WEBVTT 00:00:00.000 --> 00:00:01.720 Welcome back to The Deep Dive, where we take 00:00:01.720 --> 00:00:03.960 that fire hose of source material you've provided 00:00:03.960 --> 00:00:07.139 and really distill it into pure, actionable insight. 00:00:07.540 --> 00:00:10.000 It's great to be here. Our mission today is, 00:00:10.039 --> 00:00:13.380 I think, absolutely critical for anyone tracking 00:00:13.380 --> 00:00:17.019 the modern digital economy. We're taking a massive, 00:00:17.079 --> 00:00:19.679 thorough dive into Applovin Corporation. That's 00:00:19.679 --> 00:00:21.940 right. And this is a narrative that really has 00:00:21.940 --> 00:00:25.160 everything. I mean, it encompasses extreme growth, 00:00:25.359 --> 00:00:29.000 some incredibly aggressive M &A, a total strategic 00:00:29.000 --> 00:00:33.320 overhaul, and that inevitable confrontation with 00:00:33.320 --> 00:00:35.979 financial and regulatory scrutiny that just seems 00:00:35.979 --> 00:00:38.380 to define big tech today. It really does. And 00:00:38.380 --> 00:00:40.240 when you look at Applovin, you are looking at 00:00:40.240 --> 00:00:43.780 one of the great accelerants of the entire mobile 00:00:43.780 --> 00:00:45.880 economy. Accelerants, that's a good word for 00:00:45.880 --> 00:00:47.740 it. Yeah, they're an American mobile technology 00:00:47.740 --> 00:00:50.420 company. Yeah. based in Palo Alto, California, 00:00:50.679 --> 00:00:53.259 and they were founded way back in 2012. And crucially, 00:00:53.320 --> 00:00:55.859 I think they've often avoided the consumer spotlight, 00:00:56.060 --> 00:00:58.380 haven't they? But their technological footprint 00:00:58.380 --> 00:01:01.840 is just, it's everywhere. It's everywhere. If 00:01:01.840 --> 00:01:03.759 you've played a free mobile game or if you've 00:01:03.759 --> 00:01:06.319 seen an app scale from nothing to millions of 00:01:06.319 --> 00:01:08.920 users overnight, there's a very good chance Applovin 00:01:08.920 --> 00:01:11.879 was the kind of invisible infrastructure making 00:01:11.879 --> 00:01:15.180 all of that happen. OK, so let's unpack this 00:01:15.180 --> 00:01:17.680 dual identity they had for so long because it 00:01:17.680 --> 00:01:19.980 really defines their whole trajectory until this 00:01:19.980 --> 00:01:23.140 very recent pivot. What exactly is their core 00:01:23.140 --> 00:01:26.000 business? What were the main tools that allowed 00:01:26.000 --> 00:01:28.519 them to get to such a staggering scale? Well, 00:01:28.579 --> 00:01:31.219 their core business is essentially serving the 00:01:31.219 --> 00:01:34.120 entire mobile developer ecosystem. They basically 00:01:34.120 --> 00:01:36.439 act as the central nervous system for mobile 00:01:36.439 --> 00:01:39.760 advertising and monetization. The central nervous 00:01:39.760 --> 00:01:41.700 system. They help developers market their apps, 00:01:41.819 --> 00:01:43.920 monetize them, analyze the data, and publish 00:01:43.920 --> 00:01:45.760 them. And this is all done through their very 00:01:45.760 --> 00:01:48.640 sophisticated technology stack. Which revolves 00:01:48.640 --> 00:01:51.219 around a few key platforms, right? I'm seeing 00:01:51.219 --> 00:01:53.879 Max app discovery. Exactly. Max is the big one 00:01:53.879 --> 00:01:56.200 that handles the monetization piece. Then you 00:01:56.200 --> 00:01:58.640 have app discovery, which is all about user acquisition, 00:01:58.739 --> 00:02:01.120 finding new people for your app. And then there's 00:02:01.120 --> 00:02:03.939 Spark Labs. What's Spark Labs? Spark Labs, in 00:02:03.939 --> 00:02:06.359 essence, operates as an incubator. It's also 00:02:06.359 --> 00:02:08.800 a strategic investment arm that helps them stay 00:02:08.800 --> 00:02:11.759 ahead of the market curve by. you know, testing 00:02:11.759 --> 00:02:14.219 new ideas internally before anyone else. And 00:02:14.219 --> 00:02:17.139 the hook here, the reason this story really demands 00:02:17.139 --> 00:02:19.879 a deep dive, is this incredible contrast. I mean, 00:02:19.879 --> 00:02:22.300 we're tracking a company that operated in full 00:02:22.300 --> 00:02:25.360 stealth mode for years. A classic Silicon Valley 00:02:25.360 --> 00:02:28.060 ghost story. It really is. And they go from that 00:02:28.060 --> 00:02:31.719 to achieving an astronomical... What was it, 00:02:31.780 --> 00:02:36.280 a $123 billion valuation by 2025? $123 billion? 00:02:36.400 --> 00:02:38.340 It's hard to even wrap your head around that 00:02:38.340 --> 00:02:40.360 number. And it culminates in this prestigious 00:02:40.360 --> 00:02:44.060 place on the S &P 500 index. Yet, and this is 00:02:44.060 --> 00:02:47.139 the key, they achieved this apex while simultaneously 00:02:47.139 --> 00:02:50.099 facing serious high -stakes regulatory scrutiny, 00:02:50.280 --> 00:02:53.259 specifically an SEC probe into the very data 00:02:53.259 --> 00:02:55.120 collection practices that fuel their empire. 00:02:55.400 --> 00:02:57.800 Right. It's just the ultimate case study of velocity 00:02:57.800 --> 00:03:00.979 meeting the regulatory wall. It is. This journey, 00:03:00.979 --> 00:03:03.419 it perfectly illustrates not just the speed of 00:03:03.419 --> 00:03:06.319 modern digital advertising wealth, but also the 00:03:06.319 --> 00:03:09.400 immense political and legal friction that wealth 00:03:09.400 --> 00:03:12.400 creates when it's built on massive scale user 00:03:12.400 --> 00:03:15.560 data. The stakes could not be higher for Applovin 00:03:15.560 --> 00:03:18.180 or, frankly, for the future of ad tech globally. 00:03:19.039 --> 00:03:20.659 Okay, let's rewind then. Let's go back to the 00:03:20.659 --> 00:03:23.240 genesis, 2012. It's a moment when the mobile 00:03:23.240 --> 00:03:25.819 app market is just beginning its absolute explosion. 00:03:26.060 --> 00:03:28.759 What was the origin story? Who were the foundational 00:03:28.759 --> 00:03:31.479 players? And why did they choose to operate in 00:03:31.479 --> 00:03:33.979 the shadows for so long? So App11 was established 00:03:33.979 --> 00:03:37.539 by three co -founders, Adam Farouki, John Kristanak, 00:03:37.560 --> 00:03:41.120 and Andrew Caro. And the core idea was really 00:03:41.120 --> 00:03:43.199 ambitious. They wanted to build a single, highly 00:03:43.199 --> 00:03:45.379 efficient engine that could optimize both user 00:03:45.379 --> 00:03:48.199 acquisition and monetization across what was, 00:03:48.319 --> 00:03:50.960 at the time, a rapidly fragmenting mobile landscape. 00:03:51.180 --> 00:03:52.599 So they were trying to solve the biggest problem 00:03:52.599 --> 00:03:54.840 facing every single developer. The biggest problem. 00:03:54.979 --> 00:03:58.199 Getting paid and finding users. I'm doing it 00:03:58.199 --> 00:04:00.240 at scale. And before we get into the nuts and 00:04:00.240 --> 00:04:03.219 bolts of the strategy, there's this small but 00:04:03.219 --> 00:04:05.800 persistent piece of startup lore we found in 00:04:05.800 --> 00:04:08.520 the sources about the company name. I think it's 00:04:08.520 --> 00:04:10.240 an unnecessary correction for the record. Oh, 00:04:10.300 --> 00:04:12.780 absolutely. The name Applovin, you hear it all 00:04:12.780 --> 00:04:15.340 the time. It gets linked to the character McLovin 00:04:15.340 --> 00:04:17.519 from the movie Superbad. Right, the cult classic. 