Adam Foroughi, AppLovin
Five years ago, AppLovin co-founder Adam Foroughi thought he had just sold his mobile advertising startup for $ 1.4 billion. But the deal failed. Now that his company is on the public market, he is worth almost twice as much personally.
There are Silicon Valley whirlwind stories and then there is AppLovin.
AppLovin was founded in 2011 to help app developers get discovered and make money. It grew up without the help of venture money, reckoned with a scrapped acquisition, garnered a large private equity round, and turned into a leading game publisher through a buying frenzy.
AppLovin was valued at $ 28.6 billion in its IPO prior to trading Thursday, based on a reported share price of $ 80, which was in the middle of the expected range. Foroughi, who founded AppLovin after founding several other ad tech companies, owns 27.9 million shares valued at $ 2.2 billion.
Foroughi, 40, is the youngest tech entrepreneur to join the billionaire in 2021 as public market investors continue to pool in high-growth internet companies. Following Coinbase’s direct listing on Nasdaq on Wednesday, co-founders Brian Armstrong and Fred Ehrsam own stakes in the crypto exchange valued at $ 13 billion and $ 5.8 billion, respectively. Roblox CEO David Baszucki has a $ 5 billion equity stake in his gaming company. Affirm’s Max Levchin and Bumble’s Whitney Wolfe Herd are also billionaires.
Foroughi, the initial public offering was not part of the script.
In September 2016, he agreed to sell a majority stake in the Chinese investment firm Orient Hontai Capital, which valued the entire company at $ 1.4 billion. At the time, he called it “a great day for AppLovin” and added that there was great interest in the company, but chose Orient Hontai “because of their strong connections in the Chinese market”.
However, it was bad timing for such a deal as the US government had begun aggressively curbing efforts by Chinese investors to acquire large stakes in American companies. The US Foreign Investment Committee (CFIUS), which is part of the Treasury Department, has closed numerous deals and forced significant divestments, mostly in and around the tech industry.
In November 2017, Foroughi wrote in a blog post that the company is instead raising a $ 841 million debt investment from Orient Hontai, meaning AppLovin would “retain full control of our business and access additional capital to help our Fund sustained global growth “.
Become a game developer
AppLovin changed course and became a leader in the emerging mobile game market.
In mid-2018, the company raised $ 400 million from KKR Denali (a subsidiary of private equity firm KKR) valued at $ 2 billion and used that money to start a games division that was supposed to acquire studios and develop apps.
Since then, AppLovin has invested $ 1 billion in 15 acquisitions and partnerships, according to the prospectus. Major purchases include Machine Zone, maker of Game of War: Fire Age and World War Rising. It also bought Magic Tavern, the creator of the puzzle game Project Makeover, and Peoplefun, the creator of Wordscapes.
Revenue grew 46% in 2020 to $ 1.45 billion. Almost all of AppLovin’s growth has come from its new consumer business, which is mostly driven by in-app purchases in games. The company’s business revenue, the traditional ad space, grew 19%, while its apps revenue grew 86% to $ 739.9 million, a little over half of total revenue.
To achieve this level of expansion, AppLovin had to drastically increase expenses, pay the employees of the companies it acquired, and the cost of user acquisition and advertising to attract customers. Research and development costs quadrupled in the past year and administrative costs more than doubled. AppLovin suffered a net loss of $ 125 million after being profitable in 2019.
But tech investors are paying for growth at the expense of profit, and AppLovin’s valuation has roughly quadrupled in less than three years. KKR is ready to be the greatest beneficiary. The company has put its $ 400 million investment in approximately $ 8.8 billion.
In Foroughi’s letter to shareholders in the prospectus, he reminds employees and investors how different the world was a decade ago when the company tried to raise funds to help developers promote their apps.
“When we founded AppLovin in 2011, we thought our vision for solving the mobile app discovery problem was exactly the big idea any venture capitalist would love,” Foroughi wrote. “Maybe it was just not the right timing, but not a single VC decided to invest with us after countless meetings.”
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