Source: Zhixdong
Author: Xu Yu

AI business applications have already emerged as a dark horse in the AI field this year!

The stock price of a major usa AI advertising marketing company $Applovin (APP.US)$ has skyrocketed from $38.78 per share at the beginning of the year to $359.1 per share, far exceeding the increase of the usa AI computing giant nvidia from the start of this year until the stock split on June 7. AI is the key contributor to its astonishing stock price trajectory. Today, us stocks continued to rise in early trading, with AppLovin increasing by over 5%, setting a new historical high, with a cumulative increase of about 800% within the year.

In the latest financial report, AppLovin's quarterly revenue is $1.2 billion, a year-on-year increase of 39%; net income is $0.434 billion, a year-on-year increase of 300%. The growth in performance mainly comes from the optimization of its AI advertising engine AXON 2.0 on the overall advertising business. During the same period, AppLovin's advertising technology platform achieved an adjusted profit margin of 78%.

This has left many companies desperately searching for ways to monetize AI in awe!

At a time when most AI companies face challenges in commercialization, AppLovin has emerged as an exception, achieving a stunning turnaround through its AI transformation, surpassing industry growth and becoming a favorite on Wall Street with a market cap exceeding 100 billion dollars.

This is all due to its discovery of the "gold mine" for AI-optimized marketing placements.

In February 2023, AppLovin launched the AI engine AXON 2.0 and introduced it to two key platforms: the one-stop advertising marketing platform AppDiscovery and the AI advertising creation platform SparkLabs.

The former focuses on ad placements, effective views, precision in guiding target users, efficiency, and monetization effects, similar to the widespread push notifications on Douyin, which everyone is familiar with.

The latter primarily uses AI technology to create various advertising materials, such as mini-games that pop up while watching videos or are embedded in article content for traffic generation. AppLovin refers to these types of ad-related mini-games as "meta-games," which typically redirect users to similar mini-games from different developers.

AppLovin has been building its AI advertising ecosystem for three years, gradually forming a complete intelligent solution. Currently, its daily active users reach 1.4 billion, comparable to international streaming application TikTok and the domestic social software WeChat.

Thanks to the company's strong performance and stock price, several executives at AppLovin have successfully benefited from the rapid growth of the AI industry.

As of this writing, AppLovin co-founder, chairman, and CEO Adam Foroughi has a personal net worth of 10.2 billion dollars, ranking 256th on the 2024 Forbes Global Billionaires List. Meanwhile, he ranks among this year's Bloomberg Global 200 Billionaires List with a personal net worth of 12.7 billion dollars. According to Forbes statistics, during the same period, Nvidia founder and CEO Jensen Huang had a personal net worth of 121 billion dollars, ranking 11th globally; PDD Holdings founder Huang Zheng had a personal net worth of 34.9 billion dollars, ranking 51st globally, with Bloomberg's billionaire rankings showing roughly the same data.

In comparison, numbers like "10.2 billion dollars" and "256th" might not seem impressive. However, in the 2022 Forbes Global Billionaires List, Adam Foroughi's personal net worth was only 1.3 billion dollars, which has increased nearly seven times in two years. His latest global ranking has also jumped by a decimal point from the thousands to the hundreds compared to 2022.

As of November 23, AppLovin has five executives on the 2024 Forbes Global Billionaires List, ranked from highest to lowest: co-founder and CEO Adam Foroughi, early investor Ling Tang, co-founder and VP of Product Andrew Karam, co-founder and CTO John Krystynak, and former president and chief financial officer Herald Chen.

On November 7 alone, Foroughi's personal net worth increased by more than 2 billion dollars.

1. AI voice serves as the muse for advertising marketing, doubling its awards in just one year.

In the following advertisement, the monalisa group AI character will "change faces" and "change outfits," seamlessly switching styles across centuries.

This stylized monalisa video clip comes from AppLovin's SparkLabs team. According to their studio, SparkLabs is a large advertising material library.

After combining with generative AI technology, the team can not only shorten the time required to customize advertising material segments according to advertisers' needs to one to two weeks, but also significantly reduce production costs. According to their official website, they can even generate AI advertisements for free.