00:04:17.740 --> 00:04:20.079 And that rumor has just stubbornly persisted 00:04:20.079 --> 00:04:23.759 in tech circles for years. However, the CEO, 00:04:24.060 --> 00:04:27.279 Adam Forey, he explicitly clarified that the 00:04:27.279 --> 00:04:29.360 name was actually inspired by a company called 00:04:29.360 --> 00:04:31.980 Bloglovin. Bloglovin, the content organizing 00:04:31.980 --> 00:04:34.699 company. That's the one. It's a great reminder 00:04:34.699 --> 00:04:37.600 that... Even these massive successful companies 00:04:37.600 --> 00:04:40.360 often have to, you know, correct the invented 00:04:40.360 --> 00:04:42.639 folklore that just kind of grows up around them 00:04:42.639 --> 00:04:45.439 during those early quiet years. Speaking of quiet 00:04:45.439 --> 00:04:48.120 years, that decision to operate in full stealth 00:04:48.120 --> 00:04:51.600 mode until 2014 is highly unusual, especially 00:04:51.600 --> 00:04:53.879 in a field as dynamic as mobile advertising. 00:04:54.360 --> 00:04:57.399 What was the strategic benefit of staying hidden 00:04:57.399 --> 00:04:59.620 for those first two years? You know, in that 00:04:59.620 --> 00:05:02.639 era, two years in mobile tech felt like a decade. 00:05:02.800 --> 00:05:05.699 The strategy was likely twofold. First, it allowed 00:05:05.699 --> 00:05:08.579 them to build and iterate on their core technology 00:05:08.579 --> 00:05:11.839 stack, perfecting their algorithms, their data 00:05:11.839 --> 00:05:15.060 ingestion pipeline, without competitors being 00:05:15.060 --> 00:05:17.500 able to just easily copy their methods. So they're 00:05:17.500 --> 00:05:19.879 building the engine in secret. Building the engine 00:05:19.879 --> 00:05:23.459 in secret. And second, and this is crucial, it 00:05:23.459 --> 00:05:26.279 meant they could secure significant high -profile 00:05:26.279 --> 00:05:29.879 customers. based purely on performance, not on 00:05:29.879 --> 00:05:32.199 public perception or marketing hype. And they 00:05:32.199 --> 00:05:34.519 were successful in that crucial early capital 00:05:34.519 --> 00:05:37.519 stage. How much did they manage to secure and 00:05:37.519 --> 00:05:39.600 where did that funding come from? They secured 00:05:39.600 --> 00:05:43.410 a pretty modest. $4 million in initial financing. 00:05:43.569 --> 00:05:45.629 Only $4 million. Just $4 million. And it came 00:05:45.629 --> 00:05:48.129 from a diverse group of sources, which really 00:05:48.129 --> 00:05:50.629 reflects a high confidence in their technology, 00:05:50.709 --> 00:05:52.790 even without a public profile. We're talking 00:05:52.790 --> 00:05:55.329 angel investors, streamlined ventures, and the 00:05:55.329 --> 00:05:57.290 web investment network. It's what they did with 00:05:57.290 --> 00:05:59.370 that $4 million that's so remarkable. Exactly. 00:05:59.509 --> 00:06:01.889 They achieved this really impressive traction 00:06:01.889 --> 00:06:04.290 right out of the gate. And who were some of those 00:06:04.290 --> 00:06:07.060 established brands that were trusting this? You 00:06:07.060 --> 00:06:08.839 know, this ghost company with their precious 00:06:08.839 --> 00:06:11.779 user acquisition budget before Apple have even 00:06:11.779 --> 00:06:13.959 launched publicly. Well, the sources mentioned 00:06:13.959 --> 00:06:16.399 some really high traffic digital brands like 00:06:16.399 --> 00:06:20.480 OpenTable and Spotify. Wow. OK, so big names. 00:06:20.639 --> 00:06:23.360 Really big names. And the fact that sophisticated 00:06:23.360 --> 00:06:26.259 data driven companies of that stature were already 00:06:26.259 --> 00:06:29.319 relying on Apple's platform. It just demonstrates 00:06:29.319 --> 00:06:31.279 that the efficiency they were building during 00:06:31.279 --> 00:06:33.480 that stealth period was immediately applicable. 00:06:33.839 --> 00:06:36.420 It was effective for monetization and use. acquisition 00:06:36.420 --> 00:06:39.959 at a massive scale, it validated their core engine 00:06:39.959 --> 00:06:42.680 instantly. So once they do emerge publicly in 00:06:42.680 --> 00:06:46.759 2014, their first visible move wasn't about organic 00:06:46.759 --> 00:06:49.360 growth. It was about consolidation. Exactly. 00:06:49.519 --> 00:06:51.879 They signaled their aggressive intent right away. 00:06:52.060 --> 00:06:55.660 In October of 2014, their initial expansion was 00:06:55.660 --> 00:06:58.779 the purchase of Moboco, which was a German mobile 00:06:58.779 --> 00:07:00.800 ad network. A German one. So they're thinking 00:07:00.800 --> 00:07:03.259 international from day one. It was a tactical 00:07:03.259 --> 00:07:06.220 acquisition. It immediately expanded their geographical 00:07:06.220 --> 00:07:09.040 footprint into the very lucrative European market, 00:07:09.199 --> 00:07:11.899 and it gave them a technological boost. It showed 00:07:11.899 --> 00:07:14.019 they were playing a global game right from the 00:07:14.019 --> 00:07:16.689 very start. This successful early trajectory 00:07:16.689 --> 00:07:19.589 leads us directly to the mid -decade, when they 00:07:19.589 --> 00:07:22.149 run headfirst into a wall. And it's not a business 00:07:22.149 --> 00:07:24.209 wall. It's a wall of international politics. 00:07:24.550 --> 00:07:26.670 This is where the story pivots so sharply, and 00:07:26.670 --> 00:07:28.629 it demonstrates the geopolitical sensitivities 00:07:28.629 --> 00:07:31.189 that are just inherent in owning massive amounts 00:07:31.189 --> 00:07:35.029 of U .S. user data. Right. So in 2016, Applovin 00:07:35.029 --> 00:07:37.269 reportedly entered an agreement to be acquired 00:07:37.269 --> 00:07:40.149 by a Chinese private equity firm, Orient Hantai 00:07:40.149 --> 00:07:45.420 Capital, for a staggering $1 .42 billion. That 00:07:45.420 --> 00:07:47.740 is an immense valuation for a four -year -old 00:07:47.740 --> 00:07:50.199 company. It really shows the market recognized 00:07:50.199 --> 00:07:53.220 the critical nature of their data platform. But 00:07:53.220 --> 00:07:56.240 the deal, it never closed. Why? It was abandoned 00:07:56.240 --> 00:07:59.079 and it was due to strong, clear opposition from 00:07:59.079 --> 00:08:02.339 CFIUS. CFIUS, the Committee on Foreign Investment 00:08:02.339 --> 00:08:05.680 in the United States. Exactly. CFIUS has the 00:08:05.680 --> 00:08:08.279 authority to investigate any mergers and acquisitions 00:08:08.279 --> 00:08:10.620 that could pose a risk to U .S. national security. 00:08:11.769 --> 00:08:14.129 And the concern here was likely centered on the 00:08:14.129 --> 00:08:16.670 very sensitive nature of Applovin's technology 00:08:16.670 --> 00:08:19.129 stack. Because it's a platform that collects 00:08:19.129 --> 00:08:22.589 and processes huge quantities of data on U .S. 00:08:22.610 --> 00:08:25.230 consumers. Vast quantities. And it manages the 00:08:25.230 --> 00:08:28.050 advertising spend of countless U .S. app developers. 00:08:28.389 --> 00:08:31.170 So allowing a foreign entity, particularly one 00:08:31.170 --> 00:08:34.289 linked to China, to control that level of digital 00:08:34.289 --> 00:08:36.970 infrastructure was just. It was deemed too great 00:08:36.970 --> 00:08:39.649 a risk. So the acquisition was blocked. But they 00:08:39.649 --> 00:08:41.370 didn't just walk away, did they? How do they 00:08:41.370 --> 00:08:43.950 salvage the relationship and, more importantly, 00:08:44.169 --> 00:08:46.429 the capital? They executed a masterful pivot. 00:08:46.529 --> 00:08:48.470 They transformed the acquisition agreement into 00:08:48.470 --> 00:08:50.870 a debt investment instead. Ah, so not equity, 00:08:50.889 --> 00:08:53.730 but debt. Exactly. This maneuver allowed Orient 00:08:53.730 --> 00:08:55.809 Hantai to still deploy their capital, but it 00:08:55.809 --> 00:08:57.929 fundamentally stripped them of any control or 00:08:57.929 --> 00:09:00.389 ownership of the strategic U .S. asset. And the 00:09:00.389 --> 00:09:02.980 implication of that is huge. It's a crucial implication. 00:09:03.379 --> 00:09:06.440 It showcased this early geopolitical resistance 00:09:06.440 --> 00:09:09.360 in the sector, and it forced Applovin to maintain 00:09:09.360 --> 00:09:12.200 control over its own U .S. data infrastructure. 