What happened
Shares of mobile-app developer and software company AppLovin (APP 2.56%) soared higher on Thursday after the company released financial results for the first quarter of 2023. As of 10 a.m. ET, AppLovin stock was up 24%.
So what
In Q1, AppLovin generated revenue of $715 million, up 14% year over year and well ahead of management's guidance of $685 million to $705 million. The star of the show was AppLovin's software segment business, which saw 199% revenue growth compared to a 29% drop for its apps segment.
NASDAQ: APP
Key Data Points
However, there's an asterisk with AppLovin's software revenue growth. When the company acquired MoPub in early 2022, it was forced to pay out a one-time bonus to publishers that reduced revenue from an accounting perspective. Adjusting for this expense puts revenue much higher for the first quarter of 2022. Therefore, software revenue was really only up 8% year over year.
AppLovin's software business helps third-party app companies get their apps discovered and monetized through advertising. But to improve its services with first-party data, AppLovin also has a portfolio of apps and app studios. For management, this part of the business isn't as important. Therefore, it's been getting rid of underperforming assets here; hence the big drop in revenue for its apps segment.
By optimizing its portfolio, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for AppLovin's apps business grew 35% in spite of the revenue decline. And from these optimizations and its revenue outperformance, overall adjusted EBITDA of $274 million was ahead of management's guidance of $250 million to $274 million.
By beating on the top and bottom lines, AppLovin pleasantly surprised investors today, pushing the stock price up.
Now what
AppLovin's management is guiding for second-quarter revenue of $710 million to $730 million. At the midpoint of this guidance, that's a 7.2% year-over-year decline. In short, the app economy remains challenged.
While growth in the near term is challenged, management is optimistic about the rest of the year but refrained from giving formal guidance. However, co-founder and CEO Adam Foroughi referenced the rollout of Axon 2 in its software segment, calling it "a material upgrade of our core platform."
Foroughi hopes this will catalyze growth in its software business down the road. That said, AppLovin isn't seeing the benefit yet.
