Mobile gaming company AppLovin closed down 18.5% on Thursday after beginning trading on the Nasdaq under the ticker “APP.” With shares at $65.20, the company has a market cap around $23 billion.
The nine-year-old company is just the latest in a wave of gaming IPOs, with gaming software developer Unity Software launching its own in September, Israel’s Playtika in January and kids game company Roblox in March. IronSource, which provides ad services for app-based game developers and makes games of its own, also plans to go public via a SPAC merger.
AppLovin said it holds about 1% of market share of the $189 billion global mobile apps market, which has exploded during a stay-at-home year.
“We’ve been seeing it since we started the business; people are using their phones four or five hours a day. Mobile apps are the most accessible and affordable forms of entertainment, the best transactional commerce access points,” founder and CEO Adam Foroughi told CNBC.
Foroughi said when he started the business, it was focused on building a tech platform for mobile app developers to grow their apps by marketing using its software.
“For nine years, we built that. We got to distribution of now seeing over 400 million customers on our platform every single day. Then in 2018, we got into content ourselves, and started building effectively original content,” he said.
“We have over 200 apps [and] over 200 million people are playing games of ours every single month,” he said. “And those games, our own content, build this valuable audience insight data that then feeds our software platform, and makes it even more efficient at driving value to the customers that we have in terms of getting their apps discovered.”
AppLovin’s business is now split between games and marketing tools that other game developers use for app discovery and promotion. Last year, 49% of revenue came from businesses using its software and 51% came from consumers making in-app purchases.
In 2016, AppLovin agreed to be acquired for $1.4 billion by Chinese private equity firm Orient Hontai Capital, but that deal fell apart the following year and turned into a debt investment. AppLovin then sold a minority stake in 2018 to KKR, valuing the company at $2 billion. Since then, AppLovin has been on a buying spree to bolster a position in game development. AppLovin said in its prospectus that it’s invested $1 billion across 15 acquisitions and partnerships since 2018.
“We have this tech platform for app developers to help them grow, by getting them discovered, and then what we needed to improve the software were owned audience insights. We wanted first-party data on the audience that we saw,” Foroughi said. “Our own content gives us much better audience insights than we would otherwise get, because otherwise, we just have third-party data.”
Foroughi compares the strategy to that of Netflix.
“That first-party data feeds our software, and then creates the ability for us to be much better at recommending future content to customers,” he said. “I guess maybe the best analogy to really compare that to is how Netflix took their own data on their platform and rolled out personalized recommendations … then they layered on their own original content, which exploded the amount of consumption on their platform and gave them more insights into their audience — replicating that same playbook in a new media format.”
Like other companies in the mobile space, AppLovin will have to grapple with the fallout from Apple‘s upcoming privacy change to the way it tracks users. Foroughi said the company’s first-party data play should help.
“We thought about it when we got into content ourselves, not knowing that we were thinking about it, but we knew the power of first-party data,” he said. “The core part of our technology depends on insights we gather from our own relationship with consumers. The Apple privacy change is meant to govern first-party sharing data with third parties. So we actually think we’re in a very good spot to continue to execute on our vision going forward.”
Earlier this year, AppLovin acquired Adjust, a German app distribution and analytics company, for $1 billion in cash and stock. Foroughi said his own company didn’t have much of a sales force, so the Adjust acquisition brought the company a couple hundred seasoned sales employees as well as marketing talent to help it try to sell to a broader set of mobile app developers.
Though press reports in the past have said the company was named after “McLovin,” a character from the 2007 film “Superbad,” Foroughi said that isn’t the case. Maybe.
“I don’t know if subconsciously I’m a ‘Superbad’ fan and that’s where it came from, but it truly was just an $8 domain name,” he said. “And it was goofy and cute at the time. And so we picked it and grew into a really big business with a goofy name. It did lead to a great stock ticker.”
— CNBC’s Ari Levy contributed to this report.