AppLovin Corp Q4 FY2024 Earnings Call

Welcome to AppLovin's Earnings Call for the Fourth Quarter and Year ended December 31, 2024. I'm David Hsiao, Head of Investor Relations. Joining me today to discuss our results are Adam Foroughi, our Co-Founder, CEO, and Chairperson; and Matt Stumpf, our CFO. Please note, our SEC filings to date as well as our shareholder letter, financial update and press release discussing our fourth quarter annual performance are available at investors.applovin.com. During today's call, we will be making forward-looking statements including, but not limited to, the future development and reach of our platform, our expected growth opportunities, the result and timing of our strategic transactions, the efficiency of our operations, the expected future financial performance of the company, and other future events. These statements are based on our current assumptions and beliefs. We assume no obligation to update them except as required by law. Our actual results may differ materially from the results predicted. We encourage you to review the risk factors at our most recently filed Form 10-Q for the third quarter ended September 30, 2024. Additional information may also be found in our annual report on Form 10-K for the fiscal year ended December 31, 2024, which will be filed later this month. We will also be discussing non-GAAP financial measures. These non-GAAP measures are not intended to be superior to or a substitute for our GAAP results. Please be sure to review the GAAP results and the reconciliations of our GAAP and non-GAAP financial measures in our earnings release and financial update, available on our Investor Relations site. This conference call is being recorded and a replay will be available for a period of time on our IR website. Now, I'll turn it over to Adam and Matt for some opening remarks, then we'll have the moderator take us through Q&A.

Thank you all for joining us. Q4 was a major milestone, arguably our most foundational period since the AXON upgrade in 2023. For the first time, we captured meaningful holiday shopping advertising dollars and witnessed the impact of an advertising category beyond solely gaming contributing to our growth. I'm sure many of you are curious about how much revenue our ecommerce category contributed. While we're not breaking out revenue by vertical, because that's not how we view our business, I'd like to provide some perspective. We operate a platform that reaches over 1 billion people in mobile games daily, with their engagement times comparable to social networks. Historically, most of our ads focused on advertising for other games, but now we're attracting a broader set of advertisers. Q4 results show that our models can perform in other categories in addition to continuing to improve performance for our gaming customers. This breakthrough is only the beginning. We've now also validated that our platform success isn't only limited to direct-to-consumer brands. Early pilots have shown positive outcomes for a range of advertisers, suggesting that any business in any vertical can harness the power of our platform. This opens up a massive opportunity as there are over 10 million businesses worldwide who advertise online that could eventually use our platform profitably. By delivering incremental value, we position ourselves as an engine for growth. It's a win-win for brands, consumers, and shareholders. These early results solidify our vision of building one of the most influential marketing platforms in the world. Where we once focused on gaming, we're now positioning ourselves to serve the entire global advertising economy. Importantly, the users engaging with our network aren't just shifting existing purchases. They're discovering new products while playing the games they love, generating truly incremental demand. By enabling these discoveries, we're expanding the global economy for consumers and advertisers alike. Demand from advertisers wanting to join our platform is high. Currently, our systems are still being fully developed and lack the full self-service capabilities needed to handle growth at scale. Our priority this year is to develop and roll out more automated tools to allow countless new businesses to tap into our platform. In-line with this expanding focus on advertising, we've been assessing how best to invest our resources to serve the needs of a global client base. Seven years ago, we began acquiring gaming studios to help train our earliest machine learning models, an invaluable step in shaping the AI that underpins our AXON platform. However, we've never been a game developer at heart. We have immense respect for the creativity it takes to build games, including from teams in our studios. Today, we're announcing we've signed an exclusive term sheet to sell all of our Apps business. Matt will share further details, but I want to emphasize to our teams. You'll soon be part of a company that specializes in and champions game development. While it's bittersweet to part ways, we're excited for your future and immensely grateful for your role in getting us to where we are today. Finally, I'd like to highlight our favorite metric going forward, adjusted EBITDA per employee. As we're transitioning to a pure advertising platform, our focus will be on productivity, automation, and building lean, high-impact teams. In Q4, we had approximately $3 million in run rate adjusted EBITDA per employee in our Advertising business, and we expect that number to rise as we refine processes and scale our business. This metric underscores our commitment to operational excellence. Thank you for your continued support and partnership as we enter this next phase of growth. I'm more confident than ever that we're building a platform with the potential to transform global marketing. With that, I'll turn it over to Matt for a deeper look at our financials.

