AppLovin IPO: Why the mobile tech company went public

With its revenue split between mobile gaming and mobile marketing, AppLovin has raised $1.8 billion through an initial public offering (IPO), giving it a market capitalisation of $28.6bn and making it one of the biggest public debuts of the year. But how did it get to where it is now?

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What is AppLovin? 

AppLovin is a mobile technology enterprise founded in 2012 with headquarters in Palo Alto, in the heart of California’s Silicon Valley. For its first two years, it raised $4 million from angel investors while operating in stealth mode. Even then, it was able to acquire some major brands as clients, with big names like Spotify and OpenTable using its services. 

AppLovin initially worked with its clients to develop, upgrade and fine-tune the smartphone customer experience for all users, on whatever device they choose. 

In more recent years it has become a big player in both mobile gaming and the provision of marketing services within apps. In summary, much of what it does now involves helping developers, many of whom work in the gaming sector, find users and monetise their apps.

It counts more than 410 million daily active users on its platform, while its apps consist of more than 200 free-to-play mobile games, including Word Connect, Slap Kings and Bingo Story.

When did AppLovin get involved in gaming? 

In July 2018, AppLovin launched a gaming arm, Lion Studios, and two months later acquired the in-app bidding company, Max. (In-app bidding is an advanced advertising method in which mobile publishers can sell their ad inventory in an auction so that all their advertisers are simultaneously bidding against one another.)

In February 2021, it agreed to buy Berlin-based start-up Adjust to further expand its technology platform. Adjust makes tools that measure audiences and prevent fraud in mobile advertising. AppLovin’s portfolio also includes gaming studios Machine Zone, Belka Games, PeopleFun and Firecraft Studios.

Why is the AppLovin IPO going ahead? 

The appetite for IPOs from companies involved in the online gaming sector has rocketed after a year of pandemic-induced lockdowns kept people stuck at home while seeking entertainment from handheld devices. In its IPO prospectus, AppLovin says 2020 revenue surged by 46% to $1.45 billion. 

This rate of growth outstrips that of the mobile game market at large (up 26% last year to £79.6 billion, according to research group Sensor Tower). 

It’s also fair to say AppLovin first raised the prospect of an IPO before the pandemic struck, and many analysts believe it has stronger roots than many other firms in its sector which surged into profitability on the back of global lockdowns. 

When KKR bought a minority stake in AppLovin in mid-2018 it valued the Palo Alto concern at around $2 billion. According to TechCrunch “that number appears comically low”, given the revenue figures that followed - $483 million in 2018 and $994 million the following year.

How much has the AppLovin IPO raised?

The AppLovin IPO has raised $1.8 billion, giving it a market capitalisation of $28.6bn and making it one of the biggest public debuts of the year.

According to research in 2019 from Fortune, when AppLovin first mooted a possible IPO intended for 2020, it was looking to raise about $1 billion, so a year of Covid-enforced lockdowns has clearly worked in its favour.

The company priced its shares at $80 ahead of its listing on the Nasdaq on Thursday, April 15, according to the regulatory filing, the midpoint of its previously set range of $75-$85.

The issue price will give it a market value many times higher than the $2 billion at which KKR purchased a $400m stake three years ago.

The private equity group was selling 2.5 million shares in the offering, according to the regulatory filing, but was keeping a stake worth $8.6 billion. KKR will also retain 67.4 per cent of the company’s voting power

AppLovin joins other names in the sector like DraftKings Inc, Playtika Holding Corp and Roblox Corp to have taken the market route to raise capital in the past 18 months.

Is AppLovin profitable?

AppLovin has been consistently profitable since it started up. It has the profile of a rapidly growing company that has successfully scaled adjusted profit as it has grown.

Despite that, and its highly impressive 2020 revenue numbers, it did record a net loss of more than $125 million last year. The company quadrupled its spending on research and development and recorded costs of $74.8 million on the settlement of an “asset acquisition agreement”. It also had a $7.9 million expense tied to lease terminations and write-offs. 

One thing that should be worth watching is AppLovin’s cost of revenue as a percentage of total revenue. This figure has steadily risen in the last three years – up from 11% in 2018, to 24% in 2019 and 38% in 2020. 

In all, AppLovin has invested $1 billion across 15 acquisitions and partnerships since 2018 and has ultimate ownership of more than 200 free-to-play mobile games from 12 studios. It says its apps are used by almost 32 million people a day. 

Who are AppLovin’s competitors? 

As a nimble, relatively young tech company straddling two distinct product types, AppLovin does not have any like-for-like competitors. 

According to the firm Owler, which crowdsources real-time research and analysis, AdColony, Flurry and InMobi are among its closest rivals in the mobile marketing space. But AppLovin is now so heavily exposed to gaming that it is not strictly speaking comparable to those firms. 

Its business is now broadly split down the middle between games, which produce revenue through the sale of virtual items, and marketing tools that other game developers use for app discovery and promotion. 

Last year, 49% of revenue came from businesses using its software and 51% from consumers making in-app purchases.

Who are the directors of AppLovin? 

Adam Foroughi is the CEO and co-founder of AppLovin. A UC Berkeley alumnus, he began his career as a derivatives trader, before setting up two companies, Lifestreet Media and Social Hour.

With these two start-ups he was able to incorporate a personal interest in mobile technology with the hard-nosed world of business. At AppLovin, he has gradually elevated the company’s standing in the mobile games sector and in 2018, he received the Ernst & Young Entrepreneur of the Year Award. 

Other key leadership positions:

  • Herald Chen, president and chief financial officer 
  • Andrew Karam, VP of product and co-founder 
  • Katie Jansen, chief marketing officer 
  • Elena Arutunian, chief accounting officer 
  • Basil Shikin, chief technology officer 
  • Omer Hasan, VP of operations 
  • Jordan Satok, VP of corporate development 

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