filings.toolsItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled “Risk Factors” and other parts of this Quarterly Report on Form 10-Q. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Overview
Our mission is to create meaningful connections between companies and their ideal customers. We provide end-to-end software and AI-powered solutions for businesses to reach, monetize and grow their global audience. We also operate a portfolio of owned mobile apps and accelerated our market penetration through an active acquisition and partnership strategy. Our scaled business model is intricately linked to the advertising ecosystem, providing a durable competitive advantage. We generate revenue when our advertisers achieve their return on ad spend targets with our Advertising solutions, ensuring that their success directly fuels our growth.
Since our founding in 2011, we have been focused on building Advertising solutions for advertisers to improve the marketing and monetization of their content. Our founders, who were mobile app developers themselves, quickly realized the real impediment to success and growth in the advertising ecosystem was a discovery and monetization problem—breaking through the congested app stores to efficiently find users and successfully grow their business. Their first-hand experience with these challenges led to the development of our infrastructure and Advertising solutions. We capitalized on our success and understanding of the mobile app ecosystem by entering into the mobile game apps industry in 2018. Our global diversified portfolio of apps now consist of over 200 free-to-play mobile games across five genres, run by ten studios.
For the three months ended March 31, 2025, our revenue increased 40% year-over-year to $1.5 billion, from $1.1 billion in the three months ended March 31, 2024. We generated net income of $576.4 million and $236.2 million for the three months ended March 31, 2025 and 2024, respectively. We generated Adjusted EBITDA of $1.0 billion and $548.8 million for the three months ended March 31, 2025 and 2024, respectively. Additionally, our net cash provided by operating activities was $831.7 million and $392.8 million in the three months ended March 31, 2025 and 2024, respectively. We generated Free Cash Flow of $825.7 million and $387.6 million for the three months ended March 31, 2025 and 2024, respectively. Given our strong financial position, we have been able to reinvest in our expansion and growth, and repurchase and withhold shares of our Class A common stock. See the section titled “Non-GAAP Financial Measures” for a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated in accordance with GAAP.
Our Business Model
We collect revenue from Advertising and our Apps. During the three months ended March 31, 2025, Advertising Revenue represented 78% of total revenue and Apps Revenue represented 22% of total revenue.
We report our operating results through two reportable segments: Advertising and Apps.
Our CODM, the Chief Executive Officer, evaluates performance of each segment based on several factors, of which the financial measures are segment revenue and segment adjusted EBITDA, as defined in Note 10 to our condensed consolidated financial statements.
The Advertising and Apps segments provide a view into the organization of our business and generate revenue as follows:
Advertising Revenue
We primarily generate Advertising Revenue from fees paid by advertisers who use our Advertising solutions to grow and monetize their content. We are able to grow our Advertising Revenue by improving our various technologies.
Advertising clients include a wide variety of advertisers, from indie developer studios to some of the largest global internet platforms, such as Facebook and Google. We see multiple opportunities to gain new Advertising clients, and to increase spend from existing clients, as we help them grow their businesses and make them more successful.
Our Advertising solutions include AppDiscovery, MAX, Adjust, and Wurl. Clients use AppDiscovery to automate, optimize, and manage their user acquisition investments. They set marketing and user growth goals, and AppDiscovery optimizes their ad spend in an effort to achieve their return on advertising spend targets and other marketing objectives. AppDiscovery comprises the vast majority of Advertising Revenue. Revenue is generated from our advertisers, typically on a performance basis, and shared with our advertising publishers, typically on a cost per impression model.
Advertising clients use MAX to optimize purchases of app advertising inventory. The MAX tool provides insights to manage against key performance indicators, understand the long-term value of users, and help manage profitability. Revenue from MAX is generated based on a percentage of client spend. As more advertising networks move to in-app real-time bidding, we expect growth in the adoption of, and revenue from, MAX.
Advertising clients use Adjust's measurement and analytics marketing platform to better understand their users' journey while allowing marketers to make smarter decisions through measurement, attribution and fraud prevention. Revenue from Adjust is primarily generated from an annual software subscription fee.
