Applovin Corp

NASDAQ:APP

Earnings Call Transcript 2021-Q4

[Operator]

Greetings. Welcome to AppLovin Corp.’s Fourth Quarter and Full Year 2021 Earning Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Ryan Gee, Head of Investor Relations and Strategic Finance for AppLovin. Thank you. You may begin.

[Ryan Gee, Head, Investor Relations and Strategic Finance]

Thank you, Sherry and welcome everyone to AppLovin’s earnings call for the quarter ended December 31st, 2021. Joining me today to discuss our results are; our Co-Founder, CEO and Chairperson, Adam Foroughi; and our President and Chief Financial Officer, Herald Chen. Please note, our SEC filings, earnings release and shareholder letter discussing our 4Q and 2021 performance are available at investors.applovin.com. During today’s call, we may be making forward-looking statements regarding future events and the future financial performance of the company. These statements are based on assumptions and beliefs, and we assume no obligation to update them. Actual results may differ materially from those results predicted here today. Please review the risk factors in our most recently filed Form 10-Q as well as elsewhere in our SEC filings for further clarification. We will also be discussing our non-GAAP financial measures. Reconciliations of GAAP to non-GAAP financial measures are included in our earnings press release, our shareholder letter, our 10-Q and our 10-K to be filed shortly. Please be sure to review those reconciliations, as the non-GAAP measures are not intended to be a substitute for or superior to our GAAP results. This conference call is being recorded and a replay will be available on our IR website shortly. With that, I’ll now turn it over to Adam.

[Adam Foroughi, Co-Founder, CEO and Chairperson]

Thanks, Ryan and thank you all for joining us today. I’m pleased to report record fourth quarter financial results. I’m even more excited by where our software business is heading and our potential in 2022 and beyond. I want to highlight two reasons why we confidently raised our Software revenue outlook for 2022. And why we believe we can grow to approximately $2 billion in Software revenue in 2023. First, the compounding of our Software Platform business exiting 2021. It’s hard to fathom that we have nearly 3 times as many clients using our solution to grow their businesses today versus last year. And our Software Platform revenue was larger in the fourth quarter than for all of 2020 and grew 27% quarter-over-quarter. This marked our third consecutive quarter of double-digit sequential growth and significantly higher growth than all other industry peers. AppDiscovery continues to perform very well and consistently delivers against our clients’ ROI goals. That is why we had over 200% net dollar-based revenue retention for our existing clients, which provides a solid foundation for a robust organic growth rate to persistent ‘22 and beyond. Also consider our Salesforce is still ramping, and that AXON just turned one year old last quarter. Second, the integration of MoPub. We’ve seen amazing progress today integrating MoPub features, publishers and demand partners. The number of apps monetizing with MAX is up over 60% since we announced the deal, and over 90% of the largest publishers for MoPub are actively integrating our unified offering. The AppLovin Exchange will enable many new DSPs and bidders to work with MAX. These demand partners generated the vast majority of MoPub’s revenue, but they didn’t have direct to access to MAX publishers before. As they come online through a unified platform, which will be over twice as big as MoPub, we expect these partnerships to deliver a compelling revenue opportunity in ‘22 and beyond. We believe to operate a fast-growing business successfully over the long-term. We need to be executing against our current opportunities, and also be building products that can be catalysts for growth years into the future. I’m very proud of our team, because in addition to executing on all of our current initiatives, we’re building products in big markets, such as blockchain and NFTs for mobile content, marketing solutions for mobile OEMs and carriers, and enabling performance marketing in the fast-growing CTV market. These categories have similarities to the business and technologies we’ve already built, and success in any one of these can meaningfully expand our business. We look forward to sharing our progress on these initiatives and others as they develop. With that, let me turn it over to Herald to provide color on our numbers and outlook.

[Herald Chen, President and Chief Financial Officer]

