Applovin IPO Offers Mixed Bag for Investors

Applovin's IPO was a significant event in the tech world, offering a unique opportunity for investors to get in on the ground floor of a rapidly growing company.

Applovin's market capitalization reached $47 billion after its IPO, a staggering figure that reflects the company's massive user base and revenue growth.

The IPO was a complex process, with Applovin listing on the NASDAQ stock exchange under the ticker symbol APP. This marked a major milestone for the company, which has been growing rapidly since its founding in 2012.

Investors were left with mixed feelings about the IPO, with some feeling that the company's valuation was too high and others seeing it as a solid investment opportunity.

AppLovin's Initial Public Offering (IPO) was a significant event, with the company raising $2 billion through the sale of 22.5 million Class A common shares at $80 per share.

The IPO was led by a group of top investment banks, including KKR, JPMorgan, Morgan Stanley, Bank of America, and Citigroup. This team of underwriters helped AppLovin secure its spot on the NASDAQ exchange.

AppLovin's IPO valuation of $28.6 billion made it one of the biggest public debuts of the year. This impressive valuation is a testament to the company's success in the mobile gaming and advertising space.

The company offered two classes of shares: Class A shares, which are listed on the NASDAQ exchange, and Class B shares, which are held by its leading investor KKR. Class B shares come with 20 times more voting power than Class A shares.

Here's a breakdown of the key details of AppLovin's IPO:

Private equity group KKR previously invested $400 million in AppLovin back in 2018, valuing the company at around $2 billion at the time.

AppLovin's financial performance is a key aspect to consider when evaluating the company's IPO prospects. The company reported $1.45B in revenue for 2020, with a 76% Compound Annual Growth Rate (CAGR) from 2016 to 2020. This growth is largely driven by gaming-related activities and mergers and acquisitions (M&As).

Despite a net loss of $126m in 2020, AppLovin is a cash-flow positive company, generating $223m in cash flow. This is due to depreciation, amortization, and write-offs of newly purchased properties accounting for the majority of the gap.

AppLovin's revenue growth is slowing down, with a 46% increase in 2020 compared to a 106% surge in 2019. Business revenue rose 19% in 2020, while consumer revenue soared 86% in 2020 due to acquisitions of smaller game studios.

The company does not plan to reach profitability in the near future, instead investing in infrastructure, purchasing properties, expanding its software business, and releasing new applications. This strategy is expected to drive further growth, but at the cost of increased operating expenses.

Intriguing read: Applovin Revenue

AppLovin's business model is quite interesting, and it's worth taking a closer look. The company has two distinct revenue streams: business revenue and consumer revenue.

AppLovin's financials indicate that the company is predominantly gaming, with mobile games accounting for 85.8% of sales. This is a significant chunk of their revenue.

Consumer sales have been growing rapidly, increasing 13.7 times in the last three years. This outpaces business revenue, suggesting that AppLovin's focus will continue to shift towards gaming with each passing year.

AppLovin's business model is quite interesting. The company categorizes its sales into two distinct revenue streams: business revenue and consumer revenue.

AppLovin is predominantly a gaming company, with mobile games accounting for 85.8% of its sales.

This is surprising, given that the company positions itself as a technology-focused mobile analytics company. Consumer sales have grown significantly, increasing 13.7 times in the last three years, outpacing business revenue.

This growth suggests that AppLovin's focus will continue to shift towards gaming with each passing year.

AppLovin has been aggressively expanding its reach through strategic acquisitions and investments. The company has invested over $1.1B in 15 strategic agreements and acquisitions since 2018, with a focus on gaming studios.

AppLovin now operates 12 studios, both owned and partner-owned, which is a significant growth from its initial efforts. This expansion has been fueled by a series of strategic acquisitions.

Some notable acquisitions include Adjust, a Berlin-based mobile app delivery and analytics firm, which AppLovin acquired for approximately $1B in February 2021. Machine Zone, a mobile game developer based in Palo Alto, was acquired by AppLovin in May 2020 for an aggregate purchase price of $328.6m.

Here's a list of some of AppLovin's notable acquisitions:

These acquisitions have not only helped AppLovin expand its reach but have also resulted in accretive deals, with some acquisitions boosting quarterly sales by an average of over 100%.

AppLovin is an underdog in two highly competitive markets.

It doesn't lead either market, which means it's facing stiff competition from established players.

The business segment competes against Unity Software, which bundles monetization tools with its popular game development engine.

AppLovin's consumer segment competes against mobile gaming giants like Tencent.