Advertising clients use Wurl's connected TV ("CTV") platform to distribute streaming video, maximize Advertising Revenue, and acquire and retain viewers or subscribers. Revenue from Wurl is primarily generated from content companies, typically on a usage-based model.
Apps Revenue
Apps Revenue is generated when a user of one of our Apps makes an in-app purchase ("IAP") and when clients purchase the digital advertising inventory of our portfolio of Apps ("IAA"). We are able to grow our Apps Revenue by adding more apps to our Apps portfolio and increasing engagement on our existing Apps.
Our Apps are generally free-to-play mobile games and generate IAP Revenue through IAPs. IAPs consist of virtual goods used to enhance gameplay, accelerate access to certain features or levels, and augment other mobile game progression opportunities for the user. IAPs drive more engagement and better economics from our Apps. The vast majority of our IAP Revenue flows through two app stores, Apple App Store and Google Play, which charge us a standard commission on IAPs. IAP Revenue represented 70% of total Apps Revenue for the three months ended March 31, 2025.
During the three months ended March 31, 2025, we had an average of 1.5 million Monthly Active Payers ("MAPs") across our portfolio of Apps. Over that period, we had an Average Revenue Per Monthly Active Payer ("ARPMAP") of $52. See “Key Metrics” below for additional information on how we calculate MAPs and ARPMAP.
IAA clients that purchase advertising inventory from our Apps are able to target highly relevant users from our diverse and global portfolio of over 200 mobile games. Our clients leverage a broad set of high-performing mobile ad formats, including playable and rewarded video, and are able to match these ads with relevant users resulting in a better return on their advertising spend. By increasing the number of users and their engagement, as well as better matching ads with the appropriate target audience, we are able to increase our revenue from IAA clients that purchase advertising inventory from our Apps. IAA Revenue represented 30% of total Apps Revenue for the three months ended March 31, 2025.
Recent Developments
On May 7, 2025, we, along with our subsidiaries Morocco, Inc. and AppLovin GmbH (collectively, the “Sellers”) entered into a Purchase Agreement (the “Agreement”) with Tripledot (“Purchaser Parent”) and its subsidiaries Eton Games Inc. and Tripledot Group Holdings Limited (collectively, with Purchaser Parent, the “Purchasers”). On the terms and subject to the conditions set forth in the Agreement, Sellers will transfer the equity interests of certain wholly-owned subsidiaries that are engaged in our mobile gaming business (the “Gaming Business”) to Purchasers, for total consideration (the “Purchase Price,” and such sale, together with the other transactions contemplated by the Agreement, the “Transactions”) consisting of (i) $400.0 million in cash consideration, comprised of (a) $150.0 million to be paid in cash at the closing of the Transactions (the “Closing”) and (b) a $250.0 million secured promissory note to be issued by Eton Games Inc. (collectively with any other U.S. subsidiaries of Purchaser Parent designated as a co-Borrower thereunder, “Borrowers”) to us or our designated affiliate at the Closing (the “Promissory Note”), and (ii) equity consideration comprised of ordinary shares of Purchaser Parent representing approximately 20% of the fully-diluted equity capitalization of Purchaser Parent at the Closing. Purchaser Parent anticipates financing a portion of the cash Purchase Price payable at the Closing with debt.
