AppLovin: loving the IPO?

AppLovin IPO

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Background
  • Founded in 2012.
  • First sole focus was on helping improve user’s mobile experience.
  • The company now helps developers monetize their apps + market products to users.
  • Entered the gaming market in 2018.
  • Acquires in-app bidding company Max.
  • Bought a company called Adjust in 2021.
  • Total number of acquisitions as of March 30th, 2021: 5.
  • 2020 revenue surges to $1.45 billion.
  • Starts 2021 by buying Adjust.
  • AppLovin IPO proposed in early 2021.

AppLovin is an interesting company, and not just because of its name. (By the way, any connection to Mr. McLovin from “Superbad” is accidental and not intentional).

What makes it different to other Silicon Valley-based enterprises is how AppLovin has operated under the media radar for the past 8 years. (Not dissimilar to the now well-known Canva). Between 2012 and 2014 it raised $4 million from angel investors. Naturally, despite its low profile, it got some attention in China. Why naturally? Well, who doesn’t love tracking users’ data and phone usage – certainly not the Chinese government.

A possible acquisition for $1.42bn by a Chinese private equity firm was stopped by the Committee on Foreign Investments in the United States (CFIUS) in 2016 – unsurprising, considering increasing tensions between U.S. and China at the time. The situation obviously escalated further as of 2021, and now such move looks unthinkable.

Despite the deal not going through (or perhaps, because of it) the company continued its steady growth. By 2018 it hit the record 1bn downloads a year. Quite a landmark for a company that went largely unnoticed by external observers.

Background

In 2018 AppLovin decided that it was time to take on the mobile gaming market and diversify its portfolio of products. It launched the Lion Studios, adding more gaming studios to its portfolio in the next couple of years. In 2018 it also bought Max – a company specialising in in-app bidding, so developers can pitch their in-app space to bidders, who bid against each other in real time.

Applovin now has over 200 free-to-play games that have been created and run so far by 12 gaming studios.

The company capitalised on its experience in the mobile game market, and while producing games it has been able to test out various monetisation models through those games. It now offers different solutions depending on whether developers prefer to focus on in-app purchases or running ads (or both).

A strange stake buy-in

Before we get into the upcoming AppLovin IPO, there was a slight glitch in its otherwise very smooth run. A particularly strange deal that you will find a mention of in the news stories is KKR’s minority stake purchase in AppLovin in 2018. Despite growing revenue, it only valued the company to be worth $2bn at the time – a laughable multiple on its $483 million revenue that followed the same year. KKR is a private equity firm that manages different asset classes, such as private equity, energy, infrastructure and so on. Whether the above was a very good deal for the latter, or if there was some agreement in terms of possible dilution of KKR’s share going forward remains unknown.

Considering AppLovin’s follow up acquisitions, the investment would have come in very handy, but whether the pricing was right remains to be seen.

How likely is this to be a successful IPO?

AppLovin is in a fairly strong position now that it is coming up to the time when it could officially do its IPO. Especially considering that the mobile gaming market grew 26% last year (did somebody say something about a pandemic?) last year – hence its revenue growth.

Possible hiccups?

The company is loss-making at the moment, posting a loss of $125 million for 2020. However, this is not something that easily deters investors these days (did somebody say “Uber”?).

As of March 2021, AppLovin is 6th on the list of software development kits (SDKs) across Android apps. Competitors such as Unity Ads and Startapp are beating it in the ad monetisation market. That is not including behemoths such as Google and Facebook with their ad networks & the majority of the market share.  

Whether the company would be able to continue its growth through acquisitions & new product launches post-IPO remains to be seen.

It will also be potentially hindered by Apple’s must-opt-in AppTrackingTransparency framework, which will have a negative effect on AppLovin’s capabilities. After all, it thrives on that user information, and without access to it, it will be a lot more difficult to justify its use to advertisers.

The verdict

At the end of the day it comes down to what the goal here is. Considering AppLovin’s success so far on a product level, it would not be surprising if Google, Facebook or (maybe?) Apple consider it as a massive acquisition in the future. If that is the case, the company does not have to turn profit any time soon, and the more of the market it can capture, the higher the return for those investors if it was to be bought out by one of the giants in the tech space.

However, if the goal is long-term growth, questions do remain whether the company will be able to capture enough of the market and grow its existing share of it. It is possible that it could lose some ground too.

Notwithstanding the above, AppLovin’s leaders have shown the willingness to diversify their product ranges and explore other markets. Just think of their recent move into the mobile gaming market. Provided they can continue to innovate and explore other avenues, it is not unlikely that there is yet more to come.

A very interesting prospect to watch out for in the near future, indeed, the jury is still out on whether it will be another “OverNighT SUccEss” or not. Applovin IPO – here we come!

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