Thanks, Adam and thanks to everyone for taking the time to join us. As Adam noted, we had a very solid Q4 and an outstanding 2021. In 2021, we not only had great financial results, our revenue grew more than 90% and adjusted EBITDA grew more than 100%, we’re able to fully ramp our AXON Machine Learning platform, build critical mass in our first-party apps, complete strategic acquisitions in both tech and content, access to public equity markets and private debt markets, and importantly, build out our Global Team and Board. This positions our company well for future growth. Instead of reading our financial and operating metrics for Q4 and 2021, which are well laid out in our earnings release and shareholder letter, I do want to highlight our outlook for ‘22 and Software targets for 2023. First, we plan to grow our scaled software business at over 100% for 2022. We’re projecting Software Platform revenue for 2022 at just over $1.4 billion at the midpoint of our range, representing 111% year-over-year growth. This is a sizable upward revision from $1 billion dollar target we gave you earlier in 2021. Our outlook for continued robust growth stems from one, our strong finish to 2021 and record Q4 ‘21 results, setting us up well for organic growth in 2022. And two, as Adam mentioned already, our outlook benefits from the solid progress integrating MoPub into MAX. Well going forward, we won’t be reporting on MoPub’s standalone, since it is being fully integrated into the MAX platform. We continue to believe the MoPub acquisition should be a highly accretive and strategically impactful investment for our company in the near-term and over the long-term, as evidenced by our software guidance for ‘22 and ‘23 which I’ll come to in a second. I do want to call out that we expect to pay approximately $200 million in migration fees to publishers coming on to the MAX platform, mostly in the first quarter. Given these costs related to the MoPub transaction, we plan to add back a substantial part – portion of that amount to our adjusted EBITDA. Post the MoPub acquisition, we would not be adding back those fees in the ordinary course. With regard to our ‘23 outlook for Software, given all the progress we made to-date and the many opportunities we see ahead, we’re working hard to reach the $2 billion of Software revenue in 2023 as Adam mentioned. On the Apps side, our outlook is for $2.2 billion in 2022 at the midpoint of our range. It is amazing to say we had – negligible Apps revenue just four years ago and now have a multibillion dollar business with – an awesome set of studios and developers around the globe. While we reached critical mass to drive first-party data. The first-party data we need for our Machine Learning engine, we are continuing to make substantial investments in new content, and are planning to release new first-party apps with evergreen potential over the next several quarters. The midpoint of our outlook at $2.2 billion assumes modest revenue from new content. Given the inherent difficulty in projecting new content performance. To project our new apps and having more meaningful impact in the second half of ‘22. Note, that if we do have a new hit title, we would ramp our user acquisition to drive revenue as we did with Project Makeover over the last year. As it relates to our EBITDA for ‘22, we’re targeting an adjusted EBITDA margins in the high 20s percent range up from 21% at 26%. Well, Adam and I are focused on compounding free cash flow over the long-term, we are and will invest for the long-term value creation rather than near-term profitability. Lastly and importantly, Adam, Ryan and I would like to thank you for your support in 2021 and please know that we and our AppLovin team are working hard to deliver for all of you in ‘22 and beyond. With that, we’d be happy to take your questions. Thank you.

[Operator]

Thank you. [Operator Instructions] Our first question is from Stephen Ju with Credit Suisse. Please proceed.

[Stephen Ju, Credit Suisse]

Okay, thank you so much. So Herald, just a couple of follow-up on the migration costs of $200 million for 2022. And it looks like there was about $3 million or thereabouts for the fourth quarter. So, you know can you discuss what this expense actually entails? And to your point, I guess changing mediation platforms are pretty rare. So can you talk about what’s actually going on underneath the hood in terms of the nuts and bolts of the migration? And Adam, undoubtedly you’ve seen sort of the latest privacy-driven changes that Google was talking about, you know for Android? So, you know can you talk about how things might be the same? Or how things might be different versus what Apple did on iOS? Thanks.

[Herald Chen, President and Chief Financial Officer]

Hey, Stephen, thanks for the question. You know historically as we said in the mediation space, there’s been little volatility and people wants to run a platform stay there, because it is inherently integrated to all the applications were very, very sticky. And historically, we’ve not paid these fees in the past. For the acquisition of MoPub and MoPub being shut down as a service at the end of – end of this quarter, a lot of publishers needed to move quickly. And there’s quite a bit of cost to them, actually from a revenue standpoint where they potentially can lose revenue, given the speed with which they need to migrate. And there’s just cost to – to get the migration done. And so we negotiate these one-time fees to cover those costs.

[Adam Foroughi, Co-Founder, CEO and Chairperson]

Hey, Stephen it’s Adam. On your second question around Google’s announced privacy changes, a couple of things there. One is, we don’t know exactly the direction these changes will take, is the multiyear plan and Google works with all the major companies in the sector to ensure that there’s not a disruption of performance on advertising, targeting and attribution. And then, pairs that with better privacy environment for the consumer. So it’s just going to take a while to develop. That said, we obviously dealt with IDFA changes coming really quickly to the market in 2021. And you saw our business grow quite considerably on the Software side in ‘21. Going into the changes, we talked about the privacy change on Apple being muted for our business. You saw us growing 30% quarter-over-quarter in Q2, you saw the same trend in Q3 and Q4. So our business is growing quite quickly. And these changes actually in a way do benefit us, because the core of our data that drives our machine learning is all first-party data achieved and accessed from our own game. So, we believe we’re set up very well to perform, regardless of any sort of privacy changes, the – regulatory changes of the ecosystem.

[Stephen Ju, Credit Suisse]

Thank you.

[Operator]

Our next question is from David Karnovsky with JP Morgan. Please proceed.

[David Karnovsky, JP Morgan]

Hi, thank you, Adam or Herald, you know can you maybe walk through what’s embedded in your guide for expense growth in 2022? Your outlook I think has $750 million of Software growth at the midpoint. And I know some of that is MoPub, which has a higher expense – initially. But just trying to understand if your expectation for incremental margins on the underlying Software business has changed at all?

[Herald Chen, President and Chief Financial Officer]

Thanks for the question, David, it’s Herald. So, yeah overall we think the acquisition of MoPub you know with billion dollars we paid in this incremental, couple of million dollars to get publishers migrated is a highly accretive as mentioned strategic deal for us, and we do feel very good about that. And we do think the flow through on the Software side margin structure is high, there is as you note, more infrastructure to be built and as we’re scaling and doubling the size of our Software business, you know we’re having to keep up with that for sure. And we’re bringing on you know a lot of new DSPs and a lot of new publishers simultaneously. I think for our guide for the year, maybe just taking a bigger picture look at it. In the high 20s EBITDA margin. As mentioned, we want to be investing for growth in the business and we think our ability to continue to grow the business over the long-term at scale you know requires that investments. So we’re – we’re trying to include what we think are some new projects in that EBITDA number, we are investing quite a bit into our studios as well. I think you – you know that we acquired a number of studios at the end of last year, we’re scaling the investment into those studios to ensure that they’ve got the right resources to deliver content on the back end. So we can certainly drive the business in a different direction in terms of overall margin, given their flow through but you know, we – there’s so many opportunities for us to invest both on Software and Apps, where we’d like to invest in both of them.

