The speaker, Adam, the CEO of AppLovin, shares his company's journey from IPO to stock collapse, a massive stock buyback, and their unique business philosophy.
**The IPO and Stock Collapse (2021-2022):**
* AppLovin went public in April 2021 at a $28 billion valuation, briefly hitting $40 billion.
* The stock then plummeted throughout 2022, dropping from $115 to $9 a share, reaching a market cap floor of $3.8 billion – a 92% decrease.
* This happened despite strong business performance: $700 million EBITDA in 2021, growing to over $1 billion EBITDA in 2022.
* **Reasons for the collapse:**
* The "tough space" of advertising and gaming, which public markets find hard to understand.
* Too many IPOs during COVID; large institutional investors (Fidelity, BlackRock) couldn't differentiate, leading to a "cap table that didn't have support."
* An initial flood of shares from private company investors selling, causing the stock to crumble and appear "broken."
**The Strategic Stock Buyback (2022-2023):**
* Adam's response to the market sentiment: "If no one's going to buy our shares, why don't we just start buying our own shares?"
* At the bottom, the company had a $3.8 billion market cap and over $1 billion in annual EBITDA, meaning they were generating 1/5th of their market cap in cash flow annually.
* They kicked off a "really successful buyback" by targeting private equity investors and former founders who owned about 50% of the shares and were likely sellers.
* Over 18 months, AppLovin deployed approximately **$6 billion** in buybacks, using company capital and leverage.
* Adam believes this buyback ultimately generated "somewhere in the neighborhood of $50-60 billion of actual proceeds," making it "one of the more successful buybacks in the history of companies."
* He defends the decision to borrow money for buybacks: "I never believed in saving cash for a rainy day. I feel like I'm a big believer in what we're building... if I believe in the future and we're a really high cash-generated business, we should always be buying back our shares." The board was supportive due to the attractive 5x cash flow multiple.
**Founding Story & Early Challenges (Pre-2012 to 2015):**
* **Personal Background & Motivation:** Adam's family was uprooted from Iran when he was four; his father lost a successful real estate business. This instilled an obligation to succeed and a "chip on his shoulder." He looks for this drive in his employees.
* **Previous Ventures:** He had two successful advertising businesses (desktop-based) before AppLovin, selling them by 2010.
* **AppLovin's Inception (2010-2012):** Initially sought to build consumer apps (dating, fashion, app discovery) seeing the shift to mobile. These failed, but the app recommendation algorithm (for app discovery) showed potential.
* **Pivot to Ad Network:** Realizing the power of the recommendation algorithm, they scrapped the consumer app and launched AppLovin as an ad network in March 2012, building an SDK for other apps.
* **VC Rejection:** Adam initially sought $1 million for 25% of the company in 2012 but was rejected by top VCs. They saw advertising and gaming as a "tough pitch" dominated by Google/Facebook. This rejection fueled his motivation, especially when VCs later funded competitors with the same idea.
* **Bootstrapping & Early Growth:** The company was bootstrapped for the first 1.5 years. It quickly grew from launch to a $1 million monthly run rate in 8 months, becoming profitable.
* **Acquisition Offer (2015):** AppLovin grew to over $50 million EBITDA. Adam walked away from a $600 million cash acquisition offer (e.g., from Snapchat), believing the company was worth more (closer to $1 billion). He credits not having a board at the time for allowing him to make this decision without external pressure.
**Capital Market "Mistakes" & KKR Investment (2016-2018):**
* **The Chinese Deal:** In late 2015, seeking liquidity for his team, Adam pursued Chinese investors. He announced a $1 billion private equity investment at a $1.4 billion valuation from Orient Hontai Capital, intending to take the company public in China and give Chinese investors 70% control.
* **CFIUS Scrutiny:** With the election of President Trump and rising US-China tensions, the deal faced intense scrutiny from CFIUS (Committee on Foreign Investment in the United States), which investigated national security concerns over foreign ownership of a large US data platform. Adam, a "Persian CEO" with a "Russian CTO" selling to a Chinese company, realized the difficulty of the situation.