Thanks, Adam, and good afternoon. I'm happy to announce we had another strong quarter with total revenue increasing 44% from the same period last year to $1.37 billion and adjusted EBITDA increasing 78% to $848 million, achieving a 62% adjusted EBITDA margin. This represents an 89% flow-through from revenue to adjusted EBITDA. In the fourth quarter, we generated $695 million in free cash flow, up 105% year-over-year. Quarter-over-quarter, our free cash flow grew 28%, representing 82% flow-through from adjusted EBITDA to free cash flow. Free cash flow grew slightly more than our adjusted EBITDA growth over the same period due to the timing of cash tax payments. At the end of the fourth quarter, we had $741 million in cash and cash equivalents, and 340 million shares outstanding. During the quarter, our Advertising business continued to drive increased performance for our mobile gaming partners combined with positive early results for ecommerce advertisers during the holiday season. The Advertising business generated $999 million in revenue and $777 million in adjusted EBITDA, achieving a 78% margin. Quarter-over-quarter flow-through from revenue to adjusted EBITDA was 75%, which is slightly lower than our normal levels. As I previewed last quarter, this was due to a step function increase in our data center costs. Flow-through will normalize from here as we gain leverage on this increase in GPU costs. Before we get into the financial performance for our Apps business, as Adam mentioned, we're excited to announce we've signed a term sheet to divest our Apps business. Total estimated consideration is $900 million, including $500 million in cash, with the remainder representing a minority equity stake in the combined private company. Subject to regulatory clearance, we hope to close this transaction in the coming quarter and look forward to seeing the success of this business under new leadership. Our Apps revenue for the quarter was $373 million, a 1% decrease from last year with $71 million in adjusted EBITDA, representing a 19% margin. Turning briefly to our annual results. Revenue for the year was $4.7 billion. That's an increase of 43% from last year. Adjusted EBITDA was $2.72 billion. That's an incredible 81% increase from last year at an adjusted EBITDA margin of 58%. Free cash flow for the year was $2.1 billion, representing an impressive 76% flow-through from adjusted EBITDA of $2.72 billion. This quarter, we withheld a total of 1.6 million shares for a total cost of $508 million. For the full year, we repurchased or withheld a total of 25.7 million shares for a total cost of $2.1 billion. I want to pause here to emphasize this point. During the year, we had $2.1 billion of free cash flow and spent $2.1 billion on our shares at a weighted average price of approximately $83 per share, illustrating the commitment we've communicated to drive shareholder value through prudent capital allocation and an investment in our own shares. Finally, turning to our financial guidance for next quarter. In light of the transaction we highlighted here and the continued focus on the advertising business, we will provide guidance for each of our segments separately. In the first quarter of 2025, for the Advertising business, we anticipate to deliver between $1.030 billion and $1.050 billion in revenue, with adjusted EBITDA between $805 million and $825 million, targeting an adjusted EBITDA margin of 78% to 79%. We expect Apps revenue to be between $325 million and $335 million at an adjusted EBITDA of between $50 million and $60 million.

Thanks so much, Matt. As Matt mentioned, we will now start the question-and-answer session. Our first question will come from Clark Lampen with BTIG.

Hey, guys. Good morning. Hopefully, you can hear me okay.

Yeah, Clark.

Curious, Adam, a lot to dive into, I think, around commerce, but I want to make sure that I understood, I think, one point that you made in your prepared remarks, which is you're seeing early benefits for a range of different brands in a variety of verticals beyond just sort of DTC marketers. Does that suggest that as you scale sort of your non-gaming business over the course of the year that as we move into self-serve as we're addressing more global audiences, it's not going to be just DTC marketers? Or is that an opportunity that you sort of identified as one that works, but maybe we're not necessarily capitalizing on that near-term?

Thanks, Clark. You basically answered it for me. But when we put the platform together, we really strategically made a choice to go after DTC commerce, but what we knew is that if the tech works there, it's going to work on everything. And so, sort of privately and quietly as we've gotten onboarding from clients in other categories across a wide range of categories, we've been seeing that the models are working there. And what I was announcing just a couple of minutes ago is that we're seeing success across any category that comes onto the platform, which gives us a lot of confidence that as we go through the year, we release more tools and really go into more of a self-service and open state. We're going to be in a position to go after the very, very large set of advertisers that are in the 10 million-plus range in the world over the next coming quarters, years and decade-plus. This is something that we aspire to do, and we're going to take our time on, because I do want to caveat it with an important point that ties back to our culture. We're spending quite a lot of time trying to build tools to automate the entire system so that we're not looking at a massive revenue opportunity in front of us and suggesting that we have to go hire people to go after it. We're going to continue to stay diligent and lean, and we're going to use tools and AI and automation to deliver the same type of solution and success for advertisers that come onboard in the future, but make sure they come onboard into a platform that hasn't changed anything from the cultural values that have gotten us to this point.

