AppLovin Corporation: FY2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. The filing is an annual Form 10-K; it does not provide a clear standalone fourth-quarter income statement or cash-flow presentation. AppLovin operates two reportable segments: Software Platform and Apps. Its Software Platform includes AppDiscovery, MAX, Adjust and Wurl; its Apps segment consists primarily of free-to-play mobile games.
Financial Performance and Position
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $2.817 billion | $2.793 billion | Up 1% |
| Software Platform revenue | $1.049 billion | $674.0 million | Up 56% |
| Apps revenue | $1.768 billion | $2.119 billion | Down 17% |
| Operating income (loss) | $(47.8) million | $150.0 million | Declined |
| Net income (loss) | $(192.9) million | $35.3 million | Declined |
| Net loss per diluted share | $(0.52) | $0.09 income | Declined |
| Adjusted EBITDA | $1.063 billion | $726.8 million | Up 46% |
| Adjusted EBITDA margin | 37.7% | 26.0% | Up 11.7 points |
| Cash flow from operations | $412.8 million | $361.9 million | Up 14% |
| Free cash flow | $388.0 million | $345.2 million | Up 12% |
Revenue growth was driven by the Software Platform, particularly AppDiscovery, where installations increased 24% and revenue per installation increased 46%. Wurl, acquired in April 2022, contributed 9% of the Software Platform revenue increase. MAX and Adjust also continued to grow.
Apps revenue declined primarily because In-App Purchases fell 19%, reflecting a 21% decrease in purchase volume partly offset by a 2% increase in price per purchase. In-App Advertising revenue fell 11%, as a 16% decline in price per impression more than offset a 7% increase in impression volume.
Cost of revenue increased 27% to $1.256 billion, or 45% of revenue, from 35% in 2021. Sales and marketing declined 19% to $919.6 million, primarily because user-acquisition spending fell $317.8 million. Research and development increased 39% to $507.6 million, and general and administrative expense increased 14% to $181.6 million.
GAAP results included $127.9 million of impairment and loss related to the sale of Apps assets, $191.6 million of stock-based compensation, $514.6 million of amortization of acquired intangible assets, $209.6 million of publisher bonuses and $10.8 million of restructuring costs. Adjusted EBITDA excludes these and other specified items and therefore is not a substitute for GAAP earnings.
Liquidity, Debt and Capital Allocation
- Cash and cash equivalents were $1.080 billion at December 31, 2022, compared with $1.521 billion at December 31, 2021. The company stated that existing cash was sufficient for anticipated working-capital and capital-expenditure needs for at least the next 12 months.
- Total outstanding term-loan principal was approximately $3.25 billion, with $33.3 million due within 12 months. The company had a $600 million revolving facility with no borrowings outstanding at year-end.
- Term-loan interest rates were 7.32% for the Initial Term Loans and 6.67% for the Sixth Amendment Term Loans at year-end. A 100-basis-point increase in applicable variable rates was estimated to increase annual interest expense by approximately $15.1 million.
- The company paid $338.9 million to repurchase 9.0 million Class A shares under its $750 million authorization.
- Investing cash outflows were $1.371 billion, including $1.340 billion for acquisitions. Financing cash outflows were $526.8 million, including debt repayments, share repurchases and deferred acquisition payments.
Material Changes Versus FY2021
- The business shifted toward the Software Platform, whose revenue increased 56% and segment Adjusted EBITDA increased 77% to $808.4 million.
- The Apps portfolio was strategically reviewed and optimized. The company reduced user-acquisition spending, closed or divested studios, reduced headcount, restructured earn-out arrangements and prioritized margins over revenue growth in certain assets.
- Apps segment Adjusted EBITDA decreased 5% to $254.8 million despite a $317.6 million reduction in user-acquisition costs.
- AppLovin acquired MoPub for approximately $1.03 billion in cash on January 1, 2022, and Wurl for $378.2 million on April 1, 2022. These transactions increased goodwill and intangible assets and contributed to the decline in year-end cash.
- The company changed its reportable-segment structure in the second quarter of 2022 from one segment to Software Platform and Apps.
- The company implemented workforce reductions affecting approximately 15% of employees and recorded $10.8 million of restructuring costs.
- Net dollar-based retention for Software Platform Enterprise Clients was approximately 134% for the 12 months ended December 31, 2022. The company stated it would stop providing certain Software Platform metrics beginning in the first quarter of 2023.
Outlook, Commentary and Key Risks
Management expects to continue investing in AXON, AppDiscovery, MAX, Adjust, Wurl and new Apps, while pursuing additional acquisitions and partnerships. Management also identified international expansion and broader applications of its technology, including connected television, as growth opportunities. No specific FY2023 revenue or earnings guidance is provided in the filing text.
- Advertisers were managing budgets more cautiously amid inflation, rising interest rates and macroeconomic uncertainty. Management stated that demand appeared to be stabilizing relative to the third quarter of 2022, but the future impact remained uncertain.
- Apple and Google platform policies, including Apple’s application-tracking framework and Google’s planned Privacy Sandbox changes, may reduce the availability or usefulness of user data and affect advertising effectiveness, app discovery and monetization.
- The company is exposed to privacy, data protection, cybersecurity, consumer-protection, advertising, tax, sanctions and intellectual-property regulation across multiple jurisdictions.
- Revenue concentration remains significant: Project Makeover, Matchington Mansion and Wordscapes collectively represented approximately 20% of FY2022 revenue. Substantially all in-app purchases flow through the Apple App Store and Google Play.
- The Apps portfolio review may lead to additional divestitures, closures, restructuring or cost reductions. The company recorded a $127.9 million impairment and loss in connection with 2022 asset sales, including a $74.9 million net loss on certain dispositions.
- The company has substantial secured, floating-rate debt and significant contractual commitments, including $480.6 million of non-cancellable purchase obligations, primarily cloud services, and $50.1 million of unfunded private-equity investment commitments.
- Russia- and Belarus-related revenues and vendors subject to sanctions were described as immaterial, although the company continues to monitor geopolitical, sanctions and cybersecurity risks.
Investor Verification Checklist
- Verify the reconciliation between GAAP net loss and Adjusted EBITDA, particularly the treatment of publisher bonuses, impairment, stock-based compensation and amortization.
- Assess whether Software Platform growth can offset continuing declines in Apps revenue and in-app purchases.
- Review debt maturities, floating-rate exposure, interest-rate swaps and compliance with secured-credit-facility covenants.
- Evaluate the carrying values and useful lives of goodwill and acquired intangible assets, including assets from MoPub, Wurl and prior Apps acquisitions.
- Monitor the financial effects and final outcomes of the Apps portfolio review, including additional asset sales, restructuring and potential dilution from contingent Wurl incentives.
- Assess exposure to Apple and Google policy changes, privacy regulation, cybersecurity incidents and advertising-market weakness.
- Review the methodology and comparability of non-GAAP and operating metrics, including Adjusted EBITDA, TSTV, MAPs, ARPMAP and Software Platform Enterprise Clients.
- Note that the auditor issued an unqualified opinion on the financial statements and internal controls, but Wurl was excluded from management’s internal-control assessment because it was acquired during 2022.