Currently, SparkLabs' interactive trial advertisements can achieve an average IPM improvement rate of 250%, while video advertisements dynamically showcasing gameplay can achieve an average IPM improvement rate of 200%. In addition, SparkLabs can also generate static display ads and CTV ads for connected television scenarios.

Comparing SparkLabs' performance-driven ad trends report this year with last year's, it is not difficult to notice that its key phrases have shifted from "customization", "immersive", and "resonating with users" in 2022, which barely mentioned AI, to "generative AI tools + creativity" in 2023, with the term "AI" appearing 17 times throughout the text.

In 2023, the SparkLabs team increased its use of AI technology in advertising creative design and material production by nearly three times, primarily for generating models, aesthetic styling, and generative text-to-speech. For example, using AI voice generation technology, SparkLabs can provide voiceovers for video advertisement materials, also reducing the time and communication costs associated with outsourcing these tasks to other teams.

Official data from SparkLabs shows that the number of awards received for advertising creative designs using AI voice generation technology increased by 118% compared to 2022. Additionally, the total number of advertising creative designs using generative AI technology in scenarios such as video, interactive ads, connected television, and app store optimization (ASO) increased by 220% compared to 2022.

In daily advertising workflows, SparkLabs has established an AI working group to oversee the usage of generative AI technology, explore new features, and promote it among employees. The plan is to ensure that everyone in the team learns to use generative AI technology to find new advertising creative inspiration and improve work efficiency. SparkLabs discovered in its 2023 annual review that AI tools saved them 1,600 hours in their advertising creative workflow.

Generally speaking, after integrating generative AI technology, these AI advertisements are more impactful in visuals and logically unconventional. Advertisers and platforms capitalize on this to increase advertisement click rates and application downloads. Domestically, baidu marketing and bluefocus intelligent communications group have also sensed the business opportunity of AI transforming traditional advertisement formats.

Unlike AppLovin, baidu marketing relies on baidu's Wenxin large model and mainly adopts the approach of customizing personalized AI agents for each user to implement a new advertising marketing model. Currently, the Wenxin agent platform has over 0.15 million enterprise users and 0.8 million developers.

The 'Blue AI' marketing industry model developed by bluefocus intelligent communications group integrates AI large models and generative AI tools from companies like baidu, tencent, and microsoft, providing services such as content generation, thinking assistance, and user experience innovation for various marketing stages.

Both baidu marketing and bluefocus intelligent communications group's AI advertising marketing applications are similar to AppLovin, utilizing AI technology to produce some advertising content and optimize the effects of ad deployment and promotion.

2. Upgraded a generation of AI advertising engine, profits increased by over 60%.

The software platform and applications are the two main businesses of AppLovin, with the former including a series of advertising technology platforms like AppDiscovery, and the latter comprising ten game studios including Lion Studios, Clipwire Games, Machine Zone, Belka Games, Athena Studio, and their respective game operations.

Among them, the company's advertising technology platform offers a one-stop advertising operation product for mobile devices and connected televisions (CTV), covering aspects such as advertisement design, precise delivery, data monitoring, and performance optimization.

Specifically, there is AppDiscovery, which is mainly responsible for finding advertisement target users, SparkLabs for designing and producing advertisements, and Max, ALX, Array, and Adjust for visualizing advertisement monetization effects.

In addition, on the CTV side, advertising marketing scenarios, timing, and users are matched, increasing users' viewing time for advertisements and tools for monetizing advertising content, which are additionally integrated into a platform called Wurl. According to the introduction on AppLovin's official website, the Wurl platform adopts the industry's first machine learning solution for CTV.

AXON is a set of machine learning algorithms independently developed by AppLovin, first launched in 2021, and upgraded to version 2.0 in 2023, used for driving advertising marketing and monetization for gaming business, and also serves as the core AI technology of the advertising technology platform.

For example, the intelligent advertising customer acquisition platform AppDiscovery targets global users with advertising marketing based on AXON's targeting, automatically optimizing the marketing effectiveness and discovering potential target users, thus significantly increasing advertisers' profits.