[David Karnovsky, JP Morgan]

Okay. And then – Adam in your prepared remarks you mentioned some areas for investment, like marketing solutions for OEM or blockchain. Just wondering if you could expand on this, are there – are there investment costs against that in 2022? And if you can you know provide any specific details you know, why are these the right opportunities to invest in?

[Adam Foroughi, Co-Founder, CEO and Chairperson]

Yeah. So when we look at anything that’s new, we do that incremental to what our current opportunities are. But we do want them to be related to the expertise that we have, both in terms of technology platform, audience and data, so that we have a higher likelihood of success if we do invest in something. And so, the three areas I mentioned, the carrier and OEM space, marketing solutions to really enable manufacturers to generate more from their device sales than they currently generate from the solutions they have available, is something that’s a natural extension of our machine learning demand in Software Platform. The NFT and blockchain marketplace and solutions there are just incremental ways to help monetize mobile gamers. And we’ve got 200 million of them playing our games and then across our audience network, we accessed 2 billion of them every single month. And so because of our penetration of the mobile ecosystem, we think helping enable developers to expand their monetization opportunity with solutions there is beneficial to all parts of our business, so it makes sense to invest there. And then finally, the connected TV space, very similar to what we do today, we’re serving full-screen immersive video advertisements on mobile devices and extending that and the performance models to TV is a new and fast-growing digital access point for content, feels like a natural extension for our – of our platform. All of these are covered in the guidance that we’ve given you in terms of costs, if any of them hit and – and frankly, hitting on a new business is always hard. But these are so related to what we do, that if any of them hit it dramatically widens and expands our market opportunity and growth opportunities for years to come, and that’s why we’re investing there.

[David Karnovsky, JP Morgan]

Thank you.

[Operator]

Our next question is from Tim Nollen with Macquarie. Please proceed.

[Tim Nollen, Macquarie]

Hi, everyone. Thanks very much. I’d like to ask about the kind of the components of the Software Platform growth if I could. So you know you had very, very, very strong growth, especially in Q2 and Q3 and really kind of building up from AXON you know rolling on to the to the – to be a contributor to that service starting you know, a year ago, which as you mentioned, you’ve now lapped against. So not surprising that, that rate of growth has slowed from those super high rates in Q2 and Q3. I’m just wondering in Q4, if you can give us an idea like what was an organic versus an AXON related figure if that’s possible to do? And then looking ahead to the ‘22 guidance, nice big number there, is it possible to give us an update on what the MoPub contribution would be to that versus any AXON versus any other – any other elements? Thanks.

[Adam Foroughi, Co-Founder, CEO and Chairperson]

Hey, Tim. On the first part of – do you want to – I’ll handle the first part, Herald, do you want to jump in on the second? So, on the first part, our Software business is pretty much all organic, really adjust was the only material acquisition we’d had before we announced closing MoPub in January. And in Q4, we saw a 27% quarter-over-quarter growth. Obviously, the numbers are getting bigger each quarter and yet the quarter-over-quarter growth is much higher than anything – anyone sees in the industry on the Software side, and is kept up. And what we’re seeing even though AXON is maturing, and we lapped the prior years’ numbers with AXON, is that, advertisers who are using our solution are investing more dollars every single quarter into the platform, because as data builds and they can validate that the performance results are very strong, they want more of – more of it. And that’s why you saw a huge step up in dollars per SPEC in the quarter. And we expect to continue to see AXON improve over time, because these machine learning systems as they get more data and they get more scale benefit from that and become more and more accurate on behalf of the customers that are using it. Going forward, MoPub presents an opportunity for – for a continued expansion, more access to demand and then obviously a large expansion of access to audience on our marketing platform, MAX. And MoPub as of – as of last year, had a very strong year. And then coming into January, it was doing very well. But it is going to be completely rolled into our solution, we’re going to take those demand partners, the DSPs and advertisers that were buying through MoPub to gain access to the MoPub audience. And we’re integrating them into our MAX solution to give them direct access to the unified offering, which is now going to be over twice as big as MoPub was. So we think that’s going to present an opportunity to create revenue growth from that access point for possibly years to come. And we’re very optimistic about the – the acquisition, because we’ve seen so little churn, as mentioned, 90% plus, of all top publishers are migrating over to our platform. Now, I’ll hand it off to Herald for the second part.

