A contrarian piece on AppLovin's S-1
Company coverage piece on everyone's favorite ad network play...
Every week I write a piece on sports betting, gaming or trending themes in tech. If you would like to receive it directly in your inbox, subscribe now.
Before you jump to the comments section to crucify me, I want to open this piece by saying that I love the long-term prospects of AppLovin and there is a high chance that their shift in strategy is exemplifying tremendous foresight given the recent developments around App Transparency Tracking (ATT). I’ve talked to a few of my old IB friends close to the IPO who share this same sentiment, mentioning that the company’s unit economics are more robust than most deals they’ve worked on in the space. That said, I’d love to entertain a contrarian POV as it relates to AppLovin’s looming public debut and resulting valuation.
One could make a bearish case on the valuation that AppLovin seems to be targeting given my perception of their S-1 positioning as a mobile analytics company focused on tech. AppLovin has undoubtedly been a dominant ad network. However, after analyzing the financial information in the S-1, I believe that they could be viewed more as a gaming company and subsequently valued at a premium to Zynga or Playtika multiples, but below where companies such as Digital Turbine and The Trade Desk trade.
AppLovin reported revenue of $1.45B in 2020 (+46% YoY). They split their business into Consumer and Business revenue. Consumer comprises 51% of total revs, generated by IAPs. Business comprises 49% of total revs, generated from fees paid by mobile app advertisers and those who use AppLovin’s software to monetize their mobile apps. Notably, Business revenue from advertisers that purchase ad inventory within AppLovin’s games portfolio was 71% of total Business revenue in 2020. In other words, 86% of total revs are generated by their mobile games. Moreover, since 2018, Consumer revenue has grown 13.7x compared to 1.7x for Business revenue.
In a different light/upside case, one could argue that AppLovin’s vertical integration of content into their ad network is genius and will create a self-sufficient advertising ecosystem to connect its first-party properties, ultimately becoming its own walled garden in the face of IDFA deprecation.
Only time will tell when AppLovin prices. However, I believe that a pure ad network comp set may not be the best approach.