From AppLovin's recently released third quarter financial report for the 2024 fiscal year, the company's total revenue for this quarter was 1.2 billion USD, a year-on-year increase of 39%, exceeding the London exchange's expected 1.13 billion USD. This revenue growth is mainly attributed to the continued optimization of AXON, and this phenomenon is more evident than in the past few quarters.

Driven by more upgraded models such as AXON 2.0, the revenue of AppLovin's advertising technology platform reached 0.835 billion USD in the third quarter, a year-on-year increase of 66%; adjusted EBITDA reached 0.653 billion yuan, accounting for 78% of the business revenue.

Moreover, compared to the previous quarter, the revenue growth rate of the advertising technology platform has significantly increased this quarter. The revenue for this business was 0.678 billion USD in the first quarter and 0.711 billion USD in the second quarter.

The company stated in the shareholder letter that as the AXON AI advertising engine continues to self-learn and is continuously improved by the AppLovin engineering team, the advertisers that cooperate with it can more effectively and extensively deploy advertisements.

AppLovin has validated the strong monetization capability behind AI advertising in the global advertising marketing market with its excellent performance.

According to the financial report, AppLovin's software platform provides advertisers with over 1.4 billion daily active users (calculated based on mobile apps that use the AppLovin SDK), offering broad advertising coverage and high return on investment for advertisers, while providing mobile app developers with greater app exposure and download volumes.

The domestic A-share listed company Tianyu Digital Technology is also working on intelligent recommendations through its mobile application distribution platform. The person in charge of related business at Tianyu Digital Technology told Zhixiaowei that in the competitive 'arms race' of traffic generation for generative AI products, its platform has served numerous leading AI products this year, including Kimi, Zhiyu Qingyan, Wenxin Yiyan, Doubao, and Xingye, resulting in a 26% year-on-year revenue growth for the platform.

3. Going against the trend to IPO through gaming, with nearly 7.2 billion yuan spent to buy out.

AppLovin co-founder Furugi is an Iranian-American, and in the talent-rich Silicon Valley, he did not follow the script of becoming famous at a young age.

Furugi was born during a time of political turmoil in Iran. He recalled during an early interview with Yahoo Finance that his family fled from Iran to France before immigrating to the USA in 1984. At that time, Furugi was only 4 years old.

Influenced by his father, the seed of entrepreneurship was planted in Furugi's heart early on. His father was once one of the more powerful real estate developers in Iran, but after fleeing the war to come to the USA, Furugi said, "his father was never able to regain what he had in Iran." This has inspired Furugi to achieve great things since his father's passing.

After graduating from the University of California, Berkeley with a degree in finance, Furugi tried several jobs in the finance industry. His LinkedIn page mentions that in August 2008, he co-founded a mobile digital marketing company called Social Hour and served as its CEO. There was also mention in Forbes about his founding another mobile digital marketing company, Lifestreet Media.

In 2012, Furugi, Kermbai, and Kalram teamed up to establish AppLovin, with Kermbai serving as CTO and Kalram as vice president of product. At that time, Furugi was just over 30 years old.

Over the past 12 years, perhaps in some way reflecting the twists and turns of his life as CEO, AppLovin's development path has also carried a certain degree of conflict.

After being hindered in its plans to enter the Chinese market, the company primarily relied on the good performance of its gaming business to successfully launch an IPO in the USA, but the next year, its market cap shrank by nearly 90%. However, the continuous growth of revenue from its advertising technology platform since 2023 has led to a rebound in stock prices.

According to Naavik, a gaming industry research company, AppLovin has been considered an advertising technology company since its establishment. In its early years, due to its small size, advertisers and publishers in the market were reluctant to share user data with the company. Despite already being profitable at that time, the three founders only raised $4 million from angel investors.

Considering the need to obtain firsthand user data in order to compete with major streaming companies like Google and Facebook (now renamed Meta), AppLovin began to expand into game development, marketing, and promotion in 2018, and aggressively acquired game studios or collaborated with some game studios. Official documents from the company mentioned that these acquisitions and collaborations cost over $1 billion.

