01—Abstract
Summary
Summary of the 8-K filed November 6, 2024. Cited figures are marked; the original filing is the authoritative source.
AppLovin reported third quarter 2024 revenue of $1.20 billiona, up 39% year-over-year, with GAAP net income of $434 million (36% net margin, versus 13% a year earlier) and Adjusted EBITDA of $722 million (60% margin, up 72%).
Growth was driven by the Software Platform segment, which generated $835 millionb of revenue (up 66%) and $653 million of segment Adjusted EBITDA at a 78% margin. The Apps segment was roughly flat, with revenue of $363 million (up 1%) and Adjusted EBITDA of $68 million at a 19% margin. Management said the Software Platform's margins will fluctuate quarterly, mainly because of data center infrastructure investment, and plans to rename the segment 'Advertising' starting with the next shareholder letter and Form 10-K.
Cash generation was strong. Operating cash flow was $551 millionc and Free Cash Flow was $545 million, both more than tripled year-over-year on a percentage basis (+177% and +182%). Cash and equivalents ended the quarter at $568 million.
The board increased the share repurchase authorization by $2.0 billiond, bringing total remaining authorization to $2.3 billion, with future buybacks to be funded from Free Cash Flow. Shares outstanding fell to 335 million. Management also reiterated a net debt leverage target below 2.0x.
Based on the balance sheet, total debt of about $3.51 billion less cash implies net debt of about $2.9 billion, or roughly 1.25x trailing four-quarter Adjusted EBITDA (my calculation, not a company figure). For Q4 2024, management guided to total revenue of $1,240 to $1,260 million and Adjusted EBITDA of $740 to $760 million, implying a 60% Adjusted EBITDA margin. Investors should note that Adjusted EBITDA and Free Cash Flow are non-GAAP measures, that stock-based compensation is excluded from Adjusted EBITDA (it was $82 million in the quarter), and that the 8-K states Item 2.02 information is furnished rather than filed under Section 18 of the Exchange Act.
02—Key points
Key Highlights
- Revenue of $1.198 billion in 3Q24, up 39% year-over-year, with Software Platform revenue up 66% to $835 million and Apps revenue up 1% to $363 million
- GAAP net income of $434 million, a 36% net margin, compared with $109 million (13%) in 3Q23
- Adjusted EBITDA of $722 million, up 72%, at a 60% margin; Software Platform segment Adjusted EBITDA was $653 million at a 78% margin
- Operating cash flow of $551 million and Free Cash Flow of $545 million, versus $199 million and $194 million a year earlier
- Board increased the share repurchase authorization by $2.0 billion, bringing total remaining authorization to $2.3 billion, funded from Free Cash Flow; 5.0 million shares retired or withheld for $437 million in the quarter
- 4Q24 guidance: total revenue of $1,240 to $1,260 million and Adjusted EBITDA of $740 to $760 million (60% margin)
- Apps segment is expected to be stable going forward, with user acquisition spend managed closely; Monthly Active Payers fell to 1.6 million from 1.8 million while ARPMAP rose to $52 from $46
03—Questions
Frequently Asked Questions
What drove AppLovin's revenue growth in the third quarter of 2024?
Growth came almost entirely from the Software Platform segment, where revenue rose 66% to $835 million. Management attributed this to continued development of the AXON engine through self-learning and model enhancements, which let advertising partners increase their spend on the platform while meeting their return on ad spend goals. The Apps segment grew only 1% to $363 million.
How much capacity does AppLovin have to keep buying back stock?
The board raised the repurchase authorization by $2.0 billion, bringing total remaining authorization to $2.3 billion. Management said future repurchases will be funded from Free Cash Flow, which was $545 million in the quarter. The company also reiterated a net debt leverage target below 2.0x. Note that the letter's forward-looking disclaimer says the ability to use these authorizations depends on legal solvency requirements, credit facility restrictions, market conditions, and other capital needs, including acquisitions.
Why is the Software Platform's margin volatile, and what happens to the segment name?
Management said Software Platform margins will fluctuate quarter to quarter, mainly due to investment in infrastructure and secured data center capacity to support future growth. The segment margin was 78% in 3Q24, up from 73% in the prior quarters. Starting with the next shareholder letter and Form 10-K, the 'Software Platform' label and related revenue will be renamed 'Advertising' to better reflect the business, which now represents substantially all of the segment's revenue.
Is the Apps business still a meaningful growth driver?
Not currently. Apps revenue grew only 1% to $363 million, and segment Adjusted EBITDA rose 24% to $68 million at a 19% margin. Monthly Active Payers declined to 1.6 million from 1.8 million, but average revenue per monthly active payer increased to $52 from $46. Management expects the Apps business to be stable on an ongoing basis and is focused on optimizing user acquisition and cost structure.
Are the reported profit and cash flow figures comparable to GAAP results?
Adjusted EBITDA and Free Cash Flow are non-GAAP measures. Adjusted EBITDA excludes stock-based compensation ($82 million in 3Q24), amortization, depreciation, interest, and taxes, among other items. Free Cash Flow subtracts capital expenditures and finance lease principal payments from operating cash flow. GAAP net income of $434 million is the most direct comparison for profitability. Management also said it does not provide GAAP guidance equivalents for Adjusted EBITDA because of uncertainty around items such as stock-based compensation.
04—Continue