The terms of the Promissory Note provide for a maturity of 18 months from the Closing, with no amortization. The Borrowers are permitted to voluntarily prepay the outstanding principal amount of the Promissory Note, in
whole or in part, without premium or penalty. The advance under the Promissory Note bears interest at a rate per annum equal to eleven percent (11%). As of the Closing, the obligations of the Borrowers under the Promissory Note will be guaranteed by all U.S. and U.K. subsidiaries of the Purchaser Parent, subject to certain exceptions, and secured by (i) substantially all assets of the Borrowers and the U.S. guarantors and (ii) a pledge by Tripledot Group Holdings Limited of the equity interests held by it in each Borrower and U.S. guarantor, in each case subject to permitted liens and certain customary exceptions. Within 90 days after the Closing, the obligations of the Borrowers under the Promissory Note will also be guaranteed by Purchaser Parent and secured by (a) substantially all assets of the U.K. guarantors and (b) a share pledge by Purchaser Parent of the equity interests held by it in each U.K. guarantor and U.S. guarantor, in each case subject to permitted liens and certain customary exceptions. The Promissory Note includes negative covenants limiting, with certain exceptions, (1) dispositions, (2) changes in business, (3) mergers or acquisitions, (4) indebtedness, (5) liens, (6) distributions and investments and (7) transactions with affiliates; provided that the foregoing covenants allow redemptions and repurchases of a certain series of stock of Purchaser Parent up to an aggregate amount of $205 million. The Promissory Note also contains certain customary affirmative covenants and events of default.
The consummation of the Transactions is subject to the satisfaction or waiver of certain customary closing conditions, including (i) the approval of the Agreement and the Transactions by the requisite shareholders of Purchaser Parent and the occurrence of certain pre-Closing actions with respect to Purchaser Parent’s capitalization structure, (ii) the absence of any law or order preventing or prohibiting the consummation of the Transactions, (iii) expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iv) the accuracy of each party’s representations and warranties (subject to customary materiality and other qualifiers), (v) each party’s performance and compliance with its covenants contained in the Agreement, (vi) the absence of a material adverse effect on the Gaming Business or on Purchaser Parent, and (vii) other closing deliverables. The Transactions are not subject to any financing condition.
Key Metrics
We review the following key metrics on a regular basis in order to evaluate the health of our Apps segment, identify trends affecting its performance, prepare financial projections, and make strategic decisions.
Monthly Active Payers ("MAPs"). We define a MAP as a unique mobile device active on one of our Apps in a month that completed at least one IAP during that time period. A consumer who makes IAPs within two separate Apps on the same mobile device in a monthly period will be counted as two MAPs. MAPs for a particular time period longer than one month are the average MAPs for each month during that period. We estimate the number of MAPs by aggregating certain data from third-party attribution partners.
Average Revenue Per Monthly Active Payer ("ARPMAP"). We define ARPMAP as (i) the total IAP Revenue derived from our Apps in a monthly period, divided by (ii) MAPs in that same period. ARPMAP for a particular time period longer than one month is the average ARPMAP for each month during that period. ARPMAP shows how efficiently we are monetizing each MAP.
The following table shows our Monthly Active Payers and Average Revenue Per Monthly Active Payer for the three months ended March 31, 2025 and 2024:
| Three Months Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Monthly Active Payers (millions) | 1.5 | 1.8 | |||||||||
| Average Revenue Per Monthly Active Payer | $ | 52 | $ | 48 |
Our key metrics are not based on any standardized industry methodology and are not necessarily calculated in the same manner or comparable to similarly titled measures presented by other companies. Similarly, our key metrics may differ from estimates published by third parties or from similarly titled metrics of our competitors due to differences in methodology. The numbers that we use to calculate MAPs and ARPMAP are based on internal data. While these numbers are based on what we believe to be reasonable judgments and estimates for the applicable period of measurement, there are inherent challenges in measuring usage and engagement. We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy.
Non-GAAP Financial Measures
Adjusted EBITDA and Adjusted EBITDA Margin
We define Adjusted EBITDA for a particular period as net income before interest expense, other income, net (excluding certain recurring items), provision for income taxes, amortization, depreciation and write-offs and as
further adjusted for stock-based compensation expense, transaction-related expense, restructuring costs, loss on disposal of long-lived assets, goodwill impairment, and non-operating foreign exchange (gain) losses. We define Adjusted EBITDA margin as Adjusted EBITDA divided by revenue for the same period.