[Herald Chen, President and Chief Financial Officer]

Yeah, Tim, I think a lot of the foundational growth drivers Adam mentioned there you know for ‘22 look, we have a great organic business and you know quarter-over-quarter from Q3 to Q4, right that was 28% increase, which is all organic, right. That’s a – that’s a pretty big move. Rolling into ‘22 then, we have you know the AppDiscovery continue to improve with underlying AXON, we also have Adjust you know doing well and good SaaS business growing at the rate you know rates that we’d hoped. As mentioned, it’s difficult then to parse out you know the impact of MoPub and MAX and exactly how that lays out. I know previously, we gave a number that the run rate of – of MoPub you know would be in the mid to 100s by the end of the year. We still remain you know very confident in that and frankly probably there’s upside to that. One important note was, we did give guidance on that, that revenue the way we did, because it takes time to ramp, as mentioned before, migrate from one mediation platform to another, one, to get the publishers to migrate, and then to get the demand side to migrate. And so we’re going through that process now as you know, but the impact of that in terms of the actual revenue booked in the year, therefore, you know it will be less than the [$250 million] [ph], it’s more of a $250 million run rate was the target. When we announced the deal now that we’re well into it, you know we feel very good about that number as well. So that led us to you know what is, I guess not a small range in terms of Software target at the high end of 15 – at $1.5 billion midpoint just over $1.4 billion. And then, where you can really see the impact overall you know is the guide to our target of you know trying to hit the $2 billion number in ‘23 just goes to the fact that we’ve got you know a lot of confidence in putting these things together. And then the ecosystem building around that you know should allow us to drive pretty significant growth for this year and next.

[Tim Nollen, Macquarie]

Thanks. And if I could just follow-up quickly, I think last quarter you gave us some indication of the Adjust contribution to revenues. Is there a similar type of number you can give us now?

[Herald Chen, President and Chief Financial Officer]

Yeah, just when we acquired it was around $100 million and – and it’s growing at a solid double-digit rate. We’ll continue to do that. You know we think for ‘22 and ‘23 as well.

[Tim Nollen, Macquarie]

Okay, thanks.

[Operator]

Our next question is from Jason Bazinet with Citigroup. Please proceed.

[Jason Bazinet, Citigroup]

Thanks. Just one quick question. You guys have done so much M&A and been you know very successful doing it. I just wonder as you sort of look at the landscape, do you feel like most of this sort of acquisitions that behind you, and it’s now more about investing organically in the assets that you have? Or do you think there are other sort of interesting assets that you could – you could plug into your existing portfolio? Thanks.

[Adam Foroughi, Co-Founder, CEO and Chairperson]

Hey, Jason it’s Adam, and thanks for the question. So, three years ago when we got into gaming, we made it strategic and focused, and obviously gaming, super fragmented. But it became strategic to us, because we wanted to accumulate content across every single category of gaming, so that we can have that data to feed into the Software Platform and execute on – on obviously, what you’re seeing for a lot of our numbers today. We’ve checked the box on gaming. So we’ve got enough of a gaming business and enough audience and data, that the Software business can do its thing. And obviously as you’ve seen this year, the exceptional growth of the Software business proves that. And then in the last year, we announced two material Software acquisitions, which we think strengthened our current offering. And obviously, we’re in the middle of integrating those. So that’ll take us forward on an organic basis for quite some time on current initiatives. Then, when we look at new initiatives, what we really think about is, is there a possible acquisition to go do to accelerate our ability to extend our platform, our audience and our data to something new in those categories that I talked about in my script. And – and then separately, when we look at those new categories, we wonder like, shall we build and so that build versus buy decision is always going to be one that’s – that’s top of mind. But I would say what’s strategic for us now is a lot different than what’s been strategic for us the last few years as we went through a whole bunch of acquisitions to get that data intact to power the Software business to become what it has to the market-leading platform.

[Jason Bazinet, Citigroup]

Okay, so enough 1-P data, but maybe something on the NFT or blockchain side from an M&A standpoint, that’s helpful. Thank you.

[Operator]

Our next question is from Clark Lampen with BTIG. Please proceed.

[Clark Lampen, BTIG]

Hi, guys. Good evening. I’ve got one on the Software business. As we’re thinking about I guess Software segment performance, not only in ‘22. But you know years past that ‘23 and beyond. Can you remind us you know you may have just answered this, Adam, but how does the gaming portfolio sort of affect you know Software growth in concert with one another? Does the incremental swing you know whether it’s positive or negative with the gaming business meaningfully impact you know your ability to continue growing or achieving those out your targets? And then separately on the margin outlook for – for ‘22 – excuse me, for – for asking you that question. I just want to confirm that the $200 million of migration costs associated with MoPub is embedded within that high 20s margin outlook? Is that correct or incorrect?

[Adam Foroughi, Co-Founder, CEO and Chairperson]

I let Herald answer part two, maybe first, because I think it’s quick. And then I’ll answer part one.

[Herald Chen, President and Chief Financial Officer]

We’ve assumed we’re going to add back a substantial part of that $200 million to adjusted EBITDA, and therefore that is excluded in – in the guidance at the high 20s margin.

[Adam Foroughi, Co-Founder, CEO and Chairperson]

Yeah. On the first part really what you’re asking about is like, how important is gaming and gaming growth to the Software growth. And what really what we knew going in as we built out this machine learning system is, these types of Software solutions are built on having really good data, and then being able to extend that data into predictive lookalikes across the whole audience. And we’ve got 200 million monthly active users and 2 billion that we see across the platform. And that ratio is working really well for us today. Longer-term, and we’ve said this repeatedly over the last year, we’re not a games company, we’re a software company really helping our partners grow. And as you look at our Software revenue, it’s expanded dramatically. On the game side, the vast majority of our user acquisition span, which is the core driver of gaming growth is on our own platform. But as we continue to expand our relationships on the Software side, and really get more dollars from third-parties, we’re going to take the third-party reported revenue number and converge it with that TSTV number, because we expect our Software platform to be able to grow much faster than our desire to spend on user acquisition on the games’ portfolio, because we already have the data that we need to power the Software platform. So, you’ll see our focus is going to be to continue to expand the dollars that third-parties are paying us on the Software side, whether it’s through MAX, whether it’s through the demand side relationships that we’re going to inherit through MoPub or the vast majority of the revenue, the direct relationships with advertisers buying on a performance basis on our platform.

