AppLovin Corporation 2023 Form 10-K Summary
Business context and reporting period
AppLovin filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed February 26, 2024. The company operates two reportable segments: Software Platform and Apps.
- Software Platform: AppDiscovery, MAX, Adjust and Wurl, providing advertising, monetization, measurement, analytics and connected-TV solutions. AppDiscovery, powered by the AXON AI engine, generates the majority of Software Platform revenue.
- Apps: A portfolio of more than 200 free-to-play mobile games operated through 11 studios. Revenue is generated from in-app purchases and in-app advertising.
- AppLovin had approximately 1,745 employees in 17 countries at year-end, including approximately 950 employees involved in research and development.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $3.283 billion | $2.817 billion | +17% |
| Software Platform revenue | $1.842 billion | $1.049 billion | +76% |
| Apps revenue | $1.441 billion | $1.768 billion | -18% |
| Operating income (loss) | $648.2 million | $(47.8) million | Improved |
| Net income (loss) | $356.7 million | $(192.9) million | Returned to profitability |
| Net income margin | 10.9% | (6.8)% | Improved |
| Adjusted EBITDA | $1.503 billion | $1.063 billion | +41% |
| Adjusted EBITDA margin | 45.8% | 37.7% | +8.1 percentage points |
| Cash flow from operations | $1.062 billion | $412.8 million | +157% |
| Free cash flow | $1.037 billion | $388.0 million | +167% |
Software Platform revenue represented approximately 56% of total revenue, while Apps revenue represented approximately 44%. Apps revenue included $989.0 million of in-app purchases, down 16%, and $452.3 million of in-app advertising, down 23%.
- AppDiscovery installations increased 17% and net revenue per installation increased 35% year over year.
- Apps in-app purchase volume declined 12% and price per purchase declined 5%.
- In-app advertising impressions increased 39%, but price per impression declined 45%.
- Monthly Active Payers declined to 1.8 million from 2.3 million; Average Revenue Per Monthly Active Payer increased to $46 from $43.
- Stock-based compensation increased to $363.1 million from $191.6 million.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $502.2 million at December 31, 2023, compared with $1.080 billion at year-end 2022.
- Total debt principal was approximately $3.2 billion, consisting primarily of two $1.5 billion term loans and $185.0 million drawn under the revolving facility. Reported debt, net of discounts and issuance costs, was $3.121 billion.
- The term loans mature in October 2028 and August 2030; the revolving facility matures in June 2028. The term loans and revolver carried interest rates of 8.45% and 7.45%, respectively, at year-end.
- Unused revolving capacity was $418.7 million, net of letters of credit. The company was in compliance with all debt covenants.
- Interest expense and loss on settlement of debt increased 60% to $275.7 million, primarily because of higher interest rates and a refinancing-related loss.
- AppLovin repurchased $1.154 billion of Class A shares in 2023, bringing cumulative repurchases to $1.154 billion as of year-end. In February 2024, the board increased authorized repurchases so that up to $1.252 billion could be repurchased.
- The company expects cash and cash equivalents to satisfy anticipated working capital and capital expenditure needs for at least the next 12 months, subject to business conditions and capital allocation decisions.
Material changes versus the prior comparable period
- The business shifted materially toward the Software Platform, with platform revenue rising 76% while Apps revenue declined 18%.
- Operating performance improved substantially as cost of revenue fell 16%, sales and marketing fell 10%, and general and administrative expense fell 16%. Research and development expense increased 17% as the company invested in platform and technology development.
- The 2022 comparison was affected by $209.6 million of non-recurring publisher bonuses that reduced Software Platform revenue and by $127.9 million of 2022 impairment and loss related to the Apps portfolio review.
- AppLovin reduced user acquisition spending and increased return targets for its Apps portfolio. This supported higher Apps Adjusted EBITDA margins but contributed to lower Apps revenue and Monthly Active Payers.
- Cash flow from operations increased significantly, while cash declined because of share repurchases, debt repayments, tax withholding related to equity awards and other financing uses.
- The company completed no material business or asset acquisition in 2023, but recognized $52.2 million of earn-out costs related to prior acquisitions.
Outlook, management commentary, risks and unusual items
Management expects to continue investing in AXON, AppDiscovery, MAX, Adjust, Wurl, research and development, international expansion, sales and marketing, and potentially strategic partnerships or acquisitions. The filing does not provide a specific 2024 revenue or earnings guidance figure.
- Platform dependence and competition: Revenue depends on advertiser demand, publisher supply, client retention and competition from companies including Google, Meta, Amazon and Unity.
- Third-party platforms: Apple and Google control important app distribution, payment and privacy frameworks. Changes to IDFA, Android Privacy Sandbox, privacy manifests, consent requirements, fees or app-store policies could reduce targeting effectiveness or monetization.
- Apps portfolio: Revenue is concentrated in a limited number of games; Project Makeover, Matchington Mansion and Wordscapes collectively represented approximately 15% of 2023 revenue. Continued declines in key games could materially affect Apps results.
- Leverage and interest rates: Floating-rate debt creates exposure to higher interest expense. A hypothetical 100-basis-point rate change would have affected 2023 interest expense by approximately $32 million.
- AI, privacy and cybersecurity: AXON and other AI technologies create regulatory, intellectual-property, data protection and cybersecurity risks. Management stated that cybersecurity threats had not materially affected the company through the filing date.
- Macroeconomic and geopolitical risks: Inflation, high interest rates, economic slowdowns, international conflicts, operations in China, and personnel or partners in affected regions could reduce advertising and consumer spending or disrupt operations.
- Unusual items: The company recorded a $28.0 million impairment of non-marketable equity investments in 2023 and recognized $363.1 million of stock-based compensation. A 2023 performance-based equity award grant had a grant-date fair value of $124.3 million.
- Contingencies: The filing reports no legal proceeding that management believes would have a material adverse effect. Unrecognized tax benefits were $35.9 million, and unfunded private-equity commitments were $41.2 million.
- Subsequent events: In February 2024, AppLovin committed $50 million to Flip Shop and entered into a commercial agreement for Flip Shop to use AXON. The company also increased its share-repurchase authorization.
Most important facts for investors to verify
- Whether Software Platform growth, particularly AXON and AppDiscovery, can offset continuing declines in Apps revenue and payer counts.
- The sustainability of the 45.8% Adjusted EBITDA margin and the extent to which it depends on lower Apps user acquisition spending and non-GAAP adjustments.
- Cash generation after share repurchases, debt repayments, tax-withholding payments and required contractual commitments.
- Interest-rate sensitivity, refinancing requirements and covenant compliance under approximately $3.2 billion of floating-rate debt.
- The effect of Apple, Google and other platform privacy or distribution changes on advertising measurement, targeting and Apps monetization.
- Revenue concentration among leading games and the ability to launch or acquire successful replacement Apps.
- The magnitude and timing of stock-based compensation, performance-based equity awards and potential dilution.
- Potential tax, privacy, AI, cybersecurity, intellectual-property and regulatory liabilities, including the $35.9 million of unrecognized tax benefits.