Applovin (Minutes): Currently, the week-over-week growth rate of new user spending on the self-service advertising platform has reached 50%
The following are the minutes of the 3Q25 earnings call for $AppLovin(APP.US) organized by Dolphin Research. For financial report interpretation, please refer to "Without High Growth and Violent Aesthetics, Is Applovin Still Attractive?"
I. Review of Core Financial Report Information
1. This quarter, the upgrade of the core gaming business model drove revenue to grow by 68% year-on-year to approximately $1.405 billion; adjusted EBITDA reached $1.158 billion, up 79% year-on-year, with a profit margin of 82%, an increase of 1 percentage point from the previous quarter, mainly due to the leverage effect and moderate relief from foreign exchange fluctuations. The cash flow conversion rate of adjusted EBITDA this quarter reached 95%, slightly higher than the second quarter. Free cash flow reached $1.049 billion, up 92% year-on-year. Since there was no need to pay semi-annual debt interest this quarter (such payments usually occur in the second and fourth quarters each year), the free cash flow profit margin improved compared to the previous quarter. As of the end of the quarter, the company held $1.7 billion in cash and cash equivalents.
2. This quarter, the company used free cash flow to repurchase approximately 1.3 million shares, involving an amount of about $571 million; over the past three quarters, the diluted number of common shares decreased from 346 million last year to 341 million this quarter. The board also approved an additional $3.2 billion stock repurchase authorization this quarter.
3. Outlook: The company expects total revenue for the fourth quarter of fiscal year 2025 to be between $1.57 billion and $1.6 billion, a quarter-on-quarter growth of 12%-14%; adjusted EBITDA is expected to be between $1.29 billion and $1.32 billion, with a target EBITDA profit margin of approximately 82%-83%.
II. Detailed Content of the Earnings Call
2.1 Executive Statements of Core Information
1) The company has successfully joined the S&P 500 index, marking an important milestone, which means the company will bear the expectations of a broader range of investors and will continue to enhance execution.
2) Another outstanding performance in the third quarter. The gaming advertising business maintained strong growth momentum, with the team achieving multiple incremental improvements in the core model this quarter. As one of the best indicators of terminal market growth, the company's MAX supply-side platform continues to maintain healthy growth. Additionally, we opened international traffic channels for advertisers promoting websites or stores ahead of schedule in the third quarter.
3) The self-service platform was successfully launched on October 1st, with overall stable operation, new user ad spending achieved a week-on-week growth of about 50%, showing great potential.
4) The company is accelerating the introduction of AI technology to further enhance advertising efficiency and user experience. Currently, the company is expanding paid promotion capabilities to the Axon Ads platform and continuously optimizing the onboarding process and channel performance for new advertisers. In the future, the company plans to introduce generative AI advertising creativity to enhance user response rates and conversion efficiency. For long-term growth, management will focus on the following directions: optimizing the conversion process for new advertisers, expanding the promotion coverage of the Axon Ads platform, exploring automated customer acquisition models, and combining AI capabilities and advertising density to enhance overall platform growth momentum.
2.2 Q&A
Q: What are the main characteristics of new advertisers signed since October 1st? Compared to the first batch of 600 pilot partners strictly selected last year, has their GMV decreased, and does this mean the user base is sinking?
A: New advertisers are mainly introduced through recommendation mechanisms, primarily in retail formats. Although the overall scale is slightly smaller than last year's strictly selected pilot merchants, the gap is not large, and the coverage categories are more diverse, with a comparable format composition.
Q: Regarding the performance guidance for the fourth quarter of this year, how did you reference last year's seasonal e-commerce data? What assumptions are made for the performance of existing customers and new e-commerce customers?
A: Last year's fourth quarter was a period of exceptionally high growth for the e-commerce business just starting, so it is not suitable for direct comparison this year. The current performance guidance is mainly based on the positive performance of the e-commerce referral program, continuous optimization of the business model, updates mentioned in the third quarter financial report, and regular holiday seasonal factors, so we hold a more optimistic expectation for this quarter's performance compared to the previous quarter.
Q: Regarding the significant improvement in conversion rates, does this mean that in 2026, even if the number of e-commerce advertisers increases significantly, there will be no need to significantly increase ad impressions to support business growth?