Adjusted EBITDA and Adjusted EBITDA margin are key measures we use to assess our financial performance and are also used for internal planning and forecasting purposes. We believe Adjusted EBITDA and Adjusted EBITDA margin are helpful to investors, analysts, and other interested parties because they can assist in providing a more consistent and comparable overview of our operations across our historical financial periods. In addition, these measures are frequently used by analysts, investors, and other interested parties to evaluate and assess performance. We use Adjusted EBITDA and Adjusted EBITDA margin in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance.
Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and are presented for supplemental informational purposes only and should not be considered as alternatives or substitutes to financial information presented in accordance with GAAP. These measures have certain limitations in that they do not include the impact of certain expenses that are reflected in our consolidated statement of operations that are necessary to run our business. Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Thus, our Adjusted EBITDA and Adjusted EBITDA margin should be considered in addition to, not as substitutes for, or in isolation from, measures prepared in accordance with GAAP.
The following table provides our Adjusted EBITDA and Adjusted EBITDA margin for the three months ended March 31, 2025 and 2024, and a reconciliation of net income to Adjusted EBITDA:
| Three Months Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands. except percentages) | |||||||||||
| Revenue | $ | 1,484,021 | $ | 1,058,115 | |||||||
| Net income | 576,419 | 236,183 | |||||||||
| Net margin | 38.8% | 22.3% | |||||||||
| Adjusted as follows: | |||||||||||
| Interest expense | 52,888 | 74,182 | |||||||||
| Other income, net1 | (9,042) | (3,397) | |||||||||
| Provision for income taxes | 41,975 | 31,762 | |||||||||
| Amortization, depreciation and write-offs | 79,887 | 112,667 | |||||||||
| Goodwill impairment | 188,943 | — | |||||||||
| Loss on disposal of long-lived assets | — | 1,646 | |||||||||
| Non-operating foreign exchange (gain) loss | (40) | 106 | |||||||||
| Stock-based compensation | 61,383 | 95,253 | |||||||||
| Transaction-related expense | 6,005 | 369 | |||||||||
| Restructuring costs | 6,609 | — | |||||||||
| Adjusted EBITDA | $ | 1,005,027 | $ | 548,771 | |||||||
| Adjusted EBITDA margin | 67.7 | % | 51.9 | % |
1 Excludes recurring operational foreign exchange gains and losses.
Free Cash Flow
We define Free Cash Flow as net cash provided by operating activities less purchases of property and equipment and principal payment of finance leases. We use Free Cash Flow to help manage the health of our business, prepare budgets and for capital allocation purposes. We believe Free Cash Flow provides useful supplemental information to help investors understand underlying trends in our business and our liquidity. Free cash flow has certain limitations, including that it does not reflect our future contractual commitments. Our definition may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish Free Cash Flow or similar metrics. Thus, our Free Cash Flow should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with GAAP.
The following table provides our Free Cash Flow for the three months ended March 31, 2025 and 2024, and a reconciliation of net cash provided by operating activities to Free Cash Flow:
| Three Months Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Net cash provided by operating activities | $ | 831,712 | $ | 392,779 | |||||||
| Less: | |||||||||||
| Purchase of property and equipment | (138) | (227) | |||||||||
| Principal payments of finance leases | (5,843) | (4,959) | |||||||||
| Free Cash Flow | $ | 825,731 | $ | 387,593 | |||||||
| Net cash used in investing activities | $ | (22,664) | $ | (31,635) | |||||||
| Net cash used in financing activities | $ | (1,002,217) | $ | (424,612) |
Factors Affecting Our Performance
We believe that the future success of our business depends on many factors, including the factors described below. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to continue to grow profitably while maintaining strong cash flow.
Continue to invest in innovation
We have made, and intend to continue to make, significant investments in our Advertising solutions to enhance their effectiveness and value proposition for our clients. We expect that these investments will require spending on research and development, and acquisitions and partnerships related to technology components and products. We believe investments in our technology, including our AI-powered advertising recommendation engine AXON, AppDiscovery, Adjust, and MAX, will further improve effectiveness for advertisers. In addition, we plan to continue to invest in the AI-based, self-learning capabilities of our advertising recommendation engine, AXON. Our investments will also allow us to enter into and expand into new verticals outside of gaming, such as e-commerce, CTV, original equipment manufacturer ("OEM"), and carrier-related markets. While our investments in research and development and acquisitions and partnerships may not result in revenue in the near term, we believe these investments position us to increase our revenue over time.
