Conference Transcript - APP 2025-04-23

Operator

Thank you, Adam, for joining us to close out a conference here. Before we start, it would be great to get your background. Tell us where you're from, when you came here, where you went to college. Tell us about those early years.

Adam Foroughi, CEO

Yeah, so I was born in 1980 in Iran. Family moved over when I was four. We had to escape. I've never been back since. Moved over to France, then got asylum here. And so I grew up here, grew up in Laguna, Southern California. And then I had to study hard all the way through because as an immigrant that gets run out of your country and your parents give up everything in their life to bring you over here. And that was a big give for my dad. He was a very affluent entrepreneur in Iran, ran one of the biggest companies there. I always felt like I owed him something given what they had given up to give me and my sister a better life. And so worked hard all the way through college, went to Berkeley, studied finance undergrad, ended up then graduating in 2001 right after 9-11. So I took the only job I got, a derivatives trading job, and I traded equity derivatives on the San Francisco board and the Chicago board for a prop trading desk. I did that for a year and a half before I realized I wanted to work with people. and when you're a prop trader you're basically trading your own book of business and for me it was more important regardless of the fact that the job like at least covered my lifestyle of at the time 21 year old drinking um basic apartment and enjoying life uh i gave all that up because i wanted to work with people and so um that got me to end up going traveling the world a little bit doing a backpacking tour and then from there i came back went to silicon valley started thinking

Operator

about tech and then kicked off my career in tech. So let's talk about that. That's a big, you didn't study technology, you started in derivatives. What drove your interest in tech?

Adam Foroughi, CEO

So, I mean, I had always used tech growing up from playing games when they first came out on a PC to early user chat rooms, screwing around in there. And so I was always engaged with tech. when you went to school in 98 i mean i was trading day trading stocks but every hot stock at the time was a technology company and you're using the internet early days you're using companies that were basic websites that were going public um huge businesses at the time um and it inspired you to to really think about could i get into tech also and then where's this thing going to go and so um when i came back after my backpacking tour and just started thinking about what to do I started thinking about building websites. One, namely, I'd moved around a bunch as a kid and then as an adult. And so I thought about, could I build a website for matching people up with people of common interests? What I realized as I thought through the idea generation part is I can come up with ideas, but I had no idea how to build them. And I had no idea how to talk to people in technology and get them to want to work with me. And so I had to go take a first job. I took a first job and then a second job, a couple technology companies in 2004, 2005 that were startups. And I realized quickly I didn't want to work for others, but I did that for a year at each. And that built me the beginnings of a network, the beginnings of understanding of how technology products that are scaled actually operate, the beginnings of understanding the good and the bad of other people's companies. And I've always told folks that I work with, even who I've interviewed and hired in our team, one of the privileges of working at a technology company is you get an opportunity to see how they're run. And so I always was curious and aware of things around me, and being able to see the good and the bad ended up shaping how I wanted to develop the things that I built myself in the coming years and since I've started multiple companies.

Operator

So let's talk about those early companies. You obviously had a couple of startup experiences before AppLovin. What was that experience like? Were they successes? Were they failures? What did you learn from that?

Adam Foroughi, CEO

I try not to talk about the failures. So I started my first company as a junior partner on. Three of us started a business to do marketing for small businesses in 2005, eventually became a social media marketing company. Then in 2008, I left. I wanted to end up becoming really the co-founder, main founder. I partnered with a person who's actually in the room, and we've been business partners since, and developed multiple businesses. And that company did social media advertising. It was a first pass at building our own business. So the objective was, for us at the time, generating enough cash to not have to worry about cash on the next thing. So in baseball analogy terms, we understood how to build an advertising technology on social media. We got very cash flow positive. We wanted to have a single, make enough money so that our families were good. So the next bets we could take were much more substantial. And so from there, I ended up going in 2010, 2011, going to Palo Alto, recruiting a team of engineers. It was a couple of co-founders, me and a team of eight engineers. And at the beginnings of the app store, we started really wanting to build apps. And this is where some of the failures came in. We built a fashion app. We built a dating app. These things could have been useful if we understood anything about fashion or dating, but we were not a good team for those two things. And so those two apps flopped miserably. But I always knew, like, if you're bootstrapping something, you haven't made a promise to someone that you've got a business model that's fixed, pivot. And so a couple months, built these things, flopped, move on to the next one. The third app that we built in 2011 was an app called AppLovin. At the time, there was a big narrative around the fact that App Store search wasn't going to be able to solve app discovery. It was already contaminated with too many apps that all looked the same. So how could a search engine in the App Store be the way the consumer figures out what app to download? And so we built an app where friends would join, and based on what apps people in your network were playing, we would push a notification to say, hey, go get this. So words of friends early on, as a good example, if Gaurav and I both joined, we're on each other's friendless well if gorov started playing words of friends i would get a push go go get words of friends play with them the app itself stunk the name arguably stunk too but um it stuck um but the the really compelling part about it was that matching and that recommendation was driving a lot of engagement on getting the next app and so we took that we packaged it um and that ended up becoming what apple event is by the way talking about the name

Operator

What was the inspiration for the name? Are we getting inspired by McLevin from Superbad?