A: Yes. The company now provides a large number of ad impressions to over 1 billion users daily, and in a net income model, improving conversion rates is a key driver of business growth. The core paths include: first, continuous model optimization, which has a huge impact on conversion rate improvement; second, we have just begun exploring the application of neural network and artificial intelligence technology in the advertising system, although the time for this field to create actual value for the industry is not long, the potential is already very significant. Additionally, the expansion of advertiser density can help the recommendation system more accurately customize content; generative AI technology will be used in the future to automatically create creative materials adapted to the platform to address the mismatch issue of some advertisers directly using social platform short video materials, thereby further improving conversion rates.
Q: Besides conversion rates, as e-commerce accelerates development, is it expected that the supply side will also grow? Where does the main driving force for supply growth come from, is it the demand from developers for higher ad loads, increased mobile game engagement, or improvements in MAX platform functionality?
A: This is the result of multiple factors working together. The MAX platform ecosystem is rapidly expanding, first, the improvement in ad quality brings user experience enhancement, allowing users to no longer be disturbed by repeated ads while immersed in games, this experience optimization in turn enhances the density of e-commerce shopping demand, introducing more diverse content both improves user retention and expands ad supply; second, the company is gradually unlocking publishers who mainly rely on in-app purchases for monetization, who did not advertise or only advertised a small amount in the past, by providing them with more efficient monetization methods to expand supply-side resources; finally, with model optimization, the same publisher can reach more high-retention users, achieving more efficient monetization, these factors collectively drive natural growth on the supply side.
Q: The data of e-commerce customers' week-on-week spending growth of 50% is very impressive, can you provide some background information? For example, how did the pilot phase perform? How do you evaluate the current level of growth?
A: The business has just started for only a month, customers need time to complete pixel integration and system deployment, usually, the launch cycle takes more than a week, so the current growth has a lag;although the customer scale is not yet comparable to last year's pilot period, the growth rate is still very rapid, showing strong compound growth potential.
More importantly, this growth is not achieved by relying on huge subsidies or sacrificing user experience, customer feedback and content quality remain good, we are focusing on optimizing the process from registration to integration and launch for customers, the company hopes to promote the Axon platform to future customers, while supporting enterprises to complete self-service advertising through embedded AI tools, this shows that our growth path is healthy and replicable, it is expected to officially open the platform in 2026, and truly attract a large number of advertisers to join in the subsequent quarters and years.
Q: When pursuing multi-billion dollar business growth potential, how do you balance the needs of existing core gaming customers and new e-commerce advertisers? Will introducing new bidders affect the gaming advertising business? Can model optimization automatically solve these balance issues, or will you actively limit the growth of certain businesses?
A: We will not deliberately limit growth, but let the platform evolve naturally. As advertiser density increases, it will not only not squeeze core gaming ad customers, but will make gaming business spending more efficient. The past practice of relying on repeated game ads to improve conversion rates was extremely inefficient, wasting a lot of display opportunities;
but when e-commerce and other diverse advertisers join, the model can more accurately match different user intentions, allowing display resources to be more fully utilized. Although ad impressions may decrease, the CPM of gaming customers will increase accordingly, achieving the same or even higher revenue. Meanwhile, as new advertisers bring more rich data, neural network models can further improve the accuracy of ad delivery, benefiting both e-commerce advertising business and helping gaming customers obtain higher quality users. Ultimately, the platform will expand overall while strengthening demand on both ends, achieving overall expansion rather than a zero-sum game.
Q: Regarding optimizing the advertiser onboarding process and generative AI creative tools, what is the current progress? How far are we from launching one of these tools? Or how is the progress speed? Will these two tasks become limiting factors for the current launch or introduction of GA? Or are they crucial for expanding a broader customer base?
A: The Axon Ads website has currently deployed a chatbot system driven by prompts to optimize advertiser input and internal content review, the relevant functions are basically formed and can be fully launched soon. We continue to integrate various robot functions into the system to achieve automatic quality inspection and content standardization; as users and data continue to accumulate, the tools will continue to improve.
In addition, generative AI advertising creativity is also in the testing phase, given the rapid iteration of Sora 2 and Veo 3, we expect to enable AI automatic generation of materials within weeks or months and submit them for advertiser review, which will greatly increase creative capacity. However, these functions are not the obstacles to platform opening, the real key is to ensure a smooth conversion funnel, seamless user onboarding experience, and no impact on operations due to a surge in support demand, once these standards are met, the platform will be fully open naturally.
Q: Regarding the transition from a 30% cut by the App Store and Play Store to a proprietary payment model, is it possible to reflect benefits earlier than expected? Has this transition already impacted third-quarter performance?
