AppLovin Corp

AppLovin Corporation is a performance-driven advertising technology company dominant in mobile gaming. The company benefits from a self-reinforcing flywheel rooted in its majority share of mobile gaming ad supply, which gives it a unique view of the ad conversion funnel. Its proprietary data has informed the Axon machine-learning algorithm, which helps mobile game developers acquire users at a highly attractive return on investment (ROI). AppLovin now commands over half of the demand side, making it the best place for mobile game developers to monetize their games. The Axon algorithm has significant runway for improvement, currently converting only around 1% of impressions, indicating potential for future growth. Additionally, early results in e-commerce advertising show competitive ROI, suggesting that this market could become as large as gaming in the future.

AppLovin is an advertising technology company offering a digital platform that helps mobile app developers market, monetize, and analyze their apps. We believe the company is experiencing a positive lifecycle change, driven by its AI-powered software engine. While currently focused on mobile gaming, AppLovin is expanding into other market segments. Its Demand Side Platform supports ad placements, user acquisition, inventory matching, and performance analytics. Further, we believe AI is central to AppLovin’s growth, driving a large majority of the company’s revenue through its recommendation and targeting engine. In our view, AppLovin gains a competitive advantage, delivering higher-value app installs by leveraging data from its game portfolio and developer partners.

AppLovin (APP) experienced a decline in the first quarter, primarily due to concerns over competition from Alphabet’s Genie, an AI online gaming platform that poses a potential threat to existing gaming platforms. The broader software sector also underperformed as investors reacted to the disruptive potential of large language models and AI coding tools. The manager believes the sell-off is an overreaction, suggesting that increased complexity in code creation could actually enhance the importance of incumbent software providers, as quality and security become critical. However, the overall sentiment remains cautious given the competitive landscape.

AppLovin Corp. was impacted by the broader software market decline, but it remains on track to deliver on its mobile game advertising and expansion into e-commerce advertisers. The company is positioned to leverage AI as a business accelerant, which aligns with our strategy of investing in software providers that can adapt and thrive amidst technological shifts. Despite recent performance challenges, we believe in its long-term potential and are adding to our position.

We see AppLovin as an early adopter and longer-term beneficiary of AI, as greater gaming and application development should increase the need for discovery. We also believe recent competitive concerns are overblown as the company has successfully competed against Meta for years and there are no signs it is being displaced, particularly as it relates to AppLovin’s higher-value impressions.

AppLovin Corp. is an advertising technology company offering a digital platform that helps mobile app developers market, monetize, and analyze their apps. We believe the company is experiencing a positive lifecycle change, driven by its AI-powered software engine. While currently focused on mobile gaming, AppLovin is expanding into other market segments. Its Demand Side Platform (DSP) supports ad placements, user acquisition, inventory matching, and performance analytics. Further, we believe AI is central to AppLovin’s growth, driving a large majority of the company’s revenue through its recommendation and targeting engine. In our view, AppLovin gains a competitive advantage, delivering higher-value app installs by leveraging data from its game portfolio and developer partners.

We believe that AppLovin is experiencing significant, tangible benefits from AI. They are not generating incremental profits from new generative AI use cases, but rather by replacing their CPU 'recommender' engines with GPUs to enable hyper-targeting of content and ads across a broad user base. This results in tangible cash-on-cash investment returns, making it a more appealing bet on their unique distribution abilities and product ecosystems to implement AI technology at scale.

Top contributor AppLovin, a mobile technology company specializing in gaming and e-commerce monetization and marketing, rallied on continued investor excitement about the launch of its e-commerce business in the fourth quarter. A longtime holding, AppLovin continues to deliver best-in-class AI demand generation to its customers, and we believe this new e-commerce business has the potential to further drive incremental cash flow growth.

AppLovin, which runs an AI-powered digital ad targeting engine, was a strong contributor to the Strategy's performance. The company is positioned well within the AI landscape, benefiting from the ongoing demand for AI applications. This aligns with the broader trend of AI winners gaining traction in the market, suggesting a favorable outlook for AppLovin as it capitalizes on its technology and market position.

AppLovin's stock was boosted by the company's use of AI to improve ad targeting on mobile games. Demand for its products continued to grow strongly the past three months, as the firm expanded its platform to connected TV apps and e-commerce. This growth reflects the company's durable competitive moat and innovative approach in the digital advertising space, positioning it well for future success.