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IPOs 2021: AppLovin Fails to Woo the Market

Posted on Monday, Aug 9th 2021

According to a recent report, the global market for Mobile Application Development platforms is estimated to grow from $9.1 trillion in 2020 to $44.3 trillion by 2027 at a CAGR of 25%. Recently listed AppLovin (NASDAQ: APP) is helping mobile app developers make sure that their apps reach the consumers.

AppLovin’s Offerings

Palo Alto-based AppLovin was founded in 2012 by Adam Foroughi, Andrew Karam, and John Krystynak to give mobile app developers an integrated set of solutions to grow their businesses. Today, it has grown to become one of the most popular mobile apps and gaming studios.

AppLovin’s software solutions provide advanced tools for mobile app developers to grow their businesses by automating and optimizing the marketing and monetization of their apps. Since being set up, its platform has helped drive more than six billion mobile app installs for mobile app developers.

AppLovin believes that its market opportunity is expected to grow from $189 billion in 2020 to $283 billion in 2024 at a CAGR of 10.6%. There are more than 4.8 million apps available on both the Apple App Store and Google Play Store, making it difficult for these developers to successfully market their apps. AppLovin helps these mobile app developers, in particular mobile game developers, to address their marketing and monetization challenges. Through its technologies and scaled distribution, developers can manage, optimize, and analyze their marketing investments, and improve the monetization of their apps.

In 2018, AppLovin also launched AppLovin Apps that consists of a diversified portfolio of over 200 free-to-play mobile games across five genres, run by twelve studios. The combination of its Platform and Apps helps form a strategic flywheel that drives growth across its business and helps them stand apart from the competition. Today, it has over 9,000 developers using its solution and has helped drive more than 7 billion app downloads through its products.

AppLovin’s Financials

AppLovin has shown significant growth over the recent past. Its revenues have grown 76% annually over the period 2016 to 2020. For 2020, its revenues grew 46% to $1.45 billion. The company continues to generate losses and reported a net loss of $125.9 million compared with a loss of $119 million in 2019. Its adjusted EBITDA improved to $407.5 million in 2020 from $301.4 million a year ago. It recently reported its first quarter results, where revenues grew 132% to $603.9 million. It ended the quarter with a loss of $0.05 per share.

AppLovin expects to end the current year with revenues of $2.65-$2.70 billion.

Till earlier this year, AppLovin was privately held, having raised $1.4 billion in six rounds of funding from investors Sadik Ventures, Kohlberg Kravis Roberts, Orient Hontai Capital, Webb Investment Network, Suren Markosian, Streamlined Ventures, and Nimble Ventures. The most recent round was held in July 2018, where it raised $400 million led by Kohlberg Kravis Roberts. AppLovin went public in April when it was valued at $26.8 billion and raised $2 billion at a list price of $80.

Unlike most other tech stocks, AppLovin has not had a good run since listing. Its services rely heavily on ad-based revenues and with privacy terms being strengthened through the iOS update and through Google’s third-party cookie policies, those revenues are bound to be hurt. Analysts also believe that the market that the company operates in is rather saturated.

AppLovin earns revenues from two key segments – games, where it earns primarily from the sale of virtual items; and marketing tools that other game developers use for app discovery and promotion. Last year, 49% of revenues came from businesses using its software and 51% from consumers making in-app purchases. But there is significant competition in both segments.

The business segment, that accounts for the mobile app ecosystem is estimated to be a $200 billion market opportunity. AppLovin’s competitors include names like Tencent and Zynga that are focused on the consumer segment and Tapjoy, Vungle, and Unity Software within its business segment. 

Its biggest threat comes from Unity Software that is able to bundle gaming technologies with other monetization tools. Unity’s technology allows users to develop games on a real-time basis. Currently, Unity powers over 50% of all video games and holds 45% of the game engine market. There is no other company that is even close to what Unity offers in terms of monetization and game development.

AppLovin’s stock is trading at $58.65 with a market capitalization of $21.4 billion. It had touched a 52-week high of $90.03 in June after having fallen to a 52-week low of $49.41 in May.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

Photo Credit: Gerd Altmann / Pixabay

This segment is a part in the series : IPOs 2021

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