Retain and grow existing clients
We rely on existing clients for a significant portion of our revenue. As we improve our Advertising solutions and Apps, we can attract additional spend from these clients. Our clients include indie studio developers and some of the largest advertising platforms in the world. We believe there is significant room for us to further expand our relationships with these clients and increase their usage of our Advertising solutions.
In the past, our clients have generally increased their usage of our Advertising solutions and Apps, and as a result, growth from existing clients has been a primary driver of our revenue growth. We must continue to retain our existing clients and expand their spend with us over time to continue to grow our revenue, increase profitability and drive greater cash flow.
Add new clients globally
Our future success depends in part on our ability to acquire new clients. During the three months ended March 31, 2025, 45% of our revenue was generated from outside of the United States. We believe that the global opportunity is significant and will continue to expand as developers and advertisers outside the United States adopt our Advertising solutions and advertise on our Apps. We also see opportunities to acquire new clients outside of mobile gaming, as the capabilities of our Advertising solutions are relevant to the broader advertising ecosystem, including in areas such as e-commerce. We are investing in direct sales, product development, education, and other capabilities to drive increased awareness and adoption of our Advertising solutions and Apps, which investments may impact our profitability in the near term as we seek further scale.
Continued execution of strategic partnerships
We continue to explore strategic partnership opportunities related to our Advertising solutions and the expansion of the markets it serves and we may from time to time evaluate strategic acquisitions and partnerships opportunistically. From the beginning of 2018 through March 31, 2025, we have invested approximately $4.1 billion in 33 strategic acquisitions and partnerships with mobile app developers and for technologies or relationships to
enhance our Advertising solutions, including the acquisition of MAX in 2018, Adjust in April 2021, MoPub in January 2022, and Wurl in April 2022. We believe our future results of operations will be affected by our ability to continue to identify and execute such strategic transactions that are accretive to our growth and profitability. In April 2025, we provided an indication of interest to the President of the United States to explore a purchase of TikTok in all markets outside of China. This indication of interest is preliminary and there can be no assurance that a transaction involving us will proceed.
Growth and structure of the mobile app and advertising ecosystems
Our business and results of operations will be impacted by industry factors that drive the overall performance of the mobile app and advertising ecosystems. Mobile app developers, including AppLovin, rely on third-party platforms, such as the Apple App Store and Google Play Store, among others, to distribute games, collect payments made for IAPs, and target users with relevant advertising. We expect this to continue for the foreseeable future. These third-party platforms have significant market power and discretion to set platform fees, select which apps to promote, and decide how much consumer information to provide to advertising networks that enable our Advertising solutions to target users with personalized and relevant advertising and allocate marketing campaigns in an efficient and cost-effective manner. Any changes made in the policies of third-party platforms could drive rapid change across the mobile app and advertising ecosystems. For example, in April 2021, Apple started implementing its application tracking transparency framework that, among other things, requires users' opt-in consent for certain types of tracking. While this transparency framework has not had a significant impact on our overall business, it may do so in the future, including with respect to the effectiveness of our advertising practices and/or our ability to efficiently generate revenue for our Apps. We rely in part on Identifier for Advertisers ("IDFA") to provide us with data that helps our Advertising solutions better market and monetize Apps. In light of the IDFA and transparency changes, we made changes to our data collection practices. To the extent we are unable to utilize IDFA or a similar offering, or if the transparency changes and any related opt-in or other requirements result in decreases in the availability or utility of data relating to Apps, our Advertising solutions may not be as effective, we may not be able to continue to efficiently generate revenue for our Apps, and our revenue and results of operations may be harmed. Additionally, Apple implemented new requirements for consumer disclosures regarding privacy and data processing practices in December 2020, which has resulted in increased compliance requirements