The 2020 tech IPO wave is real, and it’s showing no signs of halting even as we head into the fourth quarter. AppLovin, an advertisement and mobile game development platform, is one of the latest to announce it’s going public (despite the fact they’ve been discussing a future IPO for quite some time). Here’s what to know about the AppLovin IPO, including fundraising history, next steps and what investors should know before buying in.
TL;DR
- AppLovin is a mobile ad and game development company that’s been consistently profitable since its inception in 2012.
- In 2018, private equity firm KKR & Co. acquired the company for $400 million and set the valuation at $2 billion.
- AppLovin confidentially filed for their IPO, but Morgan Stanley is underwriting the process and sources say they could go public as early as January 2021.
- AppLovin is aiming to raise $1 billion in IPO capital.
- Consumer video game sales reached $11.6 trillion in the second quarter of 2020. AppLovin’s sector is a lucrative one.
- You can learn more about IPOs here.
A quick history of AppLovin
According to their website, AppLovin is “on a mission to entertain the world with the best mobile games.”
The company may have stayed stealthy for two years, but AppLovin actually launched in 2012 by three founders:
- Adam Foroughi – CEO
- John Krystynak – CTO
- Andrew Karam – VP of Product
Their headquarters are in Palo Alto, California. Foroughi said one notorious 2007 film inspired their name (if you guessed Superbad, origin of McLovin, you’re right).
Before they made their offering public knowledge, AppLovin got itself two major clients. The first is Opentable, which you may know if you’ve ever made an online reservation for a restaurant. The other is Spotify, a company so big it doesn’t need an explanation.
By 2014, AppLovin was bringing in $100 million gross revenue annually.
In 2016, AppLovin landed a spot on the Deloitte Fast 500 North America list.
AppLovin began as an ad platform for mobile games, but by 2018 it had moved into mobile game development territory. They called this independent media development division Lion Studios, a leg that works to publish and promote mobile games.
Reportedly, AppLovin has been profitable since year one a rare trait for any company. For 2020, experts predict they’ll bring in a total of $1.5 billion in revenue, which would be their highest annual revenue yet.
They’ve since expanded their offices to places like New York, Berlin and Tokyo. Today, the company has about 300 employees and nine international offices, with five subsidiaries to its name.
AppLovin fundraising
During the two years that AppLovin was in stealth mode, they raked in $4 million from an angel investor round. These funds, with a purpose for product development, came from Streamlined Ventures and the Webb Investment Network.
This angel round was just the beginning of a storied AppLovin fundraising history.
In 2016, AppLovin agreed to sell a majority stake to Chinese private equity firm Orient Hontai Capital. The deal was expected to be worth $1.42 billion, a valuation that would have propelled AppLovin into unicorn status in just a few short years. In the end, however, the Committee on Foreign Investment in the United States (CFIUS) intercepted the deal.
Hontai Capital still holds a small stake in AppLovin, but the deal-to-be was ultimately refinanced.
In 2018, AppLovin turned their fate around for the better. The company partnered with KKR & Co, Inc. The private equity firm backed AppLovin to the tune of $400 million. The $2 billion valuation was more than Hontai Capital ever offered. It remains the company’s latest official valuation.
It looks like AppLovin achieved that unicorn status after all.
Path to the AppLovin IPO
CEO Foroughi once said that he’s “sort of a private person [who doesn’t] want to be CEO of a public company.” Clearly, the latter half of that sentiment no longer rings true.
In 2018 when AppLovin completed the deal with KKR, they also got a new CFO (and president) from KKR itself Herald Chen.
Chen said to the Wall Street Journal, “Because the company is operating profitably at scale and will continue compounding growth at a rapid rate, we dont have an immediate need for additional capital.
In addition to his involvement with AppLovin, Chen is a board member for GoDaddy, Inc. He’s been in this role since 2011, just before GoDaddy went public. Chen served as head of technology, media and telecom in the Americas for KKR, and he helped facilitate the deal between the private equity firm and AppLovin.
In preparation for their forthcoming IPO, AppLovin added a few more executives, namely Chief Accounting Officer Elena Arutunian (previously corporate controller for the Lyft IPO). They’ve been openly readying for the route public since 2019.
Next steps for the AppLovin IPO
The word on the street is that the main underwriter for the AppLovin IPO is Morgan Stanley, who is also backing the GoodRX IPO this year along with more than 50 others. However, AppLovin has filed their form S-1 (or registration statement) with the SEC on a confidential basis.
Confidential IPO filings are common. We’re seeing it right now with Poshmark and Airbnb (the latter of whom has announced a December 2020 IPO date), and we saw it with Palantir before they went public.
Confidential filings help companies keep their financial history on the downlow while the SEC reviews all the paperwork. Considering Foroughi has made his need for privacy a public matter, it makes sense that AppLovin is taking the confidential route.
But with a venture into the public domain just over the horizon for this mobile ad and gaming corporation, that well-kept confidentiality won’t last for long.
Predictions say AppLovin is aiming for an IPO worth $1 billion in capital.
As Ted Oberwager (managing director for technology, media and telecommunications at KKR) says, “Today gaming is a fractured, fragmented market. I think the market will consolidate, and I think AppLovin will be one of those consolidators.
When is the AppLovin IPO date?
While we have yet to determine the official AppLovin IPO date, experts have predicted that the market debut could come in early 2021 (perhaps even as early as January).
Since AppLovin is filing confidentially, we don’t yet know how many shares the company will dole out on the primary market, nor at what cost. They also have yet to decide where they will list, with the two contenders being the New York Stock Exchange and Nasdaq Exchange.
What we do know is that concrete plans for the AppLovin IPO are subject to market conditions, as any wise IPO would be. Since its last valuation from KKR of $2 billion was in 2018, an updated valuation is likely to be much higher.
What investors should know
Mobile gaming is more relevant now than ever before. With the news that the PlayStation 5 Digital Edition and Xbox Series S won’t have disc drives instead prompting gamers to purchase digital copies through the software it’s clear that market players like GameStop may be in trouble.
AppLovin, on the other hand, is doing just fine. The mobile ad and gaming sectors have plenty of room to grow. There definitely is competition within the sector (particularly from Roblox Corporation, a gaming mogul with a $4 billion valuation that’s aiming for their own IPO). Still, AppLovin holds potential.
Despite that, early investment in any IPO brings extra risk. Some fall flat while others soar. However, a recent IPO in the gaming sector proved success is possible. The Unity IPO occurred on Sept. 17, and the value of its shares has risen at least 60% since the launch.
Whatever the case, it’s important that investors keep the risk of IPOs in mind before diving in even when a company is as consistently profitable as AppLovin.
A confidential filing adds another layer of risk for investors since they can’t suss out the company’s financial health in advance. Once it’s made public, we recommend doing your due diligence and looking for any underlying risks that live between the lines.
A good example of investment risk is Palantir’s three-tiered voting structure, which gives the company’s founders indefinite voting power even if they sell their shares. A revised form S-1 says the three-person-rich Class F of Palantir Technologies gets 49.999999% of voting power forever.
AppLovin may not go to this extreme, but this example is yet another reason why it’s crucial to know what you’re getting yourself into with an IPO investment.
Bottom line
At the start of the COVID-19 pandemic, the itch for video games skyrocketed. The second quarter of 2020 saw a 30% spike in demand from the same quarter in 2019, with consumer spending reaching a record-breaking $11.6 billion. Based on their projected revenue for the year, it seems that AppLovin is already capitalizing on the gaming trend. And with the AppLovin IPO date looming, that capitalization is likely to increase even more but to what extent, we don’t yet know.