[Clark Lampen, BTIG]

Got it. And, Adam, is there a vertical you know sort of adjacent to gaming that you guys would sort of like to attack you know next, I guess does it feel comfortable that you have you know a solid business and a solid assortment of first-party data there is there – is there something that I guess just sort of is at the top of your focus?

[Adam Foroughi, Co-Founder, CEO and Chairperson]

You know we’ve talked about this before, the nice thing about gaming data is that, it expands to other markets. And we’re seeing non-gaming is a fast growth sector in our business. And we’ve seen it over the last year. And if you think about the data, what data do we collect today, what is the first-party data? Well, if someone pays $50 in the last week in a game like Project Makeover, that tells you a lot about that person, but they’re not only playing Project Makeover, and they’re not only playing games, they’re doing a lot more than that. They might be in the shopping apps, they might be in the fashion design app, they might be in the home design app, food delivery, et cetera. And our systems can figure that out with the datasets that we have. So, expansion across vertical to other app categories is something that we’ve been excited about, we’re seeing traction with and we continue to be excited about going forward.

[Clark Lampen, BTIG]

Thank you.

[Operator]

Our next question is from Vasily Karasyov with Cannonball Research. Please proceed.

[Vasily Karasyov, Cannonball Research]

Thank you, good afternoon. I had a question about MAX and all the new publishers that coming on Board. So would it be fair to say that there are some publishers that only use mediation and there are some that use mediation and real-time bidding to monetize their inventory? So my question is, number one, do you try to steer publishers towards one or the other option? And if yes or no, why? And then my second question is about the take rate. I understand that the take – you only have the take rate for the real-time bidding auctions. But how do you see that going forward? Do you – do you expect it to be stable? Do you – do you think it can go up? Are you prepared to – to seek a contraction and there so I would appreciate your thoughts on this.

[Adam Foroughi, Co-Founder, CEO and Chairperson]

Yeah. So – so couple of things embedded in there. When we launched MAX, we did it because we wanted to facilitate real-time bidding to the marketplace quicker. And we – fundamentally we believe that the ad ecosystem should be traded in real-time, it’s no different than a stock trading floor that’s – that’s gone programmatic over the last 20 years. And when it becomes real-time, it enables companies with a data advantage and a technology advantage to win their share of inventory, and make whatever margins they deserve to make, but it maximizes truly the dollars that the publisher earns. So today, MAX is the furthest ahead in the marketplace, delivering that real-time bidding to the publisher and to the end consumer to get that best ad out there on the device. It is a hybrid solution, it’s bidding plus mediation, and we get paid when companies bid on MAX, they pay per seat on our marketplace, we don’t with mediation. So over time, MAX’s economics continue to improve. Now, we wanted to facilitate bidding, we are a bidder on MAX, we’ve been a bidder in the marketplace for a couple of years, we’re – we’re very good at it. Obviously, you’ve seen the growth of our Software business expand dramatically. But we don’t target a specific take rate from any of the ads we serve. If we can make a penny on the dollar, we’re making an extra dollar – an extra penny of revenue. And we’re reporting to on a net revenue basis. This is the one thing that’s important to understand when we talk about – about our revenue this past quarter or even we’re talking about $2 billion of Software revenue in ‘23. That’s net revenue reported Software revenue. So it’s exceptionally high margin, the cost to the publisher have already been taken out of the dollars that the advertiser passed. So really, any sort of constriction on take rate doesn’t impact at all what we’re going to report to you, because we’re not operating, afraid of that today. And we’re seeing continued growth in that Software business. And we’re very confident about the continued growth of it going into ‘22 and ‘23.

[Operator]

Our next question is from Ralph Schackart with William Blair. Please proceed.

[Ralph Schackart, William Blair]

Hi, thanks for taking my question. On the Apps side of the business as it relates to the 2022 guide, I think $2.2 billion, $2.3 – $2.5 billion in revs. You talked about modest revenue contribution from new content. And I think more so contribution in the second half of the year. But any color you could add or help us think about how the relative growth rate of the Consumer Apps might compare or different versus the business apps you know was a conservatism on the consumer side or was it more broad-based?

[Adam Foroughi, Co-Founder, CEO and Chairperson]

Yeah, so we – go ahead, Herald, do you want to – do you want to jump in?

