AppLovin Corporation Q3 FY2025 earnings call

• Inclusion in the S&P 500 is a huge milestone, carrying expectations of a broader set of investors. - Q3 was a very good quarter with gaming advertising on a solid trajectory, teams delivered incremental lifts in core models, MAX supply-side platform grew healthily, and international traffic for certain advertisers was opened ahead of schedule. - Delivered the major October 1 launch of self-service platform and referral form without significant hiccups, with self-service advertisers' spend growing ~50% week-over-week. - Focus for Q4 and 2026 includes tuning onboarding flows, ramping more AI agents, testing generative AI-based ad creatives, actively testing paid marketing to promote Axon Ads platform, and aiming to open the platform broadly beyond referral basis once satisfied with quality and experience.

Revenue was approximately $1.405 billion in Q3, up 68% year-over-year. Adjusted EBITDA was $1.158 billion, up 79% at an 82% margin, up 1% quarter-over-quarter from operating leverage and a modest reduction in operational FX. Free cash flow was $1.049 billion, up 92% year-over-year. During the quarter, the company repurchased and withheld approximately 1.3 million shares for $571 million funded by free cash flow. The Board of Directors increased the share repurchase authorization by an incremental $3.2 billion. Gaming advertising continued on a solid trajectory, and the MAX supply-side platform grew at very healthy rates.

• Anticipates revenue in the fourth quarter of 2025 between $1.570 billion and $1.6 billion, reflecting 12% to 14% sequential growth. - Targets adjusted EBITDA between $1.290 billion and $1.320 billion, with an adjusted EBITDA margin of 82% to 83%.

• Operating in an environment of heightened scrutiny around data, privacy and ad tech practices. Remains committed to strict compliance, transparency and execution excellence.

Q: Could you just start off talking about the characteristics of the advertisers that you've onboarded since October 1?

A: Yes. They are a filtered set of advertisers, predominantly shops, comparable in mix to previous cohorts, with a broad set of shopping categories represented.

Q: Adam, I wanted to get back to your comments about substantially higher conversion rates. So am I to read that as -- that a significant growth in impressions would not be required to absorb a significant increase in e-commerce advertisers in 2026?

A: Yes. It's about increasing conversion rate through model enhancements, advertiser density expanding paired with recommendation system, and generative AI-based creative. Model enhancements impact conversion rate, advertiser density and recommendation system help personalize ads, and generative AI can expand ad creatives to improve conversion rate.

Q: So a quick question. I appreciate that 50% growth in week-over-week spend from these e-commerce customers. Is there any sort of context you can give us of like when you looked at that same metric during the pilot phase, what was it?

A: It's a month in, with a lag time from sign-up to go live. The ramp-up is swift, and the focus is on building a tool that can succeed in converting customers over time, with optimization of onboarding funnel and tools being key.

Q: As we're thinking about, I guess, the growth of what has the potential to be like a really big business for you guys over time, billions of incremental as you just sort of talked about. I'm curious how you think about balancing growth, chasing sort of new pockets of potential supply and building up demand to go after that with displacement for your core gaming customer A: Don't try to gate growth. Confident that adding demand density and data will lead to expansion across the board, with gaming customers not being squeezed, but rather getting more targeted and potentially higher CPM, and new data helping with better advertising for gaming customers too.

Q: I appreciate it. I think as we've kind of spoken about direct payments and this transition from kind of paying the App Store and the Play Store 30% to going to an O&O payment product, we've kind of talked about this, I think, historically as more of a medium- to long-term tailwind. Do you think that might be manifesting sooner than expected? And did it contribute to third quarter results?

A: Don't think it's contributing much yet. It's a medium- to long-term tailwind, and Q3 was driven by model improvements, iterative enhancements in the template, more advertisements and advertisers on the platform.

Q: Thank you for the 50% week-on-week growth metric that is really interesting. Is that the metric that you're managing to try to find the point at which you're going to go general availability? And if not, what are you looking at?

A: Care more about optimizing the funnel, including conversion funnel, communications with clients, tooling inside the dashboard. Need time to ensure the product meets quality standard before going general availability.

Q: Is there any reason to think that the take rate or revenue margin from your e-com spend should be any different to that of the core gaming business?

A: No. Advertising credits offered are a tiny fraction of the overall value of a new customer, and the business is a unified auction on a single platform, with a constant take rate across categories as density increases.

Q: Is there any reason to think that the take rate or revenue margin from your e-com spend should be any different to that of the core gaming business?

A: No. Advertising credits offered are a tiny fraction of the overall value of a new customer, and the business is a unified auction on a single platform, with a constant take rate across categories as density increases.

Q: Is there any reason to think that the take rate or revenue margin from your e-com spend should be any different to that of the core gaming business?

A: No. Advertising credits offered are a tiny fraction of the overall value of a new customer, and the business is a unified auction on a single platform, with a constant take rate across categories as density increases.

Q: Just in terms of kind of understanding more of the sort of the current points of friction to bringing people on, it sounds like you're doing a lot of work to tune the onboarding flow. But sort of what other points of friction are necessary to address to just further optimize?

A: Need to market the platform to get the brand out there, constrained by referral codes initially, and optimize from sign-up to go live with as little drop-off as possible. Feature requests are surprisingly not a whole lot so far, but may change as time goes on.

Q: Sort of related to the last question, can you maybe talk a bit more about your current cohort, how they have been performed in 3Q?

A: Over the last year, the team has continuously improved the product, leading to better return on ad spend for customers, improved tooling, and compounding effects of better understanding and usage, with positive trends but taking time to build to desired scale.

Q: I have a quick follow-up on the PSU issued in October. That's for engineering employees. Can you maybe give us more context?

A: It's a pool for a group of engineers and also a future tool for recruiting new hires into the engineering team.

Q: I just had a follow-up on the referral codes. I guess, are all the codes so far given out? Or is this something we can expect the partners to sort of continue doing through early 2026?

A: Generally, if referral partners deliver quality leads, more codes will be given out, and the company will be dynamic in issuing codes based on success of referral partners.

Q: I'm going to go really high level and touch back on an earlier question someone asked about whether or not you were interested in some of those Google assets if they ever came up. You're growing at obviously absurd rates and you're doing it to -- it sounds like you're going to continue in your core market in gaming and you're adding obviously e-commerce, which is an enormous opportunity. I assume a lot of this is your conversion rates keep improving. You guys have been great at that over time. But some of it has to do with inventory itself. So at some point, conversion rates can improve too much. And if e-commerce is a lower converting area than gaming, when do you run out of inventory on your core gamer market?

A: There's a long way to go as there's little advertiser density today. The company is heads down focused on the demand side of the platform now, but at some point will look to broaden the supply base as well, but currently focused on the demand side.