Adam Foroughi, CEO

Definitely not. I'm not a stoner, so that narrative obviously is an easy one to draw. But it really was. We had it from the app. We wanted to build the business with it. I built other businesses in my failures. I spent a lot of money buying a good domain name, and those things flopped. So I fundamentally didn't believe the name mattered. And I always believed if you built a really good business, then you can grow past whatever handicaps you've given yourself. So obviously, the name isn't particularly great. Along the way, I got asked to change the name by multiple parties, investors, advisors, whatever. I always felt like if you give yourself those kinds of handicaps, you walk into a room, it's harder to make a sell with that kind of a name behind you. Well, you better have a better product to overcome the handicap. And everything we built over the years, it was to give ourselves the positioning where we've got to do better. And we were a no-name company, not VC-backed. And so if we focus on building the best product, it didn't matter what else was wrong with you. You'd be able to sell that product. And so that name stuck. We haven't changed it. And obviously, we've got the name today. We do have a good ticker. APP is a good ticker.

Operator

So let's talk about VC funding. Was that intentional that you didn't raise VC funding, or were you not able to get any?

Adam Foroughi, CEO

No, I tried. I suck at selling, apparently, to investors from a VC stage. We tried to raise a million over four in early 2012. We'll go down as one of the bigger misses on Sand Hill. It was tough at the time to convince VCs that an advertising business that wasn't a Facebook, a Google, or an Amazon could become a material business. And we were launching into a market, which at the time was really small. The app ecosystem had just been spawned. So it was hard for people to fathom how big it would now be. And in hindsight, that was great for us. Launching a business into a category that's tiny that eventually becomes massive is perfect. You get to ride a fantastic wave as you build your tech and your position. But the bigger challenge I had is how do you convince anyone that you're going up against the biggest companies in the world and some goofy named companies going to be able to survive and and in fact build a big business and one at the time vcs all wanted that unicorn to play out to build a unicorn business in the face of that competition so i flopped at selling the business on seed stage we we were fortunate enough like i said to have had our singles so we had enough wealth to bootstrap the business we bootstrapped it got it into market as an advertising platform form in March 2012. We grew super fast. By the end of the year, we were at a million dollar a month run rate, profitable. And so at that point, I ended up raising a four million dollar convert to common from angel investors. And also we wanted to formally put our bootstrap funding into a round as well. But no board seats, no board, no governance, just bring along some friends for the ride. And that was the only seed stage funding we took in building the business.

Operator

So let's talk about the early years of AppLobin. What were some of the roadblocks around the business, and how did you overcome those?

Adam Foroughi, CEO

So, again, we launched early in a market that was growing really quickly, and we solved the problem that really existed. So product market fit was good. The technology was basic back then, but still the positioning was great. So the business grew really, really fast. And because we didn't get VC funding, we always wanted to be profitable so that we can always control our own destiny. So we always had really good margins. We kept the team limited, focused on automate everything in front of us, development-centric. And so I would say, like, maybe the biggest challenge for me at the time was resources. And I ran for most of the company's existence up until maybe a year or two ago. I ran product. And then I also was the key recruiter. And I feel like a CEO's job, maybe that's the most important job once you've found product market fit is who you bring on the team. And I made a mistake early on of hearing from folks, hey, you're on to something. This thing's going really quickly. Bring on some executives. So I remember in 2012, I hired a COO. And I brought on a COO, and then I was like, well, what's the point of me at this company? Like, I'm hands on, so I'm not going to defer to this hire to do stuff. So then I had to part ways with that person. And so it created this, like, weird experience of, well, who's in charge? I didn't want to give it up. And I followed advice. The next thing I did was I hired a CRO. And then I brought in the sales team and started thinking traditional advertising businesses have historically been more brand than performance. Should we become a brand offering? We ran, and today do still, full screen video advertisements. Well, if you have full screen video advertisement where the consumer's full attention is on their mobile device watching a video clip, that's a perfect brand offering. Well, that sure made sense in my head. We brought in these brand sales folks at the time more costly than our best engineer and it bugged the crap out of me. I didn't want to pay a salesperson to go to Madison Avenue and beg agencies to work with us and convince them that some something in the equation made sense for them to cut us a check to spend with us. And at the same time, I'm paying them more than the people writing the product. So I had to remove that whole team from the equation. So I went through this turbulence of hearing from folks, you need executives to realizing I didn't need those types of executives. What I needed were people that cared a lot about the business and built the actual products. And if we focus on building products that were exceptionally good in our market, we could find a path to them selling themselves. And so to this day, I don't have a CRO, nor do I have a COO. And I don't know if I ever will have one, because they're roles that I like to play. And I like to really have my finger on the pulse in what we're building in the company.