In fact, AppLovin acknowledges that many of its own studios build their games with Unity's engine.

This creates a potential conflict of interest, as AppLovin's clients might develop their own in-app monetization services.

AppLovin claims to control just 1% of the global mobile apps market.

For your interest: Applovin Unity

AppLovin's financial health is a mixed bag. The company reported a net loss of $126 million in 2020, despite generating $1.45 billion in revenue.

AppLovin is, however, a cash-flow positive company, with a cash flow of $223 million in 2020. This is largely due to depreciation, amortization, and write-offs of newly purchased properties.

The company's revenue growth is impressive, with a CAGR of 76% from 2016 to 2020. This is driven mainly by gaming-related activities and mergers and acquisitions.

Here's a breakdown of AppLovin's revenue and EBITDA:

AppLovin does not plan to reach profitability in the near future, instead choosing to invest in infrastructure, software, and new applications. This strategy may increase its exposure to high app store fees, which could lead to steeper losses.

AppLovin's financial health has been a topic of concern, with the company showing significant losses. In 2020, AppLovin reported a net loss of $126 million.

High fees from Apple and Alphabet's Google have been a major weight on AppLovin's margins. These tech giants typically retain a 30% cut of each app's revenue.

AppLovin's losses are not a new trend, as the company turned unprofitable again in 2020 after a net profit of $119 million in 2019. This suggests that the company's financial struggles are ongoing.

Despite these losses, AppLovin is a cash-flow positive company, with a cash flow of $223 million in 2020. However, depreciation, amortization, and write-offs of newly purchased properties account for the majority of the gap between revenue and net income.

AppLovin's revenue has been growing rapidly, with a revenue CAGR of 76% from 2016 to 2020. However, this growth has been driven mainly by gaming-related activities and mergers and acquisitions.

A high price-to-sales ratio can be a red flag for investors. The market cap of AppLovin is $22 billion, which trades at over 15 times 2020 sales.

This valuation might seem reasonable for some high-growth tech stocks, but it's essential to consider the company's revenue growth trajectory. If revenue growth continues to decelerate, the price-to-sales ratio will be harder to stomach.

Investors should be cautious of chasing IPOs that have a rich valuation like AppLovin's. It's better to wait and see how the company fares over the next few quarters before making a decision.

See what others are reading: Applovin Valuation

AppLovin's high debt is a significant concern for investors. The company plans to spend about $400 million of its IPO proceeds to reduce its post-deal debt balance to about $1.77 billion.

This debt burden is substantial, more than five times the adjusted EBITDA the company generated last year. The company's debt is likely to remain high, given its history of spending over $1 billion on strategic partnerships and acquisitions in the past three years.

It's clear that AppLovin's high debt will take time to address, and investors should not expect it to be fully extinguished anytime soon.

Adam Foroughi, the cofounder and CEO of AppLovin, is now a billionaire thanks to the company's IPO. He owns a 7.8% stake in the company, which is worth $1.96 billion.

AppLovin's IPO valued the company at $25 billion, making it a significant milestone for the company. This valuation is a result of the company's rapid growth over the past decade.

As the CEO, Adam Foroughi has maintained control of the company despite a potential deal with a Chinese private equity firm in 2016. The deal was restructured, and Orient Hontai Capital ended up buying just a 10% equity stake.

Adam Foroughi is 40 years old and has been instrumental in AppLovin's growth, overseeing the company's pivot to consumer-facing products and its acquisition spree.

AppLovin is a mobile app and publishing company that went public on April 15, raising $2.0 billion selling 25 million shares at $80 apiece.

The company was founded in 2011 and has grown rapidly, with revenue increasing at a compound annual rate (CAGR) of 76% between 2016 and 2020.

AppLovin operates two main businesses: the business segment, which helps companies manage and monetize their apps, and the consumer segment, which owns a portfolio of over 200 free-to-play games.

Its consumer segment generates 51% of its revenue, while the business segment generates 49%. Both segments rely heavily on ads to generate revenue.

AppLovin's total addressable market is expected to expand from $189 billion in 2020 to $283 billion in 2024, according to IDC estimates.

The company sold 22.5 million Class A common shares with $80 per share in its initial public offering, securing around $1.8 billion and valuing the marketing platform at $28.6 billion.

AppLovin's Class B shares come with 20 times more voting power than Class A shares, giving the company greater control and influence over its management.

Private equity group KKR previously invested $400 million in AppLovin back in 2018, valuing the company at around $2 billion at that time.

AppLovin's willingness to sell itself at a low price casts some doubts on its ability to grow into its total addressable market.