AppLovin Corporation Q4 FY2025 earnings call

• Adam emphasized strong operating performance driven by internal AI models, disconnect between market sentiment and business reality, and view on competition in AI where ecosystem growth benefits all. - Matt walked through financials, highlighting Q4 and full-year revenue, adjusted EBITDA, free cash flow growth, strong balance sheet, and share repurchases. - Mentioned Rule of 40 score of 150 due to 66% revenue growth and 84% adjusted EBITDA margins, showing exceptional profitability at growth rate.

In the fourth quarter, revenue was $1.66 billion, up 66% year-over-year. Adjusted EBITDA was $1.4 billion, up 82% year-over-year with an 84% margin. For the full year, revenue reached $5.48 billion, growing 70% year-over-year. Adjusted EBITDA was $4.51 billion, up 87% year-over-year at an 82% adjusted EBITDA margin. Free cash flow in Q4 was $1.31 billion, an 88% increase year-over-year, and full year free cash flow totaled $3.95 billion, up 91% year-over-year. Revenue contribution is driven by the mobile gaming business with expansion from e-commerce initiative.

• Q1 2026 revenue expected between $1.745 billion and $1.775 billion, representing 5% to 7% sequential growth. - Adjusted EBITDA expected to be between $1.465 billion and $1.495 billion with an adjusted EBITDA margin of approximately 84%.

Q: Most effective channels for AXON marketing?

A: Adam said too early to assess, but partnerships with measurement companies and brand building through placements are starting points.

Q: Impact of prospecting campaigns on advertiser behavior?

A: Adam said prospecting campaigns help advertisers tune away from past purchasers to new users, showing quick adoption and strong results.

Q: Breakage in qualified leads to go live?

A: Adam said biggest inhibitor is lack of video ads for AppLovin's format, to be addressed by generative AI tools.

Q: Market growth outlook?

A: Adam said MAX market is growing quickly with other players like Unity Vector, Moloco, Liftoff growing, and no slowdowns expected.

Q: Comparison of e-commerce and gaming reinforcement learning?

A: Adam said e-commerce is earlier stage with less data penetration, but model improves with customer ramp-up and data, similar to gaming but starting from lower point.

Q: Supply growth drivers?

A: Adam said supply growing quickly with MAX, but focused on demand side to improve conversion rates, with potential to expand supply to new publishers but currently prioritizing demand generation.

Q: E-commerce model competitiveness?

A: Adam said e-commerce model is competitive with some advertisers seeing good performance, and new advertisers bring data into the model for growth.

Q: Other sectors beyond e-commerce?

A: Adam said other sectors are early, with web advertising for transactional businesses, but e-commerce is currently the largest nongaming sector.

Q: Margin confidence and cash use priorities?

A: Matt said confident in maintaining margin, with potential impact from performance marketing, and cash priorities include organic growth initiatives and share repurchases.