00:09:13.039 --> 00:09:16.120 Orion Hantai did retain a small equity stake, 00:09:16.299 --> 00:09:19.639 basically a debt -based residual interest, but 00:09:19.639 --> 00:09:22.200 the threat to national security in the eyes of 00:09:22.200 --> 00:09:25.940 CFIUS was mitigated. And despite that CFIUS roadblock, 00:09:26.139 --> 00:09:30.000 their growth trajectory was just... It was undeniable. 00:09:30.139 --> 00:09:32.200 Absolutely. The external validation just kept 00:09:32.200 --> 00:09:34.360 piling up. They were recognized on the Deloitte 00:09:34.360 --> 00:09:37.840 Fast 500 North America list in 2016, where they 00:09:37.840 --> 00:09:39.840 ranked number 10. And then they repeated that 00:09:39.840 --> 00:09:42.179 recognition in 2018. And Adam Ferrui, the CEO, 00:09:42.399 --> 00:09:44.360 he was getting noticed, too. He was. He was honored 00:09:44.360 --> 00:09:47.179 on the 2017 San Francisco Business Times 40 Under 00:09:47.179 --> 00:09:50.299 40 list. This just proves their growth was explosive 00:09:50.299 --> 00:09:52.120 and recognized by the financial and business 00:09:52.120 --> 00:09:54.379 community, even as they were navigating these 00:09:54.379 --> 00:09:56.759 really complex international politics. So by 00:09:56.759 --> 00:10:07.899 2018, having success. That's the classic pattern, 00:10:08.059 --> 00:10:10.659 isn't it? Validating a high -growth tech asset. 00:10:11.019 --> 00:10:15.179 In August of 2018, the private equity titan KKR 00:10:15.179 --> 00:10:18.559 & Co. Inc. acquired a minority stake for $400 00:10:18.559 --> 00:10:22.659 million. $400 million. And that set a new valuation 00:10:22.659 --> 00:10:26.110 rate. It did. This specific investment immediately 00:10:26.110 --> 00:10:30.049 valued Apple 11 at $2 billion. And this was a 00:10:30.049 --> 00:10:32.750 major inflection point. It provided significant 00:10:32.750 --> 00:10:35.309 institutional confidence for major U .S. financial 00:10:35.309 --> 00:10:37.929 players. It officially validated their technology 00:10:37.929 --> 00:10:39.830 and their growth potential. And let them clean 00:10:39.830 --> 00:10:42.169 up their books. It let them fully refinance that 00:10:42.169 --> 00:10:44.269 convertible note facility from Orient Hontai 00:10:44.269 --> 00:10:46.889 Capital in the very same month, closing that 00:10:46.889 --> 00:10:49.389 geopolitical chapter entirely. So we exit this 00:10:49.389 --> 00:10:52.190 foundational phase in 2018 with a $2 billion 00:10:52.190 --> 00:10:55.710 valuation. a clean capital structure, and a very 00:10:55.710 --> 00:10:57.750 deep understanding of the regulatory friction 00:10:57.750 --> 00:11:00.110 inherent in their field. That just perfectly 00:11:00.110 --> 00:11:02.370 sets the stage for the next phase. Massive, massive 00:11:02.370 --> 00:11:04.509 expansion. Yeah, that $2 billion valuation and 00:11:04.509 --> 00:11:06.730 the KKR capital injection, it signaled that the 00:11:06.730 --> 00:11:08.590 company was ready to dramatically accelerate 00:11:08.590 --> 00:11:11.370 its strategy. And this acceleration was defined 00:11:11.370 --> 00:11:15.070 by this massive dual -pronged strategy. They 00:11:15.070 --> 00:11:17.210 wanted to become a major mobile game publisher 00:11:17.210 --> 00:11:21.450 while at the same time acquiring and consolidating 00:11:21.450 --> 00:11:23.889 the most powerful monetization tools available 00:11:23.889 --> 00:11:26.110 to all developers. That's the perfect summary. 00:11:26.309 --> 00:11:28.429 Okay, let's start with the gaming footprint because 00:11:28.429 --> 00:11:30.649 that's what created their unique hybrid business 00:11:30.649 --> 00:11:34.269 model for the next few years. The sources highlight 00:11:34.269 --> 00:11:37.210 the launch of Lion Studios in 2018. What was 00:11:37.210 --> 00:11:39.950 that? Lion Studios was so much more than just 00:11:39.950 --> 00:11:42.649 a new publishing label. It was launched in July 00:11:42.649 --> 00:11:45.549 2018, and it was a dedicated publishing division 00:11:45.549 --> 00:11:48.370 created to work with external mobile developers 00:11:48.370 --> 00:11:51.529 to promote and publish their games. So strategically, 00:11:51.750 --> 00:11:53.690 this was brilliant. It was brilliant. It officially 00:11:53.690 --> 00:11:56.690 cemented Applevin as both a software provider, 00:11:56.870 --> 00:11:59.730 the plumbing, and a content creator, the product 00:11:59.730 --> 00:12:01.210 that's flowing through the pipes. Which gave 00:12:01.210 --> 00:12:03.649 them this unique proprietary insight into the 00:12:03.649 --> 00:12:06.129 entire mobile supply and demand chain. The whole 00:12:06.129 --> 00:12:08.129 thing. They could see everything. And this wasn't 00:12:08.129 --> 00:12:10.990 a slow build, was it? It was a rapid, heavy investment 00:12:10.990 --> 00:12:13.830 spree that just continued through 2019 and 2020. 00:12:14.519 --> 00:12:17.279 The goal was market scale and data acquisition. 00:12:17.539 --> 00:12:20.500 That was it. In 2019, they invested in People 00:12:20.500 --> 00:12:23.220 Fund, who are known for word games. They invested 00:12:23.220 --> 00:12:26.820 in Firecraft Studios and Belka Games. They were 00:12:26.820 --> 00:12:29.379 just rapidly building this diversified portfolio. 00:12:29.759 --> 00:12:32.620 And the momentum continued. It did. In 2020, 00:12:32.940 --> 00:12:35.559 investments in Jiwa and Redemption Games, which 00:12:35.559 --> 00:12:38.320 all culminated in the major headline -grabbing 00:12:38.320 --> 00:12:42.179 acquisition of Machine Zone or MZ. MZ. Now, they 00:12:42.179 --> 00:12:45.360 were a true industry heavyweight. Why was that 00:12:45.360 --> 00:12:47.820 acquisition such a power move in the mobile gaming 00:12:47.820 --> 00:12:50.580 world at that time? Well, MZ was famous for games 00:12:50.580 --> 00:12:52.700 like Game of War and Mobile Strike. They were 00:12:52.700 --> 00:12:55.019 known for pioneering these really high spending 00:12:55.019 --> 00:12:58.179 in -app purchase models. So acquiring MZ wasn't 00:12:58.179 --> 00:13:00.320 just about revenue. Not at all. It was about 00:13:00.320 --> 00:13:02.700 acquiring sophisticated operational knowledge. 00:13:02.860 --> 00:13:05.419 It was about getting data on high value users 00:13:05.419 --> 00:13:08.200 and the ability to test and stress test their 00:13:08.200 --> 00:13:10.659 own ad technology max and app discovery on their 00:13:10.659 --> 00:13:13.519 own massive, highly profitable games. Bringing 00:13:13.519 --> 00:13:15.970 MZ. under the Applovin umbrella just immediately 00:13:15.970 --> 00:13:19.090 positioned them among the mobile elite. And this 00:13:19.090 --> 00:13:22.049 rapid success in creating content, it earned 00:13:22.049 --> 00:13:24.669 them measurable industry recognition very quickly. 00:13:25.049 --> 00:13:27.610 It did. By 2020, they were ranked on Pocket Gamer's 00:13:27.610 --> 00:13:30.570 list of the top 50 mobile game makers. And that 00:13:30.570 --> 00:13:32.470 just validates that their strategy of owning 00:13:32.470 --> 00:13:34.870 the tools and owning the content had propelled 00:13:34.870 --> 00:13:37.370 them to the absolute forefront of mobile gaming 00:13:37.370 --> 00:13:39.909 production. So let's pause on the financial structure 00:13:39.909 --> 00:13:42.950 this created. Because this hybrid model part 00:13:42.950 --> 00:13:46.669 software part content is so key to understanding 00:13:46.669 --> 00:13:49.830 their subsequent pivot. What was the revenue 00:13:49.830 --> 00:13:53.269 breakdown just before their major strategic overhaul 00:13:53.269 --> 00:13:56.769 using that 2020 context? This metric is absolutely 00:13:56.769 --> 00:13:58.789 crucial to understanding the whole story. In 00:13:58.789 --> 00:14:01.210 2020, their revenue was almost perfectly balanced. 