Adam Foroughi, Applovin CEO: Surviving a 92% Drawdown, Ads as ML 1.0 & the $50B Game Ad Market

Adam Foroughi, CEO of Applovin, discussed the company's pivotal role in the mobile gaming ecosystem, emphasizing its function in helping developers monetize their games. He highlighted that over a billion people engage with mobile casual games daily, and Applovin's ad spend reached $11 billion nearly two years ago, with a remarkable year-over-year growth of 60%. The current estimated annual ad spend in the mobile gaming sector stands at about $50 billion.

Foroughi likened advertising to machine learning 1.0, suggesting it represents an early application of technologies that now drive AI. He acknowledged that while the economic value of large language models exceeds that of advertising, the latter remains a profitable use of deep learning. He pointed out that advancements in technology have enhanced the relevance and engagement of ads, significantly contributing to GDP growth.

He argued that discovery advertising plays a crucial role in economic expansion by introducing consumers to products they were previously unaware of, claiming this impact surpasses the transactions generated through search or large language models. Foroughi noted that consumers often overreact to targeted ads based on conversations, and he clarified that advertising companies cannot track precise locations.

Applovin went public in April 2021 with a market cap of around $28 billion, which plummeted to approximately $3.8 billion in 2022. Despite this downturn, the company generated $1 billion in EBITDA that year and repurchased about $6 billion of its stock, effectively retiring 20 to 25% of its outstanding shares at its peak. Following discussions with investors in September 2023, the stock price surged from $80 to $150, leading to a market cap recovery to $250 billion.

Foroughi emphasized the necessity for clear regulations in the advertising sector to enable technology to adapt to consumer privacy expectations. He noted that consumers favor relevant ads that facilitate product discovery and that typical shoppers prefer engaging in transactions rather than relying on agents. Applovin boasts an impressive EBITDA margin of 84%, the highest in the market, and its business model allows advertisers to cover consumer costs immediately after transactions.

While competition has not significantly affected Applovin's margins due to the complexity of the technologies involved, Foroughi acknowledged the risk of competitors potentially undercutting these margins. He also highlighted the importance of collaborating with talented individuals, including those from China, and revealed that Applovin sold its game studios after initially acquiring them for data purposes. Looking ahead, he predicted a shift towards utilizing agents for optimizing shopper behavior, although he noted that not all consumers may embrace this technology.