Okay. Within that same list that you just sort of talked about with the dashboard automation, at the bottom of it was CTV advertising. And, I don't want to do a full audit of sort of the Wurl deal, but I'm curious, if you could give us a synopsis of sorts of maybe what happened last time around that proved to be a little bit different relative to that initial thesis, and now maybe what's changed lately that at this point in time has prompted you to, I guess, shift focus or maybe focus more on that supply opportunity? Thanks.

Yeah. So, I'll say we haven't really focused on it yet at all. When we bought Wurl, the idea was that they're connected to the media companies, and we wanted to get supply online, not too dissimilar from the MAX auction so that we have the access to supply. Our core business and the vast majority of revenue comes from the DSP side, so advertisers coming to us and us helping them place ads. But we need supply. Wurl has brought a ton of supply online. And last year, what we had available to us to show into the ad slot were gaming ads. That part of the platform is live. But if you think about a gaming ad on a full screen television asking users to go download a game on the phone, it's just not that compelling a full-screen TV ad. We didn't see a single gaming ad on the Super Bowl, right? What we can expect though is that consumer ads in D2C commerce and then across a wide range of categories like fintech, automotive, et cetera, as these come onto our platform, extending that type of creative onto the big screen could be quite compelling. Now, it's not without its challenges. There are attribution problems. There is a lack of a call to action. So, there are difficulties to make this work, which is why we're not saying, 'hey, this is a layup.' It's a challenge. If we are able to do it and do it successfully, it'll open up another massive channel of performance advertising on the big screen probably for the first time in history. And that's why I keep mentioning it because it is a huge opportunity and one that we're going to be going after building into this year.

Thank you.

And our next question will come from Ralph Schackart with William Blair.

Hey. Good afternoon, guys. Thanks for taking the question. First question is, just on model enhancements. Adam, I know each quarter could be volatile and unpredictable, but can you just maybe give a sense this quarter what you saw in terms of model enhancements and how much that may have been an additive to the growth? And then, I have a follow-up.

Yeah. Hey, Ralph. So, we've sort of broken down the growth vectors across a couple of different facets. One is just ongoing learning where the model is just improving itself. That we expect to capture every single quarter. We haven't seen a slowdown there. That contributed to growth in the quarter. There's then another facet, which is iterative and incremental improvements on our pre-existing model. That sort of happens along the way as we go. We don't break those out. Those are, again, unpredictable and not huge, but those are not those step functions that you've seen in past quarters. We had some of that in the quarter as well. Then, you've got these big incremental lifts to a new model. So, the analogy I've drawn is to a ChatGPT4, 4.o1, et cetera. And so, as their models increment, the model gets more complex and smarter. We have the same thing. This quarter, we did not have one of those. So then, you see this outsized growth, and then the question is, 'Okay, where did it come from?' And I touched on this in my talk track. We've got seasonality in Q4, which traditionally we've never been able to take advantage of, and that's built around shopping and shopping behavior. And that this quarter, we were able to take some advantage of because we're starting to see the ecommerce product really take off. The other part of it is that in Q4, you also have people having more time to spend on mobile devices, especially during the holidays. And during that time, people are more likely to consume and transact in mobile games. So, naturally, every single year, Q4 is a very good healthy quarter for marketing mobile games. So, it was a combination of the baseline, which is just our models are continuously getting smarter on their own, some team effort on incremental improvements on the models, and then seasonality across both our existing games business and our new up and coming ecommerce business.

Great. I have a follow-up question, and I'm not sure if it's directed at you or Matt, but regarding ecommerce, there seems to be a lot of excitement and things are looking positive. Do you still believe it will make a significant contribution in 2025? Additionally, could you provide some insight into the potential for incremental growth and how you might frame that opportunity as we consider our models for 2025? Thank you.

Yeah. We still feel very confident, Ralph, in the ability for us to contribute a material portion of revenue from the ecommerce opportunity in 2025. But, again, it's very difficult to predict when and how much that growth is going to come in during the period in 2025. So, I think we'll all see it when it comes, and then we'll provide more details then.