and could result in decreased usage of our Apps. Apple incorporated new SDK privacy controls into iOS 17, which was released in September 2023, including privacy manifests and signatures designed to allow app developers to outline the data practices for SDKs embedded in their apps, manage tracking domains within SDKs, and curb device fingerprinting by requiring app developers to select allowed reasons for using data received through certain APIs. In February 2022, Google announced its Privacy Sandbox initiative for Android, a multi-year effort expected to restrict tracking activity and limit advertisers' ability to collect app and user data across Android devices. In January 2024, Google commenced rolling out a Chrome feature, called Tracking Protection, which limits cross-site tracking. In May 2023, Google announced new consent management platform ("CMP") requirements for ads served in the European Economic Area ("EEA") and UK, which requires, as of January 2024, publishers using Google AdSense, Ad Manager, or AdMob to use a CMP that has been certified by Google and has integrated with the Interactive Advertising Bureau’s (“IAB”) Transparency and Consent Framework when serving ads to users in the EEA or the UK. While to date these third-party platform privacy changes have had some impact on the discoverability of apps across these platforms and have had a relatively muted aggregate impact on our results of operations, the ultimate impact of these or any similar or future changes to the policies of Apple or Google could adversely affect our business, financial condition, and results of operations.
New tools for developers, industry standards, and platforms may emerge in the future. We believe our focus on the advertising ecosystem has allowed us to understand the needs of our clients and our relentless innovation has enabled us to quickly adapt to changes in the industry and pioneer new solutions. We must continue to innovate and stay ahead of developments in the advertising and mobile app ecosystems in order for our business to succeed and our results of operations to continue to improve.
Components of Results of Operations
Revenue
We generate Advertising Revenue primarily from fees collected from advertisers spending on AppDiscovery, typically on a performance basis, then shared with our advertising publishers, typically on a cost per impression basis. Advertising Revenue also includes fees generated based on a percentage of client spend through MAX and subscription fees for Adjust's measurement and analytics marketing platform. Revenue from other services under Advertising was not material.
We generate Apps Revenue from IAPs made by the users within our Apps and from IAA generated from
advertisers that purchase advertising inventory from our diverse portfolio of Apps.
Cost of Revenue and Operating Expenses
Cost of revenue. Cost of revenue consists primarily of payment processing fees related to IAP Revenue, amortization of acquired technology-related intangible assets, amortization of finance lease right-of-use assets related to certain servers and networking equipment and data center costs related primarily to third-party cloud computing services. The fees for IAPs are processed and collected by third-party distribution partners. We expect our cost of revenue to increase in absolute dollars over the long term as our business and revenue continue to grow. We also expect our cost of revenue as a percentage of revenue to fluctuate period-over-period.
Sales and marketing. Sales and marketing expenses consist primarily of user acquisition costs, marketing programs and other advertising expenses, professional services costs related to the marketing of apps by third parties, personnel-related expenses including salaries, employee benefits, and stock-based compensation for employees engaged in sales and marketing activities, amortization of acquired user-related intangible assets, travel and allocated facilities and information technology costs.
We plan to continue to invest in sales and marketing to grow our Advertising customer base and increase brand awareness. We expect sales and marketing expenses to fluctuate period-over-period as we launch new games. We also expect our sales and marketing expenses as a percentage of revenue to fluctuate period-over-period in the near term as we invest to grow our customer base and increase brand awareness, and to decrease over the long term as we benefit from greater scale.
Research and development. Research and development expenses consist primarily of product development costs, including personnel-related expenses such as salaries, employee benefits, and stock-based compensation for employees engaged in research and development activities, professional services costs related to development of new apps by third parties, consulting costs, regulatory compliance costs, and allocated facilities and information technology costs.
We plan to continue to invest in research and development to continue to enhance our Advertising solutions and to improve existing games and develop new games. We expect our research and