Operator

so this came the chapter where you um almost sold the business uh to uh to a chinese buyer

Adam Foroughi, CEO

uh tell us about tell us about that chapter yeah so we grew really quickly in 2015 predating the chinese um transaction that i'll talk about in a second we we were offered um 600 million dollars cash for the business from uh one of the the bigger silicon value technology businesses and We had a couple other big companies swirling, and we were growing triple digits, and I was excited about what we had, and again, I'd already had my single, so I wanted to run a big business, and I controlled the company, so I still control the business today, but I had no board, no one that I managed to. Well, I turned down the offer and felt that it undervalued what we could build, and we walked away from it. The downside of doing that is that some of the other folks on the team knew about the offer, $600 million all cash. just not a small amount. Back in 2015, that was a pretty substantial outcome. And so I had this group, co-founders, other people on the team that wanted liquidity. We'd been doing it at the time three, four years. I didn't think that was a long time, but others needed liquidity more than I did. So in 2016, me thinking I'm a smart finance person, I realized the Chinese capital markets had an arbitrage at the time on EBITDA multiples to the U.S. capital markets. Maybe companies were trading 10, 12, 13 times in the U.S., while they were trading closer to 20 times in the Chinese public market. So I went out there specifically looking for a private equity firm who could invest in us, clear out a lot of the cap table, give people liquidity where they needed it, and then with me, help me list the company in China. The other thing that happened is I went to China for the first time, fell in love with the work ethic, fell in love with the way the companies out there are structured, and that started teaching me a lot more about how to continue to push work ethic and structure at our company. So we ended up announcing in 2016, maybe seven months after I walked away from the $600 million proposal, a $1.4 billion valuation, billion dollars of cash. The intent, again, was to clear out most of the cap table. I would retain my stake. Others who wanted to go public in China would as well. And off we go. And that was at the same time as President Trump's first administration and China-U.S. tensions were increasing and there was this fear of having Chinese investors own important U.S. technology, which we got deemed as. And so I spent a year trying to figure out, could we actually get the deal through national security scrutiny in the U.S.? We got to a point where we realized there's no path to that. We ended up then restructuring the deal to be a convertible note no rights to the Chinese investor the money comes in I dividend it to team and everyone gets the liquidity they desire but then I'm stuck with a messy cap table situation so the structure to get around and through the hurdle that we had was a creative path through but a terrible structure to have in hindsight this committee for national security CFIUS saved my ass it would have been a terrible outcome to have sold control to a Chinese investor that I didn't know much about and we would have been screwed. The company probably wouldn't exist today. So arguably, we were worth 1.4, we're worth closer to 100 billion now. So they made me a lot of wealth by shutting us down there. My creativity then got in my way and screwed up my cap table. So at the same time as letting the Chinese get in on this convertible note, I went and started talking to KKR, got to know a partner there, Harold Chenwell. They ended up coming and investing $400 million plus $800 million term loan debt to clear out the Chinese investor, redo the cap table. We put in the first board, myself, Harold Chen, and then Eduardo Vivas, the business partner I said I'd had, since 2008. And so finally, we now looked like a typical Silicon Valley company for the first time.

Operator

So there has been a lot of discussion over the last couple of days about private equity, right, and the role of private equity in startups and VC-backed companies. You obviously lived as a private equity-backed company for several years. How does that experience compare to running a bootstrap business?

Adam Foroughi, CEO

Well, I mean, nothing's better than running a bootstrap business. So if you can make all your own decisions, you live and die by them. Private equity is different depending on the type of structure of the round. A lot of investments with private equity, they take a lot of control. In mine, they couldn't replace me. They were a minority growth investor. And so I still controlled my outcome. Our business was doing well. Our business is pretty complex to understand, at least a lot of the intricacies as to how we've done so well over the years. And maybe I understand it better than most. It's very hard for investors to get a sense of it and then contemplate taking control over something as complex as what it is that we put together. And so it made us work with the private equity firm KKR more as a growth investment than as a typical controlling stake. So I would say maybe my experience isn't as common, but they were very supportive of us. They were thoughtful in helping me understand how to tap into the debt markets, which as a founder with no experience is really cool. I mean, I was like, people give me hundreds of millions of dollars and charge me 6%, like what's going on? and you don't dilute. And so I think there's a lot of benefits to private equity. It does come down to structure and what people want, though. And for me, obviously, Bootstrap was a lot more enjoyable. I was able to build up the business for six years, making every decision. But I wouldn't say then post-KKR, they got in the way of any future decision. They were very supportive of the ideas that I had on where I wanted to take the business.