And then, what I've given consistently is, look, our business predictably has got 20% year-over-year growth in it, and that's from just the baseline of operating within the category that we've always traditionally operated in. Then, you've got these things that can drive material upside that's really exciting for us. They're unpredictable. And when things are unpredictable, a lot of times people assume they're going to be unpredictably bad. Well, in our business, we've got two things that could be unpredictably really good. One is these model enhancements. We're really, really early still in AI development and research both inside our company and then obviously externally too. This is not a field that's mature. It's early in its existence. It's only going to get better. And when our models get better, we've all seen the impact to revenue. And the other piece is we've always been a closed-managed platform specifically for mobile games. We now have a lot of proof of life in ecommerce, you've seen it on Twitter, a lot of the noise from customers that are in, but we have not let a lot of customers onto the platform yet as we've been on pilot. As we go more and more open and start attracting thousands and tens of thousands, hundreds of thousands of customers to come on over the coming quarters and years, the business is going to continue to show compelling growth. We look at it as one single business and better monetizing the 1 billion-plus daily actives that we see. We don't think about it as revenue from each category matters.

Understood. Thanks, Adam. Thanks, Matt.

Moving on to Jason Bazinet with Citi.

Thanks. Would it be possible to share how many people are on your pilot now for ecommerce?

We've not broken it out. I mean, if you do industry checks, look at Twitter, there's enough noise where you can assume it's not in the tens. It's certainly not in the thousands. We're limited by core team. It would surprise you how small we maintain our teams. I mean, I do talk about this EBITDA by employee number. We really do take that seriously. We've got around 1,000 people on the entire advertising business, including all the segments of it, Adjust, Wurl and the AppLovin businesses. The ecommerce go-to-market team is roughly 20 people. So, to give you a sense of how lean and automated we run, that should give you a sense, but that team is not going to be able to manually onboard a lot of advertisers in a short amount of time.

Great. And this goes back to your self-serve comment that you made, right? That's really what's going to open up the aperture to onboard more clients.

Self-serve and automated tools are going to be really, really helpful. And so, if you look at just the numbers, what gets us really excited is, in a limited pilot of a few customers on the platform, we're driving actually interesting revenue from this category. So, as we start opening up, we think it's going to be really impactful to the businesses of our clients. It's also very, very impactful for the publishers that we work with. All this inventory is mobile games, and it adds variety to the advertising that the customer is getting on a mobile game. It also removes constantly the customer getting an ad on a gaming publisher for a competitor of that publisher. So that's really, really valuable because as you think about the growth vectors that we've got just embedded into the business, better monetizing the inventory that we have, but also bringing on more supply, a lot of gaming publishers, the biggest ones have traditionally been fearful of bringing on supply because they do not want to show their competition's ads in their games. Well, now that we're able to show that we have expertise marketing to any category, that's going to open up a ton more supply to come online, especially into our MAX platform over the coming years as well.

Thank you.

Our next question will come from Vasily Karasyov with Cannonball.

Thank you. Good afternoon. Congratulations. Adam, wanted to ask you this bigger picture question. As you are rolling out your ecommerce solution offering, are you seeing already any kind of response from the incumbent competitors? Because, if I were one of them, I would look at your success in gaming, right, and would probably think I need to do something about it. So, I was wondering how, what you're seeing. Are you prepared for this? And in general, once you roll it out to full scale, what do you think the industry will look like? How will it be different from what it is today?

Yeah. So, I mean, look, we don't look at competition all that much. What I will say is that we're not a platform that's taking the same dollars away from someone else. So, let's compare it to social. If you've got a mattress manufacturer advertising on social today and driving a certain amount of business and they come on to our platform, what they're seeing are new transactions from customers that they wouldn't have otherwise gotten to respond to their ads. Whether those customers were on social or not might be an issue, but, certainly, there's a lot of overlap. But a lot of customers just won't notice ads in one environment. Now, in our environment, we have a full-screen video ad that captures attention, and they come on to our platform and they're driving incremental sales. So, what does that mean? That means that if they were spending $5,000 a day on social, they're not going to come to us and say we're going to spend $5,000 a day on you in a performance manner and take the $5,000 over here down to zero. They're now going to be spending $10,000 a day. And this is what I keep talking about and referring to as we're expanding the economy, because it's incremental and entirely performance based. The advertisers are getting measurable profits from the marketing. That's going to expand their business. They're going to then have to go get more inventory. They're going to then be able to sell more product, and the whole economy will expand without causing any detrimental harm to competitors in the ecosystem.