00:14:01.330 --> 00:14:03.470 It was a 50 -50 split, basically. Really? That 00:14:03.470 --> 00:14:05.750 balanced? Yeah, it demonstrated a massively successful 00:14:05.750 --> 00:14:08.970 hybrid model. 49 % of their revenue came from 00:14:08.970 --> 00:14:11.110 businesses using its software. That is the ad 00:14:11.110 --> 00:14:13.029 tech side, the B2B services we talked about, 00:14:13.129 --> 00:14:15.450 where they charge developers for optimization 00:14:15.450 --> 00:14:18.529 and advertising. Okay, so just under half. And 00:14:18.529 --> 00:14:21.450 the other 51 % came from consumers making in 00:14:21.450 --> 00:14:23.850 -app purchases through the games they owned or 00:14:23.850 --> 00:14:25.950 published, like those from MZ or Lion Studios. 00:14:26.549 --> 00:14:29.070 They were fundamentally a technology company 00:14:29.070 --> 00:14:31.750 that was protected by a very robust consumer 00:14:31.750 --> 00:14:34.029 gaming division. That makes the company incredibly 00:14:34.029 --> 00:14:37.190 resilient. I mean, if Apple's privacy changes 00:14:37.190 --> 00:14:40.730 hurt B2B ad spending, they still have the consumer 00:14:40.730 --> 00:14:43.450 revenue stream. Exactly. And if consumer spending 00:14:43.450 --> 00:14:47.149 dips, the B2B software revenue remains. But while 00:14:47.149 --> 00:14:49.750 they were building this gaming portfolio, they 00:14:49.750 --> 00:14:52.710 were simultaneously, as you put it, collecting 00:14:52.710 --> 00:14:56.529 the infinity stones of ad tech by acquiring the 00:14:56.529 --> 00:14:59.230 crucial tools for the entire industry. That's 00:14:59.230 --> 00:15:01.370 a great analogy. And it started immediately after 00:15:01.370 --> 00:15:04.289 that KKR investment. In September 2018, they 00:15:04.289 --> 00:15:07.070 acquired Max. Max, the in -app bidding platform. 00:15:07.429 --> 00:15:09.429 The in -app bidding platform. Now, to clarify 00:15:09.429 --> 00:15:11.889 for our listeners, before Max, mobile advertising 00:15:11.889 --> 00:15:14.590 relied very heavily on a process called waterfalling. 00:15:15.120 --> 00:15:17.200 Let's elaborate on that technical detail because 00:15:17.200 --> 00:15:19.659 it's fundamental to Applevin's competitive advantage. 00:15:19.940 --> 00:15:22.000 What was the problem with waterfalling and why 00:15:22.000 --> 00:15:24.019 did in -app bidding solve it so effectively? 00:15:24.620 --> 00:15:26.779 Waterfalling was a really inefficient serial 00:15:26.779 --> 00:15:30.039 process. Ad requests were sent to networks one 00:15:30.039 --> 00:15:33.039 by one based on historical pricing data. So it 00:15:33.039 --> 00:15:35.659 was based on old data. Old data. If a network 00:15:35.659 --> 00:15:37.580 offered a high price historically, it got the 00:15:37.580 --> 00:15:40.159 first look. If they didn't fill the ad, it waterfalled 00:15:40.159 --> 00:15:42.659 down to the next network and so on and so on. 00:15:42.799 --> 00:15:45.539 Which left money on the table and wasted time. 00:15:45.720 --> 00:15:48.019 A lot of money on the table. And it often resulted 00:15:48.019 --> 00:15:51.440 in poorer quality ads. Max's in -app bidding 00:15:51.440 --> 00:15:53.980 just revolutionized this by introducing... a 00:15:53.980 --> 00:15:57.159 real -time unified auction. All demand sources, 00:15:57.440 --> 00:15:59.659 Facebook, Google, Apple's own network, they all 00:15:59.659 --> 00:16:02.960 bid simultaneously in real time for every single 00:16:02.960 --> 00:16:05.820 ad impression. So in -app bidding maximize the 00:16:05.820 --> 00:16:08.399 revenue for the developer in real time. It gave 00:16:08.399 --> 00:16:10.980 the app owner the absolute best price for every 00:16:10.980 --> 00:16:14.100 single ad slot. It's a massive jump in monetization 00:16:14.100 --> 00:16:16.240 efficiency. Precisely. And the Max acquisition 00:16:16.240 --> 00:16:18.740 immediately came with key integrations and partnerships, 00:16:19.019 --> 00:16:21.200 notably with Adjust and the massive Facebook 00:16:21.200 --> 00:16:23.779 audience network, which just accelerated its 00:16:23.779 --> 00:16:26.419 adoption by major developers right away. So once 00:16:26.419 --> 00:16:28.700 they owned the core bidding engine, the next 00:16:28.700 --> 00:16:31.000 logical step was protecting the user experience 00:16:31.000 --> 00:16:33.799 and the integrity of the ecosystem, which led 00:16:33.799 --> 00:16:36.519 them directly to the Safety K acquisition. That 00:16:36.519 --> 00:16:39.480 was the move in 2019. Safety K is a software 00:16:39.480 --> 00:16:42.860 development kit management platform, an SDK management 00:16:42.860 --> 00:16:45.039 platform. Why is that important? What does that 00:16:45.039 --> 00:16:47.360 do? Well, every mobile app is a collection of 00:16:47.360 --> 00:16:50.559 various SDKs, you know, tools from different 00:16:50.559 --> 00:16:53.720 vendors for analytics, for advertising, for crash 00:16:53.720 --> 00:16:56.740 reporting, and so on. Okay. A poorly coded or 00:16:56.740 --> 00:16:59.879 malicious SDK can crash an app. It can degrade 00:16:59.879 --> 00:17:02.919 performance or even violate user privacy. So 00:17:02.919 --> 00:17:05.359 Safety K was a really smart defensive acquisition 00:17:05.359 --> 00:17:08.160 that was focused on ad quality, performance, 00:17:08.279 --> 00:17:11.160 and stability. So it gave AppLove and the tools 00:17:11.160 --> 00:17:12.619 to ensure that the ads running through their 00:17:12.619 --> 00:17:15.599 Max platform were high quality and safe. It protected 00:17:15.599 --> 00:17:17.359 their brand and their developer partners. It 00:17:17.359 --> 00:17:19.220 was quality control for the whole ecosystem. 00:17:19.539 --> 00:17:21.480 And finally, they completed the loop by acquiring 00:17:21.480 --> 00:17:23.480 the measurement and analytics tool that tied 00:17:23.480 --> 00:17:25.619 everything together. And they did this right 00:17:25.619 --> 00:17:27.900 before their public market debut. That was the 00:17:27.900 --> 00:17:30.299 acquisition of Adjust, the mobile app measurement 00:17:30.299 --> 00:17:34.240 company, in February 2021. And this was the final 00:17:34.240 --> 00:17:36.619 piece of the full stack offering. Because measurement 00:17:36.619 --> 00:17:39.039 and attribution are the holy grail of mobile 00:17:39.039 --> 00:17:41.539 marketing. The holy grail. They tell developers 00:17:41.539 --> 00:17:43.680 exactly where their users came from, how much 00:17:43.680 --> 00:17:46.119 they cost to acquire, and how much revenue they 00:17:46.119 --> 00:17:48.539 ultimately generated. So what was the comprehensive 00:17:48.539 --> 00:17:52.029 offering after the Adjust acquisition? What could 00:17:52.029 --> 00:17:54.029 app love and offer a developer that a competitor 00:17:54.029 --> 00:17:56.950 just couldn't? They created this unprecedented, 00:17:57.250 --> 00:18:00.750 seamless end -to -end loop. They could use app 00:18:00.750 --> 00:18:03.849 discovery to help developers find users. They 00:18:03.849 --> 00:18:06.309 could use Macs to monetize them as efficiently 00:18:06.309 --> 00:18:08.750 as possible through in -app bidding. They could 00:18:08.750 --> 00:18:11.210 use Lion Studios to publish and learn from their 00:18:11.210 --> 00:18:13.490 own content. And then they could use Adjust to 00:18:13.490 --> 00:18:15.869 measure exactly how effective every single dollar 00:18:15.869 --> 00:18:18.230 spent and earned really was. They became the 00:18:18.230 --> 00:18:20.630 comprehensive one -stop shop for mobile developer 00:18:20.630 --> 00:18:23.539 success. They just, they controlled every single 00:18:23.539 --> 00:18:25.539 step of the value chain. The whole thing, top 00:18:25.539 --> 00:18:27.960 to bottom. So with the gaming arm robust, the 00:18:27.960 --> 00:18:30.200 ad tech stack complete, and the digital economy 00:18:30.200 --> 00:18:33.680 just booming post -pandemic, Applovin was perfectly 00:18:33.680 --> 00:18:36.559 positioned to capitalize. And this brings us 00:18:36.559 --> 00:18:39.420 to their initial public offering in 2021. The 00:18:39.420 --> 00:18:42.000 timing, as you noted, was just impeccable. They 00:18:42.000 --> 00:18:44.960 filed for the IPO in March 2021, and they were 00:18:44.960 --> 00:18:47.359 seeking to raise $100 million in the process. 