A: The financial contribution from the transition is not yet obvious, this impact will gradually manifest over several quarters.Reducing the cut ratio from 30% to single digits is unrealistic, but even at a 15% level, it will significantly enhance the lifetime value (LTV) of some applications and allow funds to be reinvested in content development, profit enhancement, or marketing purposes. Although the external payment environment is determined by platforms and regulations, not under our control, we focus on optimizing our own tools and models, the strong performance in the third quarter is driven by model iteration, template upgrades, and synchronized growth of advertisers and delivery scale, we remain confident in the annual growth target of 20%-30% for core business, and the addition of the self-service platform brings additional growth overlay effects.
Q: Currently, advertisers are concentrated in the mobile gaming field, will they expand to other media in the future? Considering Google's advertising technology facing antitrust lawsuits, if assets like AdX and Google Ad Manager are split and sold in the future, will Applovin consider acquiring such resources?
A: Our core strategy has always been to provide the best solutions for partners. Currently, we have achieved excellent results in serving advertisers and game publishers, but in the broader open network publishers and other application publishers field, monetization efficiency is still low, which is worth further exploration.
And CTV and other non-gaming scenarios also have monetization difficulties, demand is far from being met, so we see these areas as potential expansion directions.The key issue in the current industry is not insufficient supply, but limited advertising demand; as long as we can effectively introduce more advertisers and maintain platform competitiveness, we can benefit both advertisers and publishers while expanding new supply sides. Therefore, we plan to gradually expand non-gaming media in the future, but the focus remains on doing well in existing business and achieving breakthroughs on the demand side.
Q: As the growth rates of the in-app purchase market and in-app advertising market differ, is the calculation method of advertisers' customer lifetime value (LTV) changing? Compared to a year ago, has the proportion of advertising revenue in the overall LTV significantly increased? What does this change mean for the company?
A: The in-app purchase market is relatively mature, while the in-app advertising market is growing faster, the growth rate of the MAX platform is several times that of the in-app purchase market, because established game publishers are using more efficient monetization tools to enhance growth, and new publishers are quickly joining the advertising model, driving continuous expansion of the supply side and continuous improvement of monetization efficiency. In contrast, the in-app purchase market lacks effective new monetization tools, and to drive growth still requires reducing platform cuts, but this change is difficult to achieve uniformity across different platforms. Therefore, the company is more focused on improving promotion efficiency and revenue capacity for developers through the advertising model, especially the supply growth under the MAX ecosystem, which has become a key driver of overall market expansion, and will also form synergies with other business segments to accelerate overall growth.
Q: Regarding the 50% week-on-week growth of e-commerce business, is this the key indicator for judging the timing of full public testing? If not, what other conditions need to be met to achieve full opening?
A: Although the 50% growth is exciting, it is not the only indicator for us to decide on full opening. We are more concerned about whether there is enough time to optimize the customer's conversion funnel, including registration, email push, tool usage, and other key links, and ensure that the AI robots embedded in the platform and other support functions meet quality standards.If we rush to open now, it may cause user complaints due to poor experience; therefore, we prefer to patiently refine until the platform can provide a high-quality experience for all types of advertisers. Just need to patiently advance optimization work, and full opening can be achieved.
Q: Regarding paid marketing, you previously mentioned the possibility of increasing investment, but from the third quarter sales and marketing budget, it seems that it has not been significantly advanced. How should the timing and scale of future marketing investment be understood?
A: We are currently conducting small-scale tests, the key to expanding investment in the future depends on the performance of conversion rates and the comparison of user lifetime value and customer acquisition costs. Due to the large scale of our business, even if the delivery scale is expanded, the relative income proportion is still not high, and we have always adopted efficient performance marketing strategies, so there will be no ineffective expenditure. The current brand awareness is still low, if the test verifies that the conversion rate is healthy enough, we will accelerate delivery, automate the entire process from user registration to launch through advertising, thereby maintaining a streamlined sales team.
Q: Will the conversion rate or revenue profit margin of e-commerce business differ from the core gaming business? Will early incentive mechanisms such as ad credits cause short-term structural differences?
A: There will be no significant difference.The ad credits we provide account for a very small proportion of the overall value of new customers, and can be regarded as a regular customer acquisition cost similar to user growth marketing, so the impact on conversion rates is very limited. Moreover, the platform operates through a unified auction mechanism, when the conversion rate of e-commerce or other categories increases, the entire platform will benefit from the same cut ratio, so higher demand density is expected to bring overall conversion rate and revenue improvement.
Q: You are expanding investment in AI automation, when looking ahead to next year's investment focus, do you expect the demand for computing power to continue to grow? How will this affect next year's spending expectations?