All right. Thank you very much.

Loop Capital's Rob Sanderson has the next question.

Thank you. Good afternoon, everybody. I wanted to ask a question on your go-to-market for the ecommerce and now new verticals. Like, the playbook seems really simple, and I guess that's part of the strategy. Can you kind of discuss how the strategy may have evolved a little since the pilot to now kind of going through holiday season? Any key learnings or pivots? Obviously, self-serve is going to be a big unlock. But just how are you thinking about going to market? And then, anything you can share on priority areas for demand generation in 2025? And then, I have a follow-up.

Yeah. We've been really exclusively focused on sort of mid-market D2C. I call that somewhere in the neighborhood of $10 million to $250 million of GMV. These are companies that tend to move fast, and they don't need a big team on the other side to bring them onboard. And the legal process is much, much shorter. We haven't gone after the very large brands, so no one in this pilot are companies that are incredibly large. And then, we're not focused on the very, very small while we have to manually go after these folks. In the middle, because of the social noise and the feedback loop, the really positive results the customers are getting early in the pilot, we've got just customers coming to us. So, there's a long, long line out the door, which means we're onboarding as we can onboard. Nothing has changed through the holidays. The team's just bombarded with work. They had to work a ton during Black Friday. But other than just the really the sheer volume that we're trying to process on helping clients get onto the platform and see that positive result, there's nothing else that's changed or will change until we get the tools out the door that will allow any customer to come in and in a self-service manner be able to unlock the same type of result that the folks right now are getting with our managed support.

Thank you for that. I have a question regarding the amount of category-specific optimization needed to transition these non-DTC adjacencies. Does AXON manage to figure this out independently, driving conversions and allowing the model to adjust, while perhaps the team can make vertical-specific adjustments? Or is there significant product work necessary to continue expanding these non-DTC categories?

Yeah. I referenced it because it works out of the box. So, we don't have the resources to be building custom models for every single vertical, at least today. The goal is to continue to build a more complex model that's smart enough to figure out how to market any product on the other side. That's what we're seeing where these companies in other categories across a wide range are just plugging in and it works.

So, the challenge is really just go-to-market and creating awareness of those types of advertisers and whatnot?

100%. We'll have a challenge of getting the tools out so that we can bring more and more companies on, and then we'll always have this challenge that we're trying to sell a product where they're able to advertise and do it profitably and have it be incremental and have all of that be measurable. So long as that is the result across every single advertiser relationship with our platform, there'll be a lot of positive noise out there about the platform and the offering, which will continue to bring us customers in an organic manner.

And we'll now hear from Jim Callahan with Piper Sandler.

Thanks, guys. Congrats on the nice report. So, we've been getting some questions on how you're servicing some of the extra ecommerce demand. Can you talk about maybe, like, what kind of inventory is converting best, and if perhaps this is different from the inventory that converts better for gaming?

It's all the same inventory. It's full-screen video ad that sits on top of the 1 billion-plus daily active users playing games, but we don't have access to differentiated inventory. It's a unified auction. Sometimes an ad for a mattress will be the one that's selected. Sometimes an ad for Candy Crush will be the one that's selected. It all depends on what the model does, but the end user and the end supply is all the same across all categories.

Got it. Okay. That is helpful. And apologies if you talked about this in the beginning. I was having some audio issues. Looks like you're rolling out 28-day models. Has there been any sort of early feedback here on the gaming side? And could that drive kind of incremental spend this year?

Those have been available for a few quarters now. If you speak with game developers, they generally find that these models are quite effective for them. The longer models are the most efficient ones that we offer. As a result, they have increased the ability for mobile customers to spend more profitably on our platform over the past few quarters.

Sorry about that, everyone. And we'll now hear from James Heaney with Jefferies.

Great. Thanks, guys, for the question. One of the big questions that we've been getting from investors is just around the take rate dynamics between gaming and ecommerce. Understand that you don't charge a fixed rate like other ad tech platforms, but just would be curious how to think about, just the overall mix of the business as you go more towards ecom. Does that have any impact on the take rate? And then, I had a follow-up.

Yeah. Look, like, as we get better in monetizing the inventory that we buy, the take rate naturally goes up. On the flip side, we don't optimize the take rate. We never have. So, the system is willing to buy a user at 1% or 99%. It really doesn't matter. It's going out and buying users that it thinks it can out-monetize from what it has to pay regardless of what the end result is. But it is important to understand that there's a market. We're paying the highest price the publisher can get from anywhere. And the better and better that we get, the stronger our business is going to get, because that take rate can expand.

