at least the next 12 months, while noting that additional financing could be required sooner depending on growth, investments, and acquisitions.
- The company had a $550 million minimum cloud-services spend commitment through May 2025, $38.0 million of unfunded private-equity commitments, and $11.1 million of outstanding letters of credit.
- Wurl-related obligations included a deferred payment with a present value of $21.5 million and a performance-based incentive plan that could result in up to $600 million of additional Class A shares through 2025, subject to performance and employment conditions.
Guidance, outlook, management commentary, risks, and unusual items
The filing does not provide a clear quantitative revenue or earnings outlook. Management expects continued investment in the Software Platform, research and development, sales and marketing, infrastructure, acquisitions, and strategic partnerships, with operating expenses expected to increase in absolute dollars.
AppLovin was conducting a strategic review of its Apps portfolio and cost structure. Potential outcomes included retaining, restructuring, separating, or selling certain assets; no specific transaction, timetable, or outcome had been established.
In June 2022, the company announced a workforce reduction affecting approximately 12% of employees and recorded a $7.4 million restructuring charge, with most payments expected in the third quarter.
In August 2022, after the quarter ended, AppLovin submitted a non-binding proposal to combine with Unity Software. The proposal was subject to contingencies, and the filing stated that completion was uncertain.
Principal risks include declining Apps engagement and in-app purchases, dependence on Apple and Google distribution platforms, privacy and tracking changes including IDFA restrictions, cybersecurity incidents, intense competition, acquisition integration, goodwill impairment, substantial variable-rate debt, LIBOR transition, macroeconomic pressure, foreign exchange movements, regulatory scrutiny, and the company’s strategic Apps review.
Foreign-currency translation produced an $82.9 million comprehensive loss for the six months ended June 30, 2022. The filing states that operations in Russia and Belarus were discontinued or suspended and that related revenue was not material to consolidated results.
Important facts for investors to verify
- Whether Software Platform growth can offset continuing declines in Consumer revenue and Apps profitability.
- The sustainability and comparability of Adjusted EBITDA, particularly the treatment of publisher bonuses, restructuring costs, stock-based compensation, amortization, and acquisition-related items.
- Debt maturities, variable-rate exposure, covenant compliance, refinancing needs, and the effect of the LIBOR transition.
- The cash impact and integration progress of MoPub and Wurl, including the Wurl contingent equity incentive plan.
- The outcome and timing of the Apps portfolio review and any related divestitures, restructuring, impairments, or separation transactions.
- The potential dilution and cash requirements associated with acquisitions, equity awards, share repurchases, and the proposed Unity transaction.
- Changes in privacy, tracking, advertising, consumer-protection, and children’s-data regulations affecting monetization.
- Whether declining Monthly Active Payers, which fell to 2.3 million from 2.7 million, stabilize and whether average revenue per payer remains near $43.