Operator

So let's talk about the IPO. Obviously, a lot of companies in this room and at this conference, that's the path they're on. How was that experience for you?

Adam Foroughi, CEO

Yeah, I mean, horrible, because we went public in COVID. So you don't get to know people if you do it behind a Zoom screen. And so we did it. I mean, it was miserable. I had a baby in the background asking me to change his diaper in the middle of investor calls. Sort of embarrassing. We went day one, not much investor interest. We were down 15%, 20%. My first live interview, I was asked, how do you feel about your stock down 20%? Well, I'm looking at the bloody red on the screen. I'm like, how do you want me to answer that question? So the challenge of going out in a moment like that is if you don't end up building relationships with investors and the right kind of long-term investors, and you don't give them a pop on day one so that they have some protection against the drop in the stock price, you don't build a cap table that's strong. And if you don't build a cap table that's strong and you're going from private to public and you've got shareholders, both your employee base, co-founders, whatever, people who have held the stock a long time and need liquidity, and then you also have your investors or private equity fund owned a third of the company, well, these people need to sell. And everyone locks up investors and team usually about six months. but that's not a lot of time in the public markets to recruit an investor base if you don't recruit the investor base when you're going public on the road show and give those those big funds upside in the stock so that they're protected and now they can really focus on the long-term vision then you're stuck you're stuck in a position where people need to sell and there's no buyers and that this was the problem that really came to to be in covid where i think the week we went public there were probably 40 companies that went public you ended up with these really weak cap tables and the selling pressure that was immense and so i think it was we went public in april 21 and if i remember right by december lockups free from january 22 to december 22 i think our stock went down like 92 percent um it was red every day and so that it ends up setting you up for failure Now, we were really fortunate because of how we started. We were always cash flow positive. So I controlled our own destiny. We were generating, I think it was a billion dollars of EBITDA. And at the low point, I think we got to a market cap of $4 billion. And so if you think about like cash yield return, it's over 20%. It's really cheap. You could manage and buy out a company at that level with just debt. And so what we did at the low point was we buckled down, said, we've all been here a long time. Let's build really great products. That's how we're going to recover. No one's going to buy our stock at this point. There's no narrative to sell. Everyone's gone. So let's just buy our own shares. And we ended up issuing a lot of stock to the team, putting in a performance equity plan, and then becoming the biggest buyer of our own shares over the next year. And so we went from bottom nine to peak 520 two years later. A large part of that, I would say, probably 20, 25% of that appreciation was because we bought back 20, 25% of the cap table at very low prices because we cut.

Operator

So you've obviously figured out the art of running a public company from that period. What is for entrepreneurs in this room, how is running a public company different than running a private company? What are the learnings that you've learned?

Adam Foroughi, CEO

Yeah, we've been down like 50% in the last two months, so I wouldn't say I've figured out the art of anything. What I've figured out is the public markets score you on a score that in many ways isn't even inside your control. And once you realize that you're not chasing quarters, you're still building a business, and everyone who's private has to take a long-term view and if someone's going from a private CEO to a public CEO you're building for the long term you're not thinking about an exit if you're thinking about selling or an exit you're not a good you're not going to be set up for success in the public markets but if you're wired the right way to think about what you're building over years then if you stick to that in the public markets you can continue to run the business exactly the same way as you did in the private markets with a little bit more publicity. And that's basically what we ended up doing after we learned our hard lessons that first year, year and a half where we just got crushed. So in hindsight, losing 90% of the market cap very quickly was beneficial because one, it teaches you stop looking at the stock price. Like who cares? You're focused on where you build in the business three, five, 10 years from now, which again is the right way every founder and entrepreneur should think about it when you're private so nothing should change and then you realize i also want to recruit investors who believe in what i'm building over time not who are betting on the stock for a quarter and so i ended up changing investor relations and i don't take meetings with anyone who's who's focused on what's happening next quarter in a business as robust as ours what's happening next quarter is defined by things we did a year ago what's happening in three to five years is what i'm focused on and so i only spend time with people who want to align with my vision long term and that creates a much more engaging perspective on the world and got me to start thinking about the business exactly the same way as i did when we were private and i still operate it today that way last question for me