* **Resolution:** He pivoted the deal to a $1 billion convertible note, which paid a dividend to shareholders but gave the Chinese investors only 10% equity upon conversion, avoiding control issues. This, however, left AppLovin with massive convertible debt.
* **KKR to the Rescue:** KKR invested in 2018 to clear this debt, bringing in traditional US capital and creating a "clean cap table." This also led to the formation of AppLovin's first formal board (Adam, Eduardo Vivas, Harold Chen from KKR). Adam regrets not having a board earlier to guide him through these capital market complexities.
**Strategic Shift: Gaming Studios for Data & Axon Platform Evolution (2018-Present):**
* **The Data Problem:** To build a more robust, powerful machine learning model (like Facebook's), AppLovin needed diverse advertiser data beyond just game types. Advertisers, however, wouldn't share their data directly.
* **Vertical Integration:** AppLovin decided to acquire gaming studios (eventually 14-15 of them) to both understand developer needs and feed their valuable in-game purchase data into their advertising model.
* **Client Distrust:** This move initially caused distrust among gaming clients who feared AppLovin would compete with them using their data. Adam, who "hates games" himself and only cared about the data, held numerous transparent conversations to rebuild trust.
* **Axon 1 & Axon 2:**
* **Axon 1 (Traditional ML):** The first ML model, a significant upgrade from rules-based, boosted revenue.
* **Axon 2 (Deep Learning):** Rolled out around April 2023, this deep learning model dramatically improved predictive value. It enabled advertisers to achieve "arbitrage," where they could spend $1,000 and be certain to make back more than $1,000, allowing them to scale their businesses significantly.
* **Divesting Gaming Studios:** Once the Axon model was robust and widely adopted, AppLovin sold off the gaming studios (e.g., to Tripledot). Adam realized they were a "headache" and a "distraction" from their core advertising platform, employing 1,500+ people compared to the 400 in the core ad business.
* **Post-Axon 2 Growth:** The stock soared from $9-11 in April 2023 to a peak of $750, with the market cap reaching $250 billion.
**Team, Culture, and AI-Driven Efficiency:**
* **Lean, A-Player Culture:** AppLovin operates with a remarkably small team (350-400 employees for a multi-billion dollar cash flow business).
* **Post-Collapse Talent Strategy:** During the 2022 stock crash, Adam refined his compensation strategy:
* Lower-paid employees were shifted to cash compensation if needed.
* Only critical engineers and product people (around 100 individuals) received equity, recognizing their long-term importance.
* **Ruthless Efficiency:** Adam believes "A players don't like to work with B, C's, D's." In 2023, while the business grew 100%, he fired approximately 40% of the team to "distill it down to these A players."
* **Giovanni's Impact (CTO):** The new CTO, Giovanni (joined Nov 2022), questioned existing processes and roles, leading to further streamlining and a re-evaluation of the company's culture for the age of AI.
* **No "Backfill" Policy:** Adam personally approves all new hires, moving from hundreds of annual hires to mere tens, ensuring every new role is truly essential.
* **Lean C-Suite:** The C-suite consists only of the CEO, CFO, CTO, and General Counsel – no CRO or COO, a rarity for an advertising company of its scale.
* **AI Integration:** Over 80% of AppLovin's code was LLM-written over a year ago, now even higher. AI tools allow "10x engineers" to become "100x more efficient," accelerating research and model improvements.
**Future Vision:**
* Adam envisions a "trillion-dollar outcome" for AppLovin, with compensation plans for key personnel tied to this ambitious goal.
* He sees massive tailwinds from AI, enabling smaller, highly competent teams to achieve disproportionate results.
* **Expansion Beyond Gaming:** The platform is expanding beyond mobile gaming to e-commerce, eventually targeting *any* business (from small shopify stores to "the local laundromat").
* He believes their strong audience (1 billion+ adult mobile gamers watching 35-second ads) combined with improving AI-driven targeting will make the ad experience more like "content," increasing value for both consumers and advertisers.