A: We adopt a pay-as-you-go system. Specifically, we plan purchases in advance, especially components like GPUs that require higher delivery cycle requirements, usually purchased a year in advance. Therefore, if you look at the financial statements, you will find peaks in infrastructure investment, but these expenditures are recorded in the income statement rather than capitalized. We plan this efficiently to avoid over-investment before revenue growth, always maintaining strict discipline. This approach fully aligns with our corporate culture—insisting on cost discipline in every aspect of the business.
Q: When will network-based advertising services be fully open to EU advertisers? Additionally, in the fourth quarter performance guidance, have any assumptions been made for advertisers who have not yet joined?
A: We are currently able to cooperate with EU advertisers, but have not yet opened website or store ad inventory to EU users. Due to stricter GDPR regulations, related system construction is underway, but this is not a current priority. Regarding guidance, we only make estimates based on controllable and known situations, so incremental contributions from new customers are not included in the fourth quarter performance outlook.
Q: What are the main optimization pain points currently faced in advertiser onboarding and user acquisition? Additionally, what are the most common feature requests from users for the Axon ad manager?
A: The key optimization goal of the current onboarding process is to improve the conversion rate from registration to official launch, especially when brand awareness is still limited and the number of referral codes is limited, we are working hard to reduce the possibility of user churn after registration. As for feature requests, the current feedback quantity is not much, possibly because new customers are still adapting to the platform, but there are relatively more feature requests from early customers, and more feedback may appear as the business grows in the future.
Q: What regions are currently covered by international business? Are there differences in customer behavior in different markets? What will be the focus of future international expansion?
A: The business currently covers most regions globally, except for EU regions' online stores and network advertisers, application advertisers have been fully deployed; the Chinese market is not within the coverage. The main active markets are concentrated in English-speaking countries such as Canada, Australia, and New Zealand, which have a similar market structure to the United States. As the platform opens, we will gradually establish localized operations in markets such as Japan and South Korea. The language localization issue has been basically overcome, the future focus is on building operational models that adapt to different regional cultures and business environments, but user behavior has commonality globally, so the mathematical design of the business model can naturally support expansion.
Q: Did user performance in the third quarter become more active with tool enhancements? Additionally, can you introduce the background and audience of the PSU plan launched in October?
A: Customer ad return rates and tool usage efficiency are continuously improving,after upgrading from the old dashboard to the Axon ad self-service platform, user understanding and engagement have significantly increased, eachoptimization has accumulated effects, allowing us to compete with long-established industry competitors even with products launched for only a year, and we are confident in replicating the successful model to broader categories. The PSU plan launched in October is a talent incentive and reserve mechanism specifically set up for the engineering team, used to retain existing core talent and support the introduction and cultivation of future engineering talent.
Q: Have all current referral codes been issued? How long will the issuance scale continue? Additionally, how do you define and screen "low-quality" advertisers?
A: Referral codes have not been exhausted, we will dynamically issue more codes based on the quality of customers recommended by partners to ensure that high-quality referral partners are not restricted, while appropriately controlling the pace to allow time for tool construction; as for advertiser screening standards, we currently adhere to high-quality admission mechanisms, must ensure that the audience is regarded as a highly stable large group, and cultivate their high-quality perception of our ads. In an environment lacking competition, when users are bombarded by single ads, we must ensure that each ad has extremely high value for customers.
Q: From a macro perspective, as your company's core gaming business and e-commerce advertising business grow rapidly simultaneously, and the conversion rate in the e-commerce field may be lower than the gaming business, are you worried that the ad inventory in the core gaming market will gradually be exhausted due to conversion rate improvement? Additionally, if there is a potential acquisition opportunity for Google advertising assets, does the company intend to participate?
A: The company believes that the current advertiser density is still at a very low level, and there is still a long way to go before inventory is "exhausted". The current quarterly ad spending scale has exceeded $11 billion, but the number of advertisers is only a few thousand, while the platform has over 1 billion daily active users. Therefore, as the number of advertisers and ad density increases, data scale, model iteration, and conversion rates will continue to improve, and there is no need to worry about supply-side bottlenecks in the short term. As for supply expansion, the company is already researching monetization opportunities in broader publisher ecosystems such as open networks and connected TV markets, and may simultaneously layout both supply and demand sides at an appropriate time in the future, but currently remains focused on demand-side capability building. As for the sale of Google assets, if expanding the supply side has strategic significance in the future, it will be actively evaluated.
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