Operator

and then we'll open it up for maybe one or two if we have time um a lot of discussion at this conference around ai clearly and how ai has transformed businesses and will continue to that's clearly been a big driver of your business in the advertising space like

Adam Foroughi, CEO

talk about what ai has done to your business yeah i mean look ai is thrown around now because obviously it's hot to throw it around but um like where we are today is as human beings engineers we know how to use machine learning technologies better for business output than we did five years ago and so um these technologies did exist so neural nets were around five years ago what what's important is now there's some real commercial applications of this technology one is a large language model that we all use the foundational models and then now every company is talking about building agents or interfaces on top of those large language models that that's a really good use case didn't exist five years ago in the way that it is today in advertising we have to generate a whole bunch of predictions to do what we do. And the power of the neural net has allowed us to do a lot more there than what was possible five years ago. And so for us, the reason, I mean, we didn't recover from nine bucks and get to where we are today, because I know how to sell anything. If anything, a negative value is selling. But the way we recovered is we catalyzed our own return to growth with enhancements to our technology stack to get to a point of being very, very cutting edge in the field. And advertising is a very good output of this kind of technology. Another really good output of this kind of technology are recommendation engines that power things like Instagram and TikTok. If you think about what happens in TikTok when someone joins, well, how does that system know how to engage a user almost immediately? Well, they engage users with no social graph because underneath the hood, they've got very powerful models to create this recommendation engine that can give the user a fantastic experience. And so where we are in the world today is there's a lot of concepts that are going to soon become monetizable with these technologies. Self-driving is another great example. Robotics is another great example. There's going to be a whole bunch of very big businesses that are built or that grow from where we are today over the coming years and decades that figure out how to commercially apply the power of this technology. Go over time, but why don't we take maybe one or

Operator

two questions um if there are any and by and by the way i'll just uh adam's in a quiet period so

Speaker 4

no no questions about the quarter how do you see your role relative to big tech and what you're

Adam Foroughi, CEO

seeing there with advertisers yeah i mean it's big technology has typically dominated advertising space again i couldn't raise the seed round because of it um what we brought to market is a performance model. And so everything on our platform is to enable advertisers and categories of advertising to spend a dollar and make more than a dollar, hopefully two, three, four dollars of revenue and 100 percent certainty profits. If you can give the customer a chance to market themselves and be assured that they're profitably doing it, you're creating an expansion of an economy. And so it's super important. I mean, I put out like we launched in a new category working with shops these are like just small indie shops so think someone who makes their own candles and wants to sell them on the internet to to consumers well if that company comes on our platform now and they can spend a hundred bucks and make three hundred dollars and know that they're making a spread and scale in that way it creates a massive opportunity to help a small business create a bigger business and so we've taken a different approach than some of the other traditional advertising companies, maybe most similar to Meta, but we've done it in a space, this mobile gaming space that traditionally has been underserviced, but has a billion plus daily active users. So we've approached it with very good technologies and automation. Now we're approaching it with expand the platform to the types of businesses that we want to help, the small businesses. We did that in gaming originally, focused on the smaller gaming companies to eventually the biggest as we grew our platform to become the biggest in that category. and so we can execute on it we give the small business around the world a better path to creating a rosier future and that's a that's really important to us so advertising was a

Speaker 3

mainstay for for app loving what are the other categories that you might explore into besides just mobile gaming advertising is there anything you can talk about like other battle spaces medical

Adam Foroughi, CEO

care, et cetera. Yeah. I mean, one of the most important things of my job now is to think about now that engineers have kicked me out of my head of product role and the technology is too mathematically advanced for me, it's to think about how else can we apply the technologies that we have? What else can we do? That usually brings me back to advertising today because that's directly a direct use case of what we have um so an example of this is i think about like how do i make myself useful we recently um published that we bid on tiktok uh which obviously there's a whole bunch of bidders on tiktok and super complex process i don't need to dive into but what's important there is i'm looking at ways to expand economies using our technology i think if we can take what we built which is really powerful and give it more use cases we can create bigger businesses that use it more job creation something that's a really powerful use case there and so that's what i'm focused on in the short to medium term longer term hopefully these technologies can be used for things like medical research certainly there's a lot of companies doing things in that space today that's outside of our core focus but advertising we're exceptionally good at and we want to be able to apply the technology to more use cases with them

Operator

Well, I think we're out of time, Adam. We really appreciate you joining us. It's been inspiring and exciting to see the growth of the business and thank you for joining Thanks, Fran.