00:18:47.559 --> 00:18:50.160 $100 million. And they were joining this parade 00:18:50.160 --> 00:18:53.759 of gaming and ad tech companies who were leveraging 00:18:53.759 --> 00:18:56.079 the acceleration of digital consumption caused 00:18:56.079 --> 00:18:59.180 by the pandemic. I mean, their 2020 sales had 00:18:59.180 --> 00:19:03.319 reached a whopping $1 .45 billion. And the actual 00:19:03.319 --> 00:19:06.559 trading day just solidified their sudden transition 00:19:06.559 --> 00:19:09.539 from a $2 billion private firm to a, what was 00:19:09.539 --> 00:19:12.759 it, a $24 billion public titan? Yeah. On April 00:19:12.759 --> 00:19:15.859 15, 2021, Applovin began trading on the NASDAQ 00:19:15.859 --> 00:19:19.279 under the ticker APP. at 70 US dollars per share, 00:19:19.400 --> 00:19:21.380 which instantly gave them a total market valuation 00:19:21.380 --> 00:19:24.740 of approximately 24 billion. $24 billion. To 00:19:24.740 --> 00:19:26.460 put that growth in perspective for you, in less 00:19:26.460 --> 00:19:28.960 than three years since that KKR investment in 00:19:28.960 --> 00:19:31.819 2018, their valuation multiplied 12 -fold. 12 00:19:31.819 --> 00:19:35.099 times. It was pure, explosive velocity, and it 00:19:35.099 --> 00:19:37.500 was all fueled by their successful integration 00:19:37.500 --> 00:19:40.440 of ad tech and content. And following the IPO, 00:19:40.619 --> 00:19:42.380 they didn't pause to celebrate, did they? They 00:19:42.380 --> 00:19:44.119 went into an even more aggressive consolidation 00:19:44.119 --> 00:19:46.880 mode, which was highlighted by two spectacular 00:19:46.880 --> 00:19:50.059 high -stakes market events, the MoPub acquisition 00:19:50.059 --> 00:19:52.769 and the Unity showdown. Let's start with MoPub. 00:19:52.930 --> 00:19:56.049 MoPub was a significant strategic trophy. On 00:19:56.049 --> 00:19:59.869 October 6, 2021, Apple announced they were acquiring 00:19:59.869 --> 00:20:02.569 the mobile monetization company MoPub from Twitter 00:20:02.569 --> 00:20:06.589 for $1 .1 billion. A billion dollars from Twitter. 00:20:06.710 --> 00:20:09.789 The deal finalized in January 2022. And MoPub 00:20:09.789 --> 00:20:11.529 wasn't just another company. It was one of the 00:20:11.529 --> 00:20:13.930 Internet's longest established and most massive 00:20:13.930 --> 00:20:16.630 mobile ad exchange platforms. So why spend $1 00:20:16.630 --> 00:20:19.130 .1 billion from MoPub when they already had the 00:20:19.130 --> 00:20:21.380 max platform? What did MoPub do? MoPub provided 00:20:21.380 --> 00:20:23.299 that Apple then lacked at that point. Two things, 00:20:23.460 --> 00:20:26.200 inventory and developer relationships. MoPub 00:20:26.200 --> 00:20:28.619 had a deep entrenched developer base and just 00:20:28.619 --> 00:20:31.180 massive volumes of ad inventory flowing through 00:20:31.180 --> 00:20:33.000 its exchange every single day. So it was about 00:20:33.000 --> 00:20:36.619 scale. It was all about scale. Integrating MoPub 00:20:36.619 --> 00:20:39.420 into the Applovin ecosystem meant instantly absorbing 00:20:39.420 --> 00:20:41.980 a huge established chunk of the mobile advertising 00:20:41.980 --> 00:20:44.380 market. It gave Macs a much greater competitive 00:20:44.380 --> 00:20:46.500 advantage and put them in a much stronger position 00:20:46.500 --> 00:20:49.279 against rivals like IronSource and even Google's 00:20:49.279 --> 00:20:51.640 offerings. It was about solidifying their market 00:20:51.640 --> 00:20:54.200 share and ensuring supply. That move solidified 00:20:54.200 --> 00:20:56.500 their dominance. But the true declaration of 00:20:56.500 --> 00:20:59.400 war against the competition came in August 2022. 00:20:59.779 --> 00:21:03.509 The Unity Showdown. This was just... unprecedented 00:21:03.509 --> 00:21:06.029 in its scale and its audacity. It was an incredible 00:21:06.029 --> 00:21:08.329 move. It was reminiscent of a corporate takeover 00:21:08.329 --> 00:21:10.809 battle you'd read about in the financial history 00:21:10.809 --> 00:21:13.269 books. Totally. Apple then made an unsolicited, 00:21:13.289 --> 00:21:16.349 audacious offer to buy Unity Technologies, a 00:21:16.349 --> 00:21:18.750 major rival and the dominant development platform 00:21:18.750 --> 00:21:21.670 used by countless mobile games, for a monumental 00:21:21.670 --> 00:21:27.730 $17 .54 billion of stock. $17 .5 billion of stock. 00:21:28.299 --> 00:21:29.980 That shows they were willing to leverage their 00:21:29.980 --> 00:21:32.460 massive public valuation to finance the deal. 00:21:32.519 --> 00:21:35.539 But the sheer scale of that offer is almost unbelievable. 00:21:35.960 --> 00:21:38.180 And the bid wasn't just about acquisition. It 00:21:38.180 --> 00:21:40.799 was about defining the market because it came 00:21:40.799 --> 00:21:43.220 with a non -negotiable condition. And that condition 00:21:43.220 --> 00:21:46.400 was the crux of the entire strategy. Applevin's 00:21:46.400 --> 00:21:49.140 DID required Unity to immediately terminate its 00:21:49.140 --> 00:21:51.920 previously agreed upon deal to merge with IronSource. 00:21:52.119 --> 00:21:55.000 And IronSource is a direct competitor to Applevin's 00:21:55.000 --> 00:21:57.700 core ad tech business. Their biggest competitor. 00:21:57.880 --> 00:22:00.420 Applevin was essentially attempting to execute 00:22:00.420 --> 00:22:04.039 this hostile vertical integration maneuver. They 00:22:04.039 --> 00:22:06.140 wanted to acquire the most important game engine, 00:22:06.279 --> 00:22:09.279 which is Unity, and simultaneously block their 00:22:09.279 --> 00:22:12.220 main rival, IronSource, from scaling up through 00:22:12.220 --> 00:22:14.359 that very engine. So they were trying to achieve 00:22:14.359 --> 00:22:16.730 near monopoly. status in the mobile development 00:22:16.730 --> 00:22:19.430 and monetization pipeline in a single transaction. 00:22:19.869 --> 00:22:22.970 Exactly. It was a bid for total comprehensive 00:22:22.970 --> 00:22:25.789 dominance over the entire mobile development 00:22:25.789 --> 00:22:28.789 stack. And to make the bid more palatable to 00:22:28.789 --> 00:22:31.549 Unity shareholders and leadership, they proposed 00:22:31.549 --> 00:22:34.349 a collaborative management structure, not just 00:22:34.349 --> 00:22:36.990 a simple hostile takeover. Right. The proposal 00:22:36.990 --> 00:22:39.950 would have resulted in Unity CEO John Ricciardiello 00:22:39.950 --> 00:22:43.559 becoming the CEO of the combined entity. Which 00:22:43.559 --> 00:22:46.920 suggests Aplevin's founder, Adam Forey, was willing 00:22:46.920 --> 00:22:49.220 to step back from that top job for the sake of 00:22:49.220 --> 00:22:51.880 market control. So how did the market respond 00:22:51.880 --> 00:22:54.500 to this aggressive play? And what was the ultimate 00:22:54.500 --> 00:22:56.960 outcome? of the confrontation. Well, Unity's 00:22:56.960 --> 00:22:59.599 board debated it intensely, but ultimately they 00:22:59.599 --> 00:23:02.039 rejected the offer later that same month. They 00:23:02.039 --> 00:23:04.240 rejected it. They did. They cited that the Apple 00:23:04.240 --> 00:23:06.839 even offer did not present a superior proposal 00:23:06.839 --> 00:23:09.640 to this strategic value they saw in merging with 00:23:09.640 --> 00:23:12.619 IronSource. So Unity chose to commit to completing 00:23:12.619 --> 00:23:15.140 their acquisition of IronSource instead. So if 00:23:15.140 --> 00:23:16.920 we connect this rejection back to the overall 00:23:16.920 --> 00:23:19.539 competitive landscape, what does the failure 00:23:19.539 --> 00:23:22.000 of this massive bid tell us about the future 00:23:22.000 --> 00:23:24.019 of the mobile market? Well, what's fascinating 00:23:24.019 --> 00:23:26.140 here is that the unity showdown was a defining 00:23:26.140 --> 00:23:28.559 moment. It was a moment of competitive struggle. 