[Herald Chen, President and Chief Financial Officer]

Sure. I was going to say like, we don’t operate the games as Business Apps or Consumer Apps. They’re just games and apps, and they monetize with IP plus ads. So a lot of these – these products are hybrid. They’re making money from advertisement to users, and then some users will pay within the games for content as well. Fundamentally though like, again, we’ve said this a lot of times, we’re not a games company. The games serve a purpose for us in our business. We’ve gotten them to scale $2 billion plus business, which was great. More importantly, we’re getting data first-party on 200 million monthly active users. And the games and growth in the games are driven strictly by what we’re spending on user acquisition. That’s what drives mobile gaming businesses outside of – of acquisitions and M&A, which we haven’t done recently in the games business, and are less inclined to do so now that we have the data that we needed. So as you think about what matters to us in our business, we’re talking about Software, software growth, we’re one of the fastest-growing Software businesses on the face of the planet today, scaling this business to a couple of billion dollars next year. And that’s important, because today we report to you that TSTV number, which is a lot bigger than the Software reported revenue we give you. That delta is a spend for own games on our own platform. Well as our Software business goes from where it is, and – and we talked coming into this year, $1 billion dollar is projected for this year, we just raised that up 40%, and are now talking about $2 billion next year. As that continues to grow, that’s all going to be dollars from third-parties, we’re not going to be able to double the amount that we’re spending on our current games, because they just don’t justify that kind of expansion. And so you’ll see the third-party number converge with that TSTV number. And that gives us a lot of room to grow, the dollars we’re collecting and the margins that we’re able to make from the business while focusing on what we care about, which is Software, not necessarily the games part of our business.

[Ralph Schackart, William Blair]

Great, that’s helpful. Thanks.

[Operator]

Our next question is from David Pang with Stifel. Please proceed.

[David Pang, Stifel]

Great. Thanks, everyone. Just one little follow-up on the in-app bidding question. Could you talk about what portion of the ad transactions on MAX was in that bidding? And how should we think about that mix changing over the next few years with the addition of MoPub? Thanks.

[Adam Foroughi, Co-Founder, CEO and Chairperson]

Yeah. So in the past, obviously a couple of years ago, when we launched MAX the market had no bidding, we’ve gotten MAX to probably half bidding at this point. And we expect by the end of the year, the vast majority will be bid real-time. MoPub allows us to access MoPub demand, which is more of exchange-based demand. Real-time bidding is, it takes two forms. One is, from header bidding networks. These are companies such as ourselves, Facebook was one of the first adopters of bidding, so think the platforms with SDKs. And then there’s another aspect to the market, which is Demand Side Platforms or DSPs. They plug into exchanges to use someone else’s SDK to access the audience and bid in real-time as well. With MoPub, we’re unifying the demand side bidders that are – are ad networks traditionally part of, as well as the DSPs into one unified marketplace, one unified real-time auction. And so bringing those DSPs live through our access point to this massive audience on MAX plus MoPub, is what we’re excited about, that drove MoPub’s revenue, the platform itself unified is over twice as big as MoPub ever was. And so that gives us a lot of access to growth in these demand side partnerships as they come online.

[David Pang, Stifel]

Thanks.

[Operator]

Our next question is from Martin Yang with Oppenheimer & Company. Please proceed.

[Martin Yang, Oppenheimer & Company]

Hi, thank you for taking my question. First question is on your natural extension on the recent initiatives. Can you clarify, are you providing Software solutions to the non-gaming apps? Or are you thinking about publishing non-gaming apps yourself or both?

[Adam Foroughi, Co-Founder, CEO and Chairperson]

I don’t think we spoke about non-gaming apps, we’re – we’re focused on building Software Platform technologies for these bigger markets. Connected TV is obviously one, we think performance marketing, and an extension of our current demand in data into the connected TV world can be very impactful. When it comes to blockchain and NFTs, both for gaming and non-gaming, if we can help facilitate the ability for users to engage with content, and really take ownership over that content through our Software Platform and our relationships, we think we can expand the monetization opportunity in mobile apps, which is very impactful for all of our partners than ourselves. And then lastly, we talked about taking our marketing solutions, machine learning and demand and enabling carriers and device manufacturers to generate more from the handsets that they sell to the consumer by doing partnerships with our platform. And so those are the three big areas that we’re really focused on all software-centric.

[Martin Yang, Oppenheimer & Company]

So some question is really referring back to your comment on checking the box on gaming. But there are – there are still pretty substantial – in-app marketing and advertising opportunities in non-gaming apps. So would you do something similar for to obtain the first-party data from non-gaming apps if you orient yourself a solution to other publishers that are not game – game publishers?

[Adam Foroughi, Co-Founder, CEO and Chairperson]

So I got you there. I think the answer is no for the reason I gave you before which is, we’ve got so much first-party data now, when you know someone paid the $50 in Project Makeover, you know a lot of things about them. And one other things you know for certain, just – just conceptually we know as human beings, that person doesn’t only play Project Makeover 24 hours a day, they do a lot of other things. If they’ve got $200 a month to play – spend in a fashion design game, they’re probably spending a lot of money on fashion ecommerce apps, food delivery apps, rideshare apps, a whole bunch of other things that had the household tend to invest in, and the machine learning can figure that out and enable non-gaming companies to market through our platform too and we’ve talked about the category as – as being a fast-growing category, it’s still not a big part of our business. So we don’t talk about it broken out. But it’s an area that we’re excited about, because we’ve already seen success in. The other part of that – that’s important is a lot of the non-gaming spend that happens in mobile and then just on digital, in general, comes from demand side platforms. The big demand side platforms, omni-channel, where agencies will spend dollars through are not an area that we had any exposure to in our business prior to MoPub. As we integrate these MoPub partnerships into our unified offering, and give them access to over twice as much of the eyeballs, we expect to see a lot of dollars flow through our platform direct to the consumer from those types of advertisers as well, which would qualify as non-gaming.