Yeah. That's helpful. And, Matt, now that ecommerce is, obviously, becoming a much bigger percentage of your business, can you just talk about the seasonality, and how we should be thinking about that going forward as it relates to both the revenue growth and the expense profile? Thank you.

On the expense side, it shouldn't have a significant impact on us. The expenses are mainly driven by data center costs and payroll. These costs are influenced by usage rates, and we've previously indicated that as we increase our revenue, we anticipate about a 10% annual increase in data center costs alongside that revenue growth. Therefore, we don't expect much variation in that regard. As ecommerce continues to grow and becomes a more substantial part of our overall revenue, we will inevitably experience ecommerce seasonality, as we've discussed in the past. Notably, periods like Black Friday and the holiday season will likely yield higher revenue.

Great. Thank you.

Welcome.

Chris Kuntarich with UBS. Please go ahead with your question.

Thank you for the question. Can you provide more details about the sequential growth drivers in the ecommerce business for the first quarter? Should we consider this growth as mainly from the same advertisers or more from new incremental advertisers?

We haven't specifically isolated ecommerce yet, but typically in a traditional advertising business, the first quarter sees a decline due to having two fewer days and seasonal effects from the fourth quarter. Therefore, we would observe this in the ecommerce sector among our current advertisers. If we didn't bring in any new advertisers, the ecommerce category couldn't grow in the first quarter compared to the fourth. However, overall, we are projecting growth in the business even in the first quarter compared to the fourth, primarily because our business is expanding rapidly at this time. We anticipate a 4% increase quarter-over-quarter, taking into account the two fewer days. This confidence is based on the expectation of continued growth into the first quarter, irrespective of seasonal influences or any increase we experienced in the fourth quarter.

Got it. And just one quick follow-up. As you think about the cohort of ecommerce advertisers that have been engaging with you for a longer period versus some of your newer ones, what are you seeing regarding their willingness to increase their daily spending?

It's volatile mainly because we entered the category right at the start of Q4. Many ecommerce companies experience significant fluctuations during Black Friday and the holiday season. We're also in the process of learning the business model. As we approach Christmas, they may run low on inventory and need to restock, which causes spikes and drops in activity. However, we're fundamentally a performance marketing business. As they replenish inventory and move into Q1, we expect to see a recovery. The volatility we observe is intrinsic to the business, but these companies are achieving great results on our platform. This suggests that over time, as we adjust for seasonality, we should see consistent revenue growth. This growth will stem not only from their success on our platform, which helps them expand and reinvest more in marketing, but also because we're still in the early stages of development. Our model is just a few months old and is a couple of years behind the evolution of the gaming model. We have a lot of improvements planned for the ecommerce side, and the gaming models are significantly more advanced than the current ecommerce model. Thus, our platform is set to continue improving as we progress.

Thank you.

Moving on to Omar Dessouky with BofA. Omar, you're currently muted.

Thank you. I'm interested in your technology's ability to support various types of advertisers, particularly in non-gaming ecommerce. Within ecommerce, there are various categories, such as products and subscriptions. You've launched the AXON Pixel, which ecommerce merchants are now using on their websites to assist with attribution. Is this sufficient to reach all the different types of ecommerce advertisers? Essentially, is your attribution technology fully deployed to engage the estimated 10 million advertisers worldwide? Additionally, considering the effectiveness of your AI, will it also begin to serve in-app installs for non-gaming categories, such as non-gaming apps? Is this expected to become a growth segment for you in 2025? It seems that this has been a relatively minor aspect of your business up until now, and I'm curious if that is about to change.

Yeah. So, it's a great question. So, the first one, I think you said is that, have we deployed all of our technology for attribution and being able to bring on customers on the platform, we certainly have Pixel integration. That's going to be consistent for any website to be able to advertise on our platform. But I wouldn't say that in any aspect of this business that we're at maturity and all the technology that we can release, you can always do more to get to more attribution that's accurate with advertisers. And so, we're working on continuously adding tools to that. So, I will say, though, it obviously works. It works in a category of websites and ecommerce. We're seeing it work in broader than that other categories of non-gaming on the web. And so, any type of customer, once we're self-service, will be able to come into the platform and advertise as long as they have a website. Then, you've got other types of advertisers. You've got game advertisers, and you've got non-gaming app advertisers, and then you've got websites who also have an app. Those last two, we have to do work to bring online, but it's work that we'll be doing throughout this year. So, it's not something where, I think you said, we'll inflect in '25. It's not something that is a '25 thing. It's just something that's in our roadmap that we're actively working on, and we do expect that then opens up even new categories as we go into later through this year and then next year and beyond.