00:23:28.799 --> 00:23:31.220 It signaled that Apple oven was willing to use 00:23:31.220 --> 00:23:33.440 every lever available, including its massive 00:23:33.440 --> 00:23:36.359 valuation and its stock as currency to achieve 00:23:36.359 --> 00:23:38.940 market dominance. And the rejection meant that 00:23:38.940 --> 00:23:41.180 the market would remain highly competitive. Exactly. 00:23:41.619 --> 00:23:44.420 Bifurcated between the unity iron source entity 00:23:44.420 --> 00:23:46.599 on one side and the Apple oven stack on the other. 00:23:46.900 --> 00:23:49.960 And this failure, it forced Apple oven to rethink 00:23:49.960 --> 00:23:53.640 its entire strategy for achieving. growth, which 00:23:53.640 --> 00:23:56.299 leads directly to the immense strategic pivot 00:23:56.299 --> 00:23:59.099 we see in 2025. And it's also worth looking at 00:23:59.099 --> 00:24:00.980 the nature of the offer, right? The stock -based 00:24:00.980 --> 00:24:03.859 offer. We need to examine that. While $17 .54 00:24:03.859 --> 00:24:07.740 billion sounds huge, offering stock meant Applevin 00:24:07.740 --> 00:24:10.140 was highly reliant on its current and arguably 00:24:10.140 --> 00:24:13.140 inflated valuation holding up. So Unity's board 00:24:13.140 --> 00:24:15.640 likely viewed that as a risk. A big risk. They 00:24:15.640 --> 00:24:17.720 preferred the cash and stock mixture and the 00:24:17.720 --> 00:24:19.740 perceived stability of the iron source deal. 00:24:19.920 --> 00:24:22.220 It just highlights the inherent risk. in using 00:24:22.220 --> 00:24:24.980 highly valued public stock as currency in large 00:24:24.980 --> 00:24:27.980 M &A. So the failed unity attempt clearly didn't 00:24:27.980 --> 00:24:31.559 slow Applovin's overall growth, but it did precipitate 00:24:31.559 --> 00:24:34.039 this massive tectonic shift in their corporate 00:24:34.039 --> 00:24:36.740 identity. Despite the success of their hybrid 00:24:36.740 --> 00:24:40.440 model, remember 51 % of revenue coming from consumer 00:24:40.440 --> 00:24:43.299 games, they announced the great divestiture in 00:24:43.299 --> 00:24:47.250 early 2025. This was the 180 degree turn. In 00:24:47.250 --> 00:24:49.829 February 2025, AppLevin announced they would 00:24:49.829 --> 00:24:52.029 divest their entire mobile games development 00:24:52.029 --> 00:24:54.930 business to focus exclusively and entirely on 00:24:54.930 --> 00:24:57.869 their core advertising software business, Max 00:24:57.869 --> 00:25:00.710 Adjust App Discovery. Wait, I have to challenge 00:25:00.710 --> 00:25:03.190 that premise, though. Why would you abandon a 00:25:03.190 --> 00:25:05.089 revenue stream that represented over half of 00:25:05.089 --> 00:25:07.450 your income and had proven to be so resilient? 00:25:07.650 --> 00:25:09.789 Doesn't selling a business segment right as it 00:25:09.789 --> 00:25:12.029 hits peak performance look a bit like financial 00:25:12.029 --> 00:25:14.880 engineering? you know, to juice the ad tech valuation 00:25:14.880 --> 00:25:17.980 ahead of that S &P inclusion? That is precisely 00:25:17.980 --> 00:25:20.160 the analytical question we have to address, and 00:25:20.160 --> 00:25:22.200 there are several interlocking strategic and 00:25:22.200 --> 00:25:24.559 financial reasons for this drastic pivot. Okay, 00:25:24.640 --> 00:25:26.740 what are they? Firstly, valuation multiples. 00:25:27.099 --> 00:25:29.420 The market typically awards much higher valuation 00:25:29.420 --> 00:25:32.119 multiples to pure play software and ad tech companies. 00:25:32.380 --> 00:25:34.339 Why is that? Because they're seen as having higher 00:25:34.339 --> 00:25:37.619 margins and less operational complexity than 00:25:37.619 --> 00:25:40.240 running multiple game studios, which, you know, 00:25:40.259 --> 00:25:42.720 require constant content updates. It's massive 00:25:42.720 --> 00:25:45.880 marketing spend and dealing with fickle consumer 00:25:45.880 --> 00:25:48.019 trends. So they were cleaning up their balance 00:25:48.019 --> 00:25:50.400 sheet and their narrative for institutional investors. 00:25:50.720 --> 00:25:53.099 That's exactly it. And secondly, the regulatory 00:25:53.099 --> 00:25:57.819 shift. The post -ATT world. Apple's app tracking 00:25:57.819 --> 00:26:00.980 transparency framework. Right. ATT made user 00:26:00.980 --> 00:26:03.259 acquisition and data -driven marketing significantly 00:26:03.259 --> 00:26:06.420 harder for game studios. Operating game studios 00:26:06.420 --> 00:26:09.460 in that environment just became costlier, riskier, 00:26:09.539 --> 00:26:12.059 and less predictable. But Apple and its platform 00:26:12.059 --> 00:26:14.339 provided the tools for developers to navigate 00:26:14.339 --> 00:26:16.930 this. difficult new landscape. And that's what 00:26:16.930 --> 00:26:18.730 they realized. They realized the value was in 00:26:18.730 --> 00:26:20.690 selling the shovels, not digging for the gold 00:26:20.690 --> 00:26:23.109 themselves. So by focusing purely on that high 00:26:23.109 --> 00:26:25.589 margin software core, they could generate cleaner, 00:26:25.730 --> 00:26:28.849 more predictable earnings, justifying a sky -high 00:26:28.849 --> 00:26:31.750 valuation. And they executed this sale incredibly 00:26:31.750 --> 00:26:34.430 rapidly. With incredible speed. The mobile games 00:26:34.430 --> 00:26:36.529 development business was sold to a private company 00:26:36.529 --> 00:26:40.559 for $900 million. $900 million. And a specific 00:26:40.559 --> 00:26:43.740 key transaction within that was TripleDot Studios 00:26:43.740 --> 00:26:46.940 acquiring Aplevin's publishing division, Line 00:26:46.940 --> 00:26:51.779 Studios, in May 2025 for $800 million of that 00:26:51.779 --> 00:26:54.799 total. It shows the significant capital they 00:26:54.799 --> 00:26:56.740 were willing to harvest from their gaming arm, 00:26:56.920 --> 00:26:59.119 signaling to everyone they were all in on ad 00:26:59.119 --> 00:27:01.500 tech. Now, in the middle of this massive portfolio 00:27:01.500 --> 00:27:04.160 pruning, Aplevin showed that their ambition was 00:27:04.160 --> 00:27:06.779 far from diminished. They made another incredibly 00:27:06.779 --> 00:27:08.980 aggressive move into a major market opportunity, 00:27:09.279 --> 00:27:12.380 the bid for TikTok's U .S. assets. This is the 00:27:12.380 --> 00:27:14.500 definitive indicator of their scale and ambition 00:27:14.500 --> 00:27:17.480 post -pivot. In April 2025, following the U .S. 00:27:17.480 --> 00:27:19.480 government's requirement for ByteDance to divest 00:27:19.480 --> 00:27:22.400 TikTok's U .S. subsidiary or face a ban. Another 00:27:22.400 --> 00:27:24.680 immense geopolitical flashpoint. A huge one. 00:27:24.839 --> 00:27:26.920 And Applevin made a bid to acquire the company. 