The AI application end continued to rise in the afternoon of November 11th, with AI advertising leading the way. BlueFocus Intelligent Communications Group, Genimous Technology, Simei Media, and Tvzone Media all hit the limit up, while Beijing Ultrapower Software, Zhejiang Jinke Tom Culture Industry, and Guangdong Tloong Technology Group quickly followed the rise.

On the news front, driven by the significantly exceeded expectations in the Q3 2024 performance and AI empowerment expectations, the stock price of the US-listed company AppLovin surged 72% to $290 in the last two trading days of last week, with a market cap once surpassing the trillion-dollar mark. The stock has risen by 627% since the beginning of the year, far exceeding Nvidia's 206% rise during the same period.

Adam Foroughi, the founder of AppLovin, has seen his wealth soar along with the stock price, reaching a net worth of $10.9 billion, ranking 251st on the world's rich list.

On November 7, 2024, AppLovin's third-quarter report showed quarterly revenue of $1.198 billion, a 39% year-on-year increase, exceeding market expectations by 5.9%; net income of $0.434 billion, a 300% year-on-year increase, with a net margin of 36%; adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $0.722 billion, surpassing market expectations by 12.4%, with an adjusted EBITDA margin increasing by 11.7 percentage points to 60% year-on-year.

Its software platform revenue increased to $0.835 billion, a 66% year-on-year increase, with the software platform's adjusted profit margin reaching 78%. AppLovin attributes its success to the AXON 2 AI-driven technology used on its AppDiscovery platform, with improved tool performance leading to increased ad spend by advertisers.

The company's fourth-quarter guidance remains strong, with revenue guidance of $1.24 billion-1.26 billion, corresponding to a year-on-year growth of 30%-32%; adjusted EBITDA guidance of $0.74 billion-0.76 billion, with an adjusted EBITDA margin of 60%.

During the earnings conference call, Foroughi stated that AppLovin's goal is to achieve a growth rate of up to 30% per year, partly due to its AI-driven Axon 2.0 advertising engine.

The AI upgrade empowers the advertising business, bringing a large amount of cash flow.

How did AppLovin, which started as an advertising company, become the 'AI darling' of Wall Street?

Currently, AppLovin is both an advertising platform, a game publisher, and an application development tool provider. Its software platform business has low marginal costs, consistently contributing to high profit margins and high cash flow for AppLovin. After the adjustment of the software platform business in 2Q24, the company's EBITDA margin reached as high as 73%, and the overall free cash flow/adjusted EBITDA ratio reached 74%.

In terms of the software platform business, AppLovin provides end-to-end software and AI solutions to help clients expand their business and monetize, with core products including AppDiscovery, MAX, Adjust, among others. AppDiscovery helps developers target users more accurately, increase app exposure, and downloads; MAX provides a fair and transparent trading platform for advertisers and publishers.

AppLovin also owns game studios like Lion Studios, developing a variety of popular mobile games covering genres such as leisure, match-three, card/casino, core, and hyper-casual games.

AI tools have helped increase its advertising monetization rate, becoming the main highlight of AppLovin's software platform business.

Since the first half of 2023, the company has actively embraced the wave of AI upgrades, with two key AI iterative achievements. First, upgrading the AI algorithm to version 2.0 has made Campaign delivery more precise on the target side; second, the efficiency of producing high-quality materials has been greatly enhanced in SparkLabs.

Since the launch of the AI advertising engine AXON 2.0, AppLovin's business has achieved growth far exceeding the industry average, with a 75% increase in advertising revenue in 2Q24. AXON 2.0 uses self-learning technology, continuously improving as it scales up, establishing the company's core competitiveness.

Successful cases of improving advertising success rates through AI tools include:

With the AI new algorithm 2.0, AppLovin optimized the advertising performance of the popular synthesis elimination game "Alice's Dream" under the sub-brand Chizi City in just a few days, ultimately increasing its daily consumption by six figures within a week, with even better results.

The original game 'Legend of Slime' like 'Slime' received lower CPM after integrating AppLovin's MAX. With the support of AppDiscovery and SparkLabs (AppLovin's creative studio), the overall eCPM increased by 12%.

As of now, AppLovin's operating activities have net cash and free cash flow as high as 0.551 billion USD and 0.545 billion USD, respectively, with a year-on-year increase of 177% and 182%. The company plans to repurchase a total of 5 million Class A common shares at a total cost of 0.437 billion USD. Additionally, the AppLovin board of directors has increased the company's share repurchase authorization by 2 billion USD, raising the total remaining authorization to 2.3 billion USD. The future repurchase funds will be allocated from free cash flow, which is bullish for the company's performance in the capital markets.

Currently, leveraging AI tools, AppLovin is actively expanding beyond the gaming field, with e-commerce being the company's current key breakthrough area. "The growth rate of mobile game advertising clients will reach 20%-30%, and we are also exploring new areas, as recent e-commerce pilot projects have shown. Early data has exceeded expectations: advertising clients are seeing significant returns, with traffic growth in many cases nearly doubling." Foroughi stated in a shareholder letter.

Shinda Securities previously released a research report stating that marketing may be the fastest area for AI commercial realization. GF Securities indicated that AI marketing tools of domestic marketing companies are being successively implemented, and suggested monitoring the pace of product iteration and commercialization progress of domestic marketing companies in 2024.

According to 'Star Daily', incomplete statistics show:

Three's has stable partnerships with multiple industry-leading clients and collaborated with iFlytek to launch a multi-modal AI product in the marketing field called 'AI'.

As a leader in the domestic elevator media industry, Focus Media enjoys the right to negotiate prices, insists on optimizing customer structure and location resources, and its marketing vertical model has been fully deployed.

BlueFocus Intelligent Communications Group has obtained the official AI call and training license from Microsoft Cloud, released Blue AI, and continues to iterate and optimize.

InMyShow Digital Technology has launched Kreado AI, an AI marketing product for small and medium-sized advertisers.

Zhewen Interactive Group's virtual marketing digital human is expected to significantly increase in intelligence.

Megajoy Media, Visual China Group, InMyShow Digital Technology, and Beijing Quanshi World Online Network Information are expected to benefit from the increase in valuation of the AIGC theme.