Moving on to Martin Yang with OppCo.

Thank you for taking my question. First question just for Adam. Since you took oversight of the HR function last quarter, what are the changes you can talk about on recruiting, streamlining the operation? Anything worth highlighting to us?

Look, I mean, my focus has been on streamlining the team and processes and getting really focused. And we did announce that Apps sale that we're working on as well in our talk script. And really, this is all about just we see a lot of opportunity in front of us. We have a long roadmap, a lot of things to do. And when you have that organic opportunity, you got to get everyone focused on it. And so, it's really been around streamlining. I mean, we're one of the most financially lucrative businesses to be constantly announcing layoffs. Now, we don't want to constantly be doing that, but since I took over HR, my job was to go, where are areas of the business that are not perfectly aligned with these organic opportunities, and let's start shedding those so that we can really narrow in and focus on what's in front of us. And so, we're really getting to that place. And once we get there, I think it's going to be even more exciting times here.

Thank you. I have another question regarding your comments about non-gaming supporting the supply. Do you anticipate gaining market share through mediation? How will the increased supply over time benefit the gaming business?

Our market share is quite strong. Setting aside market share, let's discuss our inventory. We are continuously attracting new game publishers that run game advertisements, and we excel at monetizing these opportunities. This part of our gaming supply business is growing organically. However, it isn't a drastically new opportunity. Most in-app purchasing apps, where consumers spend a significant amount of time on games, do not run advertisements because they can effectively monetize users through in-app purchases without competing with ads. King is a prime example; they used to be listed under Activision before being acquired and successfully launched ads with non-gaming advertisers, generating additional revenue. Traditionally, most ads in the mobile gaming mediation market were for games that compete with the publisher's own game. As we continue to onboard more advertisers from non-gaming sectors, we believe there will be a viable opportunity to sell our MAX product and DSP platform to gaming publishers who primarily or exclusively rely on in-app purchases, thereby increasing our supply and creating further growth potential.

Next question will come from Alec Brondolo with Wells Fargo.

Hey, guys. Thanks so much for the question. I think you're describing a situation where the business is rapidly transitioning from demand constrained and supply constrained as you kind of expand the aperture of categories that you service. I guess acknowledging that some games could increase their ad load and that could increase available supply, how do you think about kind of the amount of spend growth the current supply base that kind of the mobile game environment or ecosystem has today could absorb? Like, could the inventory be twice as valuable, 3 times as valuable? Do you think that's kind of the constraint on growth going forward?

Yeah, I don't think we're saying that's a constraint. I mean, in the last year, supply has been pretty constant, and I think we grew 80%, 90%. We're pretty early on both sides. On the demand side, we're just getting into areas that are going to help us much better monetize our inventory. And we've given out examples in terms of just ARPDAU that some of the largest social properties are able to monetize that, being significantly higher than the ARPDAU that we monetize this audience in today, and yet our ad unit is a full-screen video. It requires some amount of engagement and viewing with the video, and it's really high impact. The only reason we're not better monetizing today where we would say maybe we're supply constrained is because we don't have every type of advertiser across the world on our platform yet. Over the coming quarters, years, decade plus, as we onboard more and more advertisers, and we're talking in the millions-plus, that's going to allow us to have a lot more demand density. Our algorithms are only going to get stronger. Our data footprint is only going to get stronger. And forget supply increase, same exact supply, 1 billion-plus daily actives are just going to be better monetized. There's a long runway of growth there. The supply side is just gravy on top. It's really just an extra area that we think is just going to be given to us for free that's going to come. We certainly don't think it's going to be anywhere near as impactful as that demand expansion that's going to drive our growth.

Moving on to Arsenije Matovic with Wolfe.

Hey. Thanks for taking the question. I guess, what is the thought process you guys have on bringing Audience+ out of pilots and into self-serve? I guess, what have you learned with the pilots that will help you improve or make changes to the solution before making it self-serve? And I guess, what's a good point to look at in 2025 on when we should expect it to go self-service? And then, just one brief follow-up.

