AppLovin made $1.9 billion in Q2, almost $1.3 billion of which was recorded as net income, the company reported in its quarterly earnings on Wednesday. Both the total revenue and profitability metrics were up by more than 50% compared to the same time last year.
That sounds impressive. However, AppLovin shares fell by more than 20% in after-hours trading. Investors expressed disappointment with earnings below AppLovin’s guidance and the relatively slow expansion of its consumer ads business, which became generally available to advertisers in June.
Adam Foroughi, AppLovin’s co-founder and CEO, emphasized that the company is early on with its consumer ads business. That side of the business is the evolved form of its ecommerce ads beta, which ran until about a year and a half ago. The mid-tier ecommerce and consumer brands (so not the Coca-Cola type brands or the long-tail of local companies or SMBs) that AppLovin is targeting out of the gate “usually manage their budgets over somewhere in the neighborhood of one quarter to four quarters ahead,” Foroughi said. Search and social command a majority of the budget for these brands.
“We’re deemed a new bucket, so a testing category,” he said. “And to graduate up takes time. This stuff compounds over quarters and years.”
He added that the company has not put a major marketing push behind the consumer ads platform, despite its recent launch from beta and rebranding (actually re-rebranding – the business changed from “AppLovin” to “Axon” and recently back to “AppLovin”). Right now, he said, the company is being targeted in is client acquisition rather than going for the most widescale possible adoption.
Unfortunately for AppLovin, investors operate in three-month intervals.
“It’s been about six weeks now,” said Bank of America analyst Omar Dessouky. “What do you need to do to get to that point where advertisers flock to your platform? And to become a very widely used platform like Meta and Google?”
Don’t expect it to happen overnight, was Foroughi’s message. AppLovin has identified particular types of marketers, he said, and it needs to execute with that limited set before thinking about adding tens of thousands of relatively small advertisers.
It took Google two decades to become the de facto search and online ad platform, he noted, and Facebook took more than a decade to become the social ad giant. AppLovin itself plugged away for about a decade and a half before it was the scaled, default-esque platform for mobile game monetization, he said.
AppLovin is also working with ecommerce analytics platforms of vendors that work with the type of brand that makes sense to be early advertisers in its consumer business. Foroughi cited Triple Whale as one such example.
Eventually, he said AppLovin will expand beyond the mobile in-app gaming that is its bread and butter.
After all, the company did acquire the streaming TV ad platform Wurl in 2022, said Tim Nollen, media and tech analyst at the equity bank SSR.
It is a future opportunity, Foroughi said. The same lipstick video ad that’s generating sales in mobile apps “should port really well to television,” he said.
Although CTV ads won’t even be the next runway, when AppLovin does eventually expand beyond its current laser-like focus on mobile gaming ads. Step one would be non-gaming apps. “And then step two would be the open web,” he added. Then expect the CTV expansion.
“Those are just obvious levers of growth to pull when we have the budget to go out get them,” he said.