00:27:27.119 --> 00:27:29.519 They were ready to deploy the $900 million from 00:27:29.519 --> 00:27:32.240 the gaming sale, plus enormous leverage, to secure 00:27:32.240 --> 00:27:34.279 a massive piece of the world's most dominant 00:27:34.279 --> 00:27:36.819 short - video and advertising market. That's 00:27:36.819 --> 00:27:38.480 a company that has zero intention of playing 00:27:38.480 --> 00:27:41.779 small. They are betting their entire future on 00:27:41.779 --> 00:27:44.819 securing the biggest possible slice of the digital 00:27:44.819 --> 00:27:47.720 ad pie. And the financial results right before 00:27:47.720 --> 00:27:50.740 this pivot show they had already achieved stunning 00:27:50.740 --> 00:27:53.319 efficiency. Oh, if we look at the specific financial 00:27:53.319 --> 00:27:56.039 metrics from their 2024 annual report, so right 00:27:56.039 --> 00:27:59.420 before the divestiture fully closed, the scale 00:27:59.420 --> 00:28:02.059 of their efficiency is just staggering. Their 00:28:02.059 --> 00:28:06.519 revenue stood at U .S. $4 .71 billion. $4 .7 00:28:06.519 --> 00:28:08.839 billion. And the profitability ratios are what 00:28:08.839 --> 00:28:10.559 truly impressed the market, right? Absolutely. 00:28:10.740 --> 00:28:13.940 They reported operating income of U .S. $1 .87 00:28:13.940 --> 00:28:17.500 billion and a net income of U .S. $1 .58 billion. 00:28:17.859 --> 00:28:20.039 A billion and a half in net income. But what's 00:28:20.039 --> 00:28:21.859 even more remarkable is the efficiency ratio. 00:28:22.119 --> 00:28:24.380 They managed that massive scale and profitability 00:28:24.380 --> 00:28:28.079 with a relatively lean workforce of just 1 ,563 00:28:28.079 --> 00:28:31.039 employees. Wow. That ratio of net income to employee 00:28:31.039 --> 00:28:33.970 count is just. It's characteristic of a highly 00:28:33.970 --> 00:28:36.890 optimized, specialized software business, which 00:28:36.890 --> 00:28:38.890 is exactly the identity they were fighting to 00:28:38.890 --> 00:28:41.190 assume. Precisely. And the market rewarded this 00:28:41.190 --> 00:28:43.410 focus strategy with a stratospheric valuation, 00:28:43.809 --> 00:28:47.109 which became their market apex. Massively. Barron's 00:28:47.109 --> 00:28:50.029 reported in July 2025 that Applovin was valued 00:28:50.029 --> 00:28:53.730 at an astounding $123 billion. $123 billion. 00:28:53.849 --> 00:28:56.369 That represents a peak growth trajectory, soaring 00:28:56.369 --> 00:28:59.410 from that $24 billion IPO valuation in 2021. 00:29:00.319 --> 00:29:03.019 This move just demonstrated the financial community's 00:29:03.019 --> 00:29:05.839 absolute belief in the pure play, high margin 00:29:05.839 --> 00:29:08.799 ad tech model. And reaching that $123 billion 00:29:08.799 --> 00:29:11.519 bracket guarantees a certain level of institutional 00:29:11.519 --> 00:29:14.839 recognition. It secured them elite status. In 00:29:14.839 --> 00:29:17.960 September 2025, just months after the pivot and 00:29:17.960 --> 00:29:20.599 that TikTok bid, Applovin was officially added 00:29:20.599 --> 00:29:23.640 to the prestigious S &P 500 index. They are also 00:29:23.640 --> 00:29:26.140 a component of the Nasdaq 100 index. And that 00:29:26.140 --> 00:29:28.059 inclusion is the ultimate validation, isn't it? 00:29:28.079 --> 00:29:30.079 It signifies that Wall Street views Applovin 00:29:30.079 --> 00:29:32.319 not as some volatile startup, but as one of the 00:29:32.319 --> 00:29:34.519 largest, most stable and most representative 00:29:34.519 --> 00:29:36.859 components of the entire U .S. economy. It's 00:29:36.859 --> 00:29:38.859 the top of the mountain. So we have an S &P 500 00:29:38.859 --> 00:29:43.119 company valued at $123 billion, a triumph of 00:29:43.119 --> 00:29:45.970 mobile data optimization. But as we know, in 00:29:45.970 --> 00:29:48.470 the digital economy, aggressive data practices 00:29:48.470 --> 00:29:51.650 and explosive growth almost inevitably attract 00:29:51.650 --> 00:29:54.589 immense regulatory risk. We have to introduce 00:29:54.589 --> 00:29:57.170 the critical allegations that surfaced right 00:29:57.170 --> 00:29:59.269 around the time of their strategic pivot. And 00:29:59.269 --> 00:30:02.029 it is essential here that we approach this impartially, 00:30:02.170 --> 00:30:04.410 stressing that these were claims made by a short 00:30:04.410 --> 00:30:06.710 seller firm, Fuzzy Panda Research, in February 00:30:06.710 --> 00:30:09.910 of 2025. Right. And short sellers, by definition, 00:30:10.029 --> 00:30:12.890 benefit if the stock price falls. So their claims 00:30:12.890 --> 00:30:15.279 must be viewed in that context. Absolutely. But 00:30:15.279 --> 00:30:17.279 the allegations themselves were severe enough 00:30:17.279 --> 00:30:19.859 to initiate government action. OK, let's detail 00:30:19.859 --> 00:30:22.019 those specific allegations. What exactly did 00:30:22.019 --> 00:30:24.500 the short seller firm claim Applovin was exploiting 00:30:24.500 --> 00:30:26.720 within its sophisticated B2B infrastructure? 00:30:27.440 --> 00:30:30.099 Fuzzy Panda Research alleged three major, very 00:30:30.099 --> 00:30:32.640 damaging issues that struck directly at the integrity 00:30:32.640 --> 00:30:35.160 of their platform. First, they alleged Applovin 00:30:35.160 --> 00:30:37.819 committed ad fraud, suggesting sophisticated 00:30:37.819 --> 00:30:40.779 manipulation of attribution data to claim credit 00:30:40.779 --> 00:30:43.539 for installs they didn't actually generate, which 00:30:43.539 --> 00:30:45.720 would potentially inflate their success metrics. 00:30:45.980 --> 00:30:48.640 Okay. And the second? Second, they claimed the 00:30:48.640 --> 00:30:51.140 company illegally tracked children, which is 00:30:51.140 --> 00:30:53.599 a direct violation of U .S. privacy laws like 00:30:53.599 --> 00:30:57.190 COPPA. And third, and most disturbingly, that 00:30:57.190 --> 00:30:59.769 they served sexual ads to kids representing an 00:30:59.769 --> 00:31:02.470 egregious failure of brand safety controls within 00:31:02.470 --> 00:31:05.069 their network. Let's delve deeper into the technical 00:31:05.069 --> 00:31:08.029 mechanism of these allegations. When a short 00:31:08.029 --> 00:31:11.710 seller claims ad fraud, what specific kind of 00:31:11.710 --> 00:31:14.619 exploit are they usually referring to? in a complex 00:31:14.619 --> 00:31:16.960 mobile attribution system like the one Eplovan 00:31:16.960 --> 00:31:19.660 runs. The fraud allegations often target the 00:31:19.660 --> 00:31:22.660 gray areas of mobile attribution. This can involve 00:31:22.660 --> 00:31:25.099 sophisticated manipulation of attribution windows, 00:31:25.400 --> 00:31:27.619 where the time between a click and an app install 00:31:27.619 --> 00:31:30.180 is artificially shortened or lengthened to claim 00:31:30.180 --> 00:31:32.380 credit for what was actually an organic install. 00:31:32.640 --> 00:31:35.240 Okay. It could also involve things like click 00:31:35.240 --> 00:31:37.940 injection or click spamming, where false clicks 00:31:37.940 --> 00:31:41.119 are generated by noncompliant SDKs, fooling the 00:31:41.119 --> 00:31:43.299 system into believing the user came from a paid... 00:31:43.339 --> 00:31:45.920 channel. And for a company like Applovin, whose 00:31:45.920 --> 00:31:48.720 entire pitch to developers is maximum monetization 00:31:48.720 --> 00:31:52.119 efficiency and honest attribution, these claims 00:31:52.119 --> 00:31:54.859 directly undermine the trustworthiness of their 00:31:54.859 --> 00:31:58.319 core products, AppX and AppDiscovery. It strikes 00:31:58.319 --> 00:32:00.279 right at the heart of their value proposition. 