According to statistics from Crunchbase, a venture financing database in the usa, AppLovin has completed a total of 10 acquisitions since its establishment, including the acquisitions of Belka Games, Machine Zone (MZ), Clipwire Games, Wordle, and other game studios and developers from 2018 to 2022. This way, aside from using firsthand data to train its algorithms, it could also invest money to enhance the accuracy of pushing these games to target users, leveraging its advertising technology to promote the development of new businesses.

In addition to mainstream third-party games, AppLovin has also developed a large number of leisure mini-games. From its official website, it can be learned that for example, the game studio Lion Studios established by the company in August 2018 has launched at least 70 games, including popular mini-games like "Mr. Bullet", "Avril's Tattoo Shop", and "Save Little Buddy", which have topped the free game charts on the App Store or Google Play.

Additionally, AppLovin has also aimed at the chinese gaming market. In September 2016, the company announced plans to sell a majority stake to a private equity firm named Dongfang Hongtai Capital based in shanghai, china, with the transaction valued at $1.4 billion. Furugi believed this move could increase AppLovin's valuation and help the company seek opportunities for going public in china. However, due to restrictions from the stagnation of the usa-china trade war at that time, this acquisition plan ended in failure.

At the beginning of 2017, Dongfang Hongtai Capital acquired 9.98% of AppLovin's shares for $0.14 billion in equity financing, and later in November of the same year, it added $0.841 billion in debt financing. The well-known usa private equity firm KKR acquired a minority stake in AppLovin for $0.4 billion in July 2018. According to Reuters, the transaction with KKR pushed AppLovin's valuation to $2 billion.

However, AppLovin did not stop seeking an IPO. On March 2, 2021, it announced that it had submitted an IPO application to the nasdaq. About a month later, AppLovin officially landed on the usa stock market on April 15, with an issuing price of $80 per share, raising a total of $2 billion and achieving a valuation of $25 billion. This was one of the few tech stocks that emerged during a generally sluggish financing market that year.

According to Naavik's statistics, as the gaming business continued to expand, at the time of the IPO, this business accounted for more than 80% of the company's total revenue. IPO documents showed that AppLovin's total revenue in 2018, 2019, and 2020 was $0.48 billion, $0.99 billion, and $1.45 billion, respectively, with a year-on-year growth of 106% in 2019 and 46% in 2020.

By 2022, the impacts of the COVID-19 pandemic and stricter advertising tracking permissions had diminished the growth potential of the mobile gaming market to some extent. These effects also extended to AppLovin. The company's market cap shrank by nearly 90% that year, and it reduced the number of its game studios from 20 to 11, thereby focusing more on the operation of its advertising technology platform.

Subsequently, AppLovin gradually shifted its research and development investment towards its self-developed AI advertising engine, AXON. As of today, the advertising technology platform equipped with AXON 2.0 has become the company's main growth engine. During this period, AppLovin also continued to explore AI technologies such as AXON and generative AI, applying innovative solutions across various verticals including gaming, connected television (CTV), e-commerce, and social media.

4. Conclusion: AI reshapes the traditional advertising industry, while advertising supports AI startups in making profits.

As a multifaceted warrior combining AI technology, advertising marketing, and game development, AppLovin has received positive market feedback, confirming that AI technology can drive innovations from advertising creation to dissemination models.

The wave of generative AI is bringing new growth to advertising marketing. Microsoft and Snap are attempting to advertise in AI chatbots in a more 'seamless' and 'invisible' manner. Google can utilize generative AI technology to create advertising images, text, and video content, and also implement intelligent bidding and dynamic display advertising through AI tools. Meta has launched the AI advertising creation platform AI Sandbox, which leans towards AI-generated content and rapidly links advertisers to their own brand materials. TikTok has begun using generative AI technology to write advertising scripts.

Advertising has also become an important scene for the commercialization of AI technology. AI companies like Perplexity, which previously rarely sought advertising revenue, are gradually moving towards advertising profit models, attempting to incorporate ads into their AI products in search of diversified monetization methods.

Editor / jayden