I mean, we'll launch self-service, I think, when we're ready for it. The most important keys there are, one, we're going to have tools that automate every step of the process, including AI agents that are helping the advertisers get onboard and get going. They really help them through the process so that they feel like they're engaging with human beings, but they're engaging with bots and they're getting going. The other key piece is you have to build a lot of tools and content moderation controls when you open up a platform as big as ours. And at this point, I mean, in the advertising realm, you've got Facebook, you've got Google. We're now the next really big platform out there. We opened that up. And we would get a lot of fraud that came onboard if we didn't have a lot of tools written to prevent that. So, we're going to take it really seriously. We'll be conservative. I don't know that we have any need to accelerate growth right now. We're growing really, really quickly as it is and controlling the pace, but we're developing all these tools in the background. And once we're ready, we'll bring it out. We'll let you all know, and we think it will be very impactful, not just for a moment in time, but that will compound over quarters, years and decade plus.

Got it. Thanks for providing the segmented guidance. I wanted to clarify whether the Apps sales will be phased out gradually as you detach a few studios throughout the year, or will all 10 studios cease to contribute to Apps revenue at once when the deal closes? If it's the latter, when is that expected to happen? At the end of the quarter? I'm trying to understand the timing for Apps revenue modeling this year.

Yes. So, we're going to be selling the entirety of the Apps business, Arsenije. So that would all come off of the P&L and the balance sheet all at once. And then timing, as I mentioned, I think, in my talk track that we're targeting for that to close within Q2. Obviously, we may be subject to regulatory approval, so that timing may change slightly, but that's kind of where we're targeting, is within Q2.

Next question will come from Eric Sheridan with Goldman Sachs.

Thanks so much for taking the question. Guys, I wanted to go back to one of the five initiatives you talked about for 2025, personalizing ad experiences. How much of that initiative can be done with what's already been built today versus incremental investments you need to make against the goals of personalization over the medium- to long-term? And from the outside looking in, what should we be watching in terms of how you might implement that and how it might be rolled out in the business more broadly in the years ahead? Thanks so much.

Thank you, Eric. Right now, we are focused on research and development. To explain further, if you consider a game like Candy Crush, currently a person uploads 20 ads. A user exposed to the Candy Crush campaign sees only one of those 20 ads. The AI decides which ad to display from those 20, but this approach isn't very personalized and remains static. Users are shown the same type of ad and video as everyone else in that campaign. With generative AI and large language models, we can process those top creatives and create multiple variations. Companies like Facebook and Google are also exploring generative AI for ads, and it's something we are developing. We believe this will significantly enhance consumer engagement with the ad format. However, this is more complex than text ads due to the full-screen video experience involved, and often there is HTML with mini-games as well. So, a lot of effort is necessary to personalize that experience and build a model capable of doing this automatically while working within the limitations of our GPU resources. It’s a project we are actively pursuing, and we anticipate it will have a substantial impact when it launches. This initiative is a key focus for us this year.

Adam and Matt, we have time for one more question. It will come from Bernie McTernan with Needham & Company.

Great, thank you for the question. Following up on Eric's inquiry about personalization, our research indicates that e-commerce brands primarily utilize social ads in the mobile gaming space. Do you see this as an opportunity for your company to create games or ads that resemble mobile gaming ads for e-commerce and other sectors?

Yeah, possibly. I mean, look, we hope not to be the ones deciding that. We hope the AI and the machines are the ones deciding that. And the beauty is once you're in a machine-created realm, you're going to be able to create way more variations than a human being can. So, whether it's an e-commerce product somehow gamified in the advertisement or something that we can't imagine right now, in theory, the machine is going to be able to do that, and the advertiser and the consumer will gain the benefit of all those new ad variations that will be outputted out of our system.

Got it. And then just one last one for me. Any feedback that you're hearing from the gaming companies as you're moving into e-commerce and other verticals?

I mean, look, the gaming companies are seeing better performance on our platform every single quarter. So, they're obviously happy. We're a catalyst for their growth and really a requirement for their growth at this point. The publishers themselves, there's been some social commentary on this. When they start seeing more and more of their impressions shifting to e-commerce, they absolutely love it. If you're a game publisher, your worst nightmare would have been, I'm going to monetize my game with all of my competition's ads. That just sucks as an end product, but that's all they had. And so, we allow all of our MAX publishers to see the advertising list run. Some of those publishers have commented about the number of impressions that are shifting to non-gaming categories. When you see that commentary, they're absolutely excited about it.

And again, this concludes the question-and-answer session and the webinar for this quarter. We thank you all for joining us and look forward to seeing you again next quarter. Take care until then.

Thanks, everyone.

Thank you.