00:32:00.680 --> 00:32:02.859 And the claims regarding illegal tracking and 00:32:02.859 --> 00:32:06.329 inappropriate ads serve to minors. That strikes 00:32:06.329 --> 00:32:09.329 at the regulatory core. Absolutely. Global privacy 00:32:09.329 --> 00:32:12.210 laws, especially COPIA in the U .S. and GDPR 00:32:12.210 --> 00:32:14.490 in Europe, place immense burden on technology 00:32:14.490 --> 00:32:17.309 companies to protect user privacy, particularly 00:32:17.309 --> 00:32:20.029 that of miners. And the sheer volume of data 00:32:20.029 --> 00:32:22.869 Applevin processes through Mopub, Acc, X, and 00:32:22.869 --> 00:32:25.289 Adjust meant that maintaining perfect compliance 00:32:25.289 --> 00:32:27.549 across, what, thousands of games and networks 00:32:27.549 --> 00:32:30.470 must be a massive operational challenge. A huge 00:32:30.470 --> 00:32:32.750 challenge. The allegations suggested that the 00:32:32.750 --> 00:32:34.910 controls were either inadequate or deliberately 00:32:34.910 --> 00:32:37.650 certain. And for a company that aims to be the 00:32:37.650 --> 00:32:40.049 undisputed leader in ad tech, this represents 00:32:40.049 --> 00:32:42.589 the absolute highest level of reputational and 00:32:42.589 --> 00:32:44.670 legal threat. And that threat moved from just 00:32:44.670 --> 00:32:47.170 short seller claims to official government action. 00:32:47.289 --> 00:32:49.690 And it did so shortly after the market validated 00:32:49.690 --> 00:32:52.109 their massive valuation. That is the ultimate 00:32:52.109 --> 00:32:55.390 convergence point of this entire story. In October 00:32:55.390 --> 00:32:58.950 2025, just one month after their inclusion in 00:32:58.950 --> 00:33:01.869 the S &P 500, Bloomberg reported that the SEC, 00:33:02.210 --> 00:33:04.509 the Securities and Exchange Commission, was a 00:33:04.519 --> 00:33:06.559 officially looking into Applevin regarding their 00:33:06.559 --> 00:33:09.599 data collection practices. The SEC's involvement 00:33:09.599 --> 00:33:12.500 elevates the issue from a private market spat 00:33:12.500 --> 00:33:15.660 to a formal governmental investigation into potential 00:33:15.660 --> 00:33:18.140 financial misrepresentations and data compliance 00:33:18.140 --> 00:33:20.980 failures that could affect every single investor. 00:33:21.220 --> 00:33:23.559 So if we look at the whole picture, what is this 00:33:23.559 --> 00:33:26.460 convergence, the $123 billion validation side 00:33:26.460 --> 00:33:29.119 by side with the SEC probe? Tell us about the 00:33:29.119 --> 00:33:32.319 state of modern ad tech. What is the core conflict 00:33:32.319 --> 00:33:34.859 for you to understand? The tension is immense 00:33:34.859 --> 00:33:57.079 and it's deeply informative. It suggests a fundamental 00:33:57.079 --> 00:34:00.220 systemic issue in the broader ad tech ecosystem, 00:34:00.539 --> 00:34:02.980 doesn't it? It absolutely does. Success on this 00:34:02.980 --> 00:34:05.200 scale, which is derived from aggregating and 00:34:05.200 --> 00:34:08.360 optimizing. user data often appears intrinsically 00:34:08.360 --> 00:34:11.340 linked to aggressive or high -risk data utilization 00:34:11.340 --> 00:34:14.340 practices. The market rewards the scale and efficiency 00:34:14.340 --> 00:34:17.519 they provide, giving them that $123 billion valuation. 00:34:18.590 --> 00:34:21.050 But regulators who are finally catching up to 00:34:21.050 --> 00:34:23.090 the speed of data collection are now demanding 00:34:23.090 --> 00:34:25.909 accountability and responsibility. The success 00:34:25.909 --> 00:34:28.329 narrative and the regulatory cloud are two sides 00:34:28.329 --> 00:34:31.090 of the very same coin in the digital age. So 00:34:31.090 --> 00:34:33.789 Apple even now faces this existential challenge 00:34:33.789 --> 00:34:35.869 of proving the legitimacy of the data engine 00:34:35.869 --> 00:34:38.449 that drives their valuation. all while under 00:34:38.449 --> 00:34:41.269 intense federal scrutiny. Exactly. It's the ultimate 00:34:41.269 --> 00:34:43.929 dichotomy. A company that mastered mobile monetization 00:34:43.929 --> 00:34:46.409 now has its future dictated not by engineering 00:34:46.409 --> 00:34:49.389 success, but by legal compliance. We've charted 00:34:49.389 --> 00:34:51.289 an incredible and highly illustrative journey. 00:34:51.909 --> 00:34:54.030 Ablovin moved from operating in stealth mode 00:34:54.030 --> 00:34:56.309 in 2012 through that geopolitical resistance 00:34:56.309 --> 00:35:00.050 of the CFI US block Chinese acquisition and into 00:35:00.050 --> 00:35:02.849 its hybrid identity as both a powerful gaming 00:35:02.849 --> 00:35:05.610 publisher and the dominant ad tech giant. That's 00:35:05.610 --> 00:35:08.170 right. And they spent years meticulously consolidating 00:35:08.170 --> 00:35:10.809 power through these critical strategic acquisitions, 00:35:10.849 --> 00:35:14.909 Max, Safety K, Adjust and MoPub to create that 00:35:14.909 --> 00:35:17.849 seamless end to end mobile ecosystem. And their 00:35:17.849 --> 00:35:20.070 moment of financial supremacy was just spectacular. 00:35:20.329 --> 00:35:24.690 A $24 billion IPO, an audacious $17 .5 billion 00:35:24.690 --> 00:35:27.860 high stakes battle with unity. And that massive 00:35:27.860 --> 00:35:31.099 2025 strategic pivot where they shed their gaming 00:35:31.099 --> 00:35:33.940 portfolio for $900 million to focus entirely 00:35:33.940 --> 00:35:37.000 on the high margin advertising core. This ruthless 00:35:37.000 --> 00:35:40.380 focus culminated in that breathtaking $123 billion 00:35:40.380 --> 00:35:43.039 valuation and inclusion in the S &P 500. And 00:35:43.039 --> 00:35:45.079 the narrative of Apple event is a perfect modern 00:35:45.079 --> 00:35:47.599 case study in tech consolidation. The intense 00:35:47.599 --> 00:35:49.920 efficiency demands of the mobile ecosystem and 00:35:49.920 --> 00:35:51.980 the sheer velocity of capital accumulation in 00:35:51.980 --> 00:35:55.199 digital advertising. But it also profoundly highlights 00:35:55.199 --> 00:35:58.219 the immense regulatory risk associated with operating 00:35:58.219 --> 00:36:00.880 a multibillion dollar business built on data 00:36:00.880 --> 00:36:03.679 collection, especially concerning user privacy 00:36:03.679 --> 00:36:06.559 and minors, as evidenced by those shirt seller 00:36:06.559 --> 00:36:09.360 allegations and the subsequent SEC probe. The 00:36:09.360 --> 00:36:11.719 company mastered the technical aspect of mobile 00:36:11.719 --> 00:36:15.039 monetization. But its next challenge is entirely 00:36:15.039 --> 00:36:17.840 existential proving. Under the highest level 00:36:17.840 --> 00:36:20.679 of regulatory scrutiny, the absolute legitimacy 00:36:20.679 --> 00:36:23.000 and compliance of the data engine that allowed 00:36:23.000 --> 00:36:25.460 them to achieve that status. They scaled faster 00:36:25.460 --> 00:36:27.539 than the regulations could catch up, and now 00:36:27.539 --> 00:36:29.559 the reckoning has arrived. Which brings us to 00:36:29.559 --> 00:36:31.480 our final provocative thought for you to consider 00:36:31.480 --> 00:36:33.900 as you wrap up this deep dive. Think about the 00:36:33.900 --> 00:36:36.500 scale of ambition implied by Applovin's aggressive 00:36:36.500 --> 00:36:39.949 bid to acquire the U .S. assets of TikTok. a 00:36:39.949 --> 00:36:42.150 platform defined by its controversial relationship 00:36:42.150 --> 00:36:44.530 with user data, and then connect that directly 00:36:44.530 --> 00:36:47.530 to the ongoing SEC probe into AppLevin's own 00:36:47.530 --> 00:36:50.090 data collection methods. What does this immense 00:36:50.090 --> 00:36:53.110 high -risk appetite imply about the risk tolerance 00:36:53.110 --> 00:36:55.190 and future strategy of the leaders in the ad 00:36:55.190 --> 00:36:58.789 tech space as global regulation tightens? Are 00:36:58.789 --> 00:37:00.510 they operating with the belief that they can 00:37:00.510 --> 00:37:02.710 simply acquire or scale their way out of any 00:37:02.710 --> 00:37:05.369 regulatory scrutiny, or are they attempting to 00:37:05.369 --> 00:37:06.989 acquire a platform large enough to eventually 00:37:06.989 --> 00:37:09.289 dictate the new rules of the game? Something 00:37:09.289 --> 00:37:10.809 to mull over until our next deep dive.