[Martin Yang, Oppenheimer & Company]

Got it. I have another logistic questions, if I may. Is there any migration fees you expect after 1Q22?

[Adam Foroughi, Co-Founder, CEO and Chairperson]

No, really like – look our business long-term may have some sort of nominal migration fees, we’ve had them in a nominal way in the past, the big amount in the quarter is specifically for MoPub publishers switching off of a platform that just going to go offline. One of the big issues of the platform that goes offline which really doesn’t happen, this is a decade old Software Platform, is that, in the mobile app ecosystem, you can either update an app or not update an app, and a lot of old devices are set not to update. And so a lot of these publishers tend to lose an annuity value of revenue on users that choose not to update, and then MoPub is going to go offline. So they’re no longer going to be able to advertise to those customers. And you just cross off a stream of revenue. And so we’re taking this fund to make that not a problem for these publishers, because ultimately we looked at the MoPub deal is access to publishers, and the demand side, it was a very cost effective deal for us. But we – we didn’t want the publishers to lose in the middle of that transaction. So we’re covering the cost of that loss annuity due to the quick shutdown of this platform. And that ends up being a very unique case related to this acquisition, which is something you just don’t tend to see in technology where a huge platform goes offline.

[Martin Yang, Oppenheimer & Company]

Got it. Thank you.

[Operator]

Our next question is from Matthew Cost with Morgan Stanley. Please proceed.

[Matthew Cost, Morgan Stanley]

Hi, everyone. Thanks for taking the question. Maybe the first one is – is for you, Adam. You’ve mentioned a couple of times basically, if I’m interpreting it correctly, this idea of once you have the data in place and you feed it into AXON, there’s – there’s a lot that you can do with it. And so I guess I just want to understand, does that mean that when you reach a certain audience side in terms of your portfolio – audience size in terms of your portfolio of apps that, that yields an update on an ongoing basis that you can do what you need to do with it, you don’t need to keep scaling the app portfolio beyond a certain point you know because you maintain 200 million MAUs and have all the data that you need, I guess, what do you mean by that? And – and then I have a follow-up.

[Adam Foroughi, Co-Founder, CEO and Chairperson]

Yeah, that’s 100% right. That’s why we – we’ve been talking about for – for the last year like, the games business may grow, it may not grow, it doesn’t matter, because it’s scaled enough where it’s fueling the massive growth in the Software business. And so you sort of have today 10% actual data, we have perfect data on our own apps. And then 90% is predicted lookalikes. Being at a scale that we’re at today with the technologies and data platform and machine learning and algorithms that we built, you’re obviously seeing a Software Platform that’s growing much, much faster than any other platform in our industry. And so you can tell that – that – the 10x ratio of lookalikes to actual data works. Now, if we can get data on 2 billion mobile devices, we would take it, actual data is always better than lookalikes, but we know that it’s exceptionally hard to go scale a platform to get that much direct first-party data, there – there’s maybe only one company in the history of the world that’s gotten that much scale to consumers, right. But we’ve proven that at 200 million, we’re very, very good on the Software side. So we’re excited with where we’re at on the data side of this business.

[Matthew Cost, Morgan Stanley]

Great, thank you. And then maybe this one’s for Herald. Just thinking about like the growth in SPECs over the course of this year. I think excluding Adjust, you guys added around 40 plus a little over 40 million – sorry, not 40 million, 40 specs in 2Q and 3Q. And I think that that number, if I have it right, it was about 7 in 4Q. So I guess again, excluding Adjust what are kind of the dynamics behind SPEC adds over the course of this year? Thanks.

[Herald Chen, President and Chief Financial Officer]

Yeah, thanks, Matt for the questions. Yeah, again the Software business as you – as you know, has grown you know tremendously over the course of the year, and we’re projecting it to continue to do that. And you know, we gave the SPEC number to try to give a little more granularity into the bill you know price volume wise. What aspect, and of course, it’s grown considerably you know price volume more in the fourth quarter in terms of people scaling quite rapidly, in particular, ex Adjust to $757,000 in the quarter. So a pretty significant amount of money of increase. What – what was slower in that period was the actual SPEC count. And that’s really due to the fact that in the third quarter, we – we added a lot of SPECs that we’re testing and whatnot, and didn’t add as many of those in the fourth quarter. So we still – feel very good about the – the customer growth, obviously with all the migrating customers from MoPub. Again, it’ll be hard to distinguish you know who’s a MAX customer who’s a MoPub customer, because it’s all going to be MAX customers, we were highly confident in the Software line growing and therefore you know price quantity has to follow that. One footnote to that, and it isn’t in our letter, but didn’t want to highlight it, just wanted to keep things clear for this. In our letter on the upfront side, we kept the SPEC numbers the same. One very detailed point is our SPEC definition was based on a run rate per quarter, they had to get to $125,000, of run rate in the quarter. Going forward, we’ll continue to report that metric for a little bit. But we’re really going to go focus more on an LTM basis to have $125,000 of revenue. The reason I point that out is, that’ll get rid of some of the volatility that is inherent if you use just a quarterly run rate number of SPECs coming and going, and given the scale of the customers we’re talking about. We think that’ll be a much – much better metric going forward.

[Matthew Cost, Morgan Stanley]

Great, thank you.

[Operator]

Our next question is from Omar Dessouky with Bank of America. Please proceed.

[Omar Dessouky, Bank of America]

Hi, thank you. How would the open app markets act as currently written affect your business strategically? And are you playing any role direct or indirect? And have the laws being written?

[Adam Foroughi, Co-Founder, CEO and Chairperson]

I will be honest, I’m reading up on what the law is right now. Can you give us a little insight into specifically what you’re talking about? And then I’ll answer it?

[Omar Dessouky, Bank of America]

Yeah. So you know, I think it’s – it’s pretty well known that major players that own platforms are able to advantage themselves in certain ways or at least that’s the view of some market participants. And you know, it appears that legal interests are potentially going to try to make it a more competitive industry. And I’m just wondering, you know what you guys think of that and you know how it might reshuffle the – potentially the attribution ecosystem or – or the actual targeting ecosystem itself in your favor or not?

[Adam Foroughi, Co-Founder, CEO and Chairperson]

Got it. And this is, you’re talking about like the – the actual operating systems, the App Store tax and any other rule changes they make that – that could be seen as benefiting themselves, is that what you’re talking about?

[Omar Dessouky, Bank of America]

Yeah. Yes.

[Adam Foroughi, Co-Founder, CEO and Chairperson]

So – so the App Store – App Store fees obviously, they’re not going up. And – I think a lot of people are hopeful that alternatives can be introduced or the actual tax on the app store goes down. Overall, we’re – we’re in a good position because, one, our Apps business is paying a hefty amount in the 30% every single year. But more importantly, these types of added competition to the marketplace make the pricing that goes to the end developer stronger. And so if that happens, you sort of take – if $1 becomes $0.70 today and say, and tomorrow it becomes $0.85, that’s 20% more LTV that advertisers can go spend on a platform like ours. So – that would just immediately mean in a competitive marketplace like ours that you see a step function up in terms of the dollars that companies are willing to spend to go acquire new users, because they have those kinds of economics that they get in their favor. When it comes to other rule changes, the platforms do provide an immense amount of value. So we operate within the – the rules of the platforms and we can’t predict where they go. The competition is always good for these ecosystems. And I think when we look at this, we know that we’re one of the leaders in the market on the Apps side. And we’re undoubtedly the largest advertising platform Apps side of the Facebook’s and the Google’s on mobile today that exists independent. And so we’re set up really well to benefit from some of this disintermediation that might happen added competition and better economics for the content creators.

[Operator]

Our final question is from Franco Granda with D.A. Davidson. Please proceed.

[Franco Granda, D.A. Davidson]

Hi, everyone, this – yeah thanks for taking my questions here. Just following up on an early question, I was hoping you could speak about your progress in non-gaming revenues on your Software Platform. You know what was the growth rate of non-gaming revenues in ‘21? And then, you know now that MoPub has closed and you’re integrating it, what does not mix look like?

[Adam Foroughi, Co-Founder, CEO and Chairperson]

Yes, that’s not something that we break out yet. But I’ll say really the – the area that’s a big opportunity is, both that direct app marketer on our platform getting access to more through just Salesforce bringing more non-gaming customers into our ecosystem as we’ve touched on, but more importantly something we haven’t talked on, that I referenced earlier is, you end up with these omni-channel DSPs, trade desk obviously being a famous one. But there’s very big companies here that route, non-gaming demand, specifically agency and brand dollars into mobile applications. With the MAX plus MoPub unified platform, we’ve got the biggest supply side platform that the mobile app ecosystems ever seen in one place, we’re the – we’re the direct access to the consumer. And these agencies and those omni-channel DSPs are really going through this – this shift in mindset to try to optimize supply costs. So they get direct to the consumer. Well, they’re going to be able to do it through our platform at massive amounts of scale now as they go and integrate into the MAX marketplace directly through us. And we think that’s going to facilitate a lot of dollars in non-gaming to move into our ecosystem, which will be to the benefit of our publishing partners, but also to the benefit of us as the trading floor.

[Franco Granda, D.A. Davidson]

All right. Thanks, Adam. And then as it relates to some of the new opportunities in the Software side that you talked about such as NFTs and CTV. I was curious about your approach there. Are you approaching talent from you know their respective industries? Or are you moving resources from within the company to help you go about those strategies?

[Adam Foroughi, Co-Founder, CEO and Chairperson]

Yeah, I mean, look, when we look at a new business, we’re – we’re actually, all of our core team has been here for since we started the business a decade ago. And so we’re very entrepreneurial. And the best new business is always to start with a few people that put together an idea and if it sticks in a hit, it can – it can really expand. Now, that’s a traditional startup, we have advantages with our scale data platform or algorithms and the demand access and data access that we have. And so we picked categories where our relationships and our technologies will give us an advantage to help start. We’re an entrepreneurial so we’re building a lot of the core technologies ourselves. So we will look to buy potentially, if it makes sense. We’ll also look to staff from the Apps side and – and in particular, with a couple of these businesses, we brought people from the Apps side to come in and run these businesses for us to give us even more confidence in executing them over the coming years.

[Franco Granda, D.A. Davidson]

All right, thank you.

[Operator]

This does conclude our conference. Thank you for your participation. You may disconnect your lines at this time.

[Adam Foroughi, Co-Founder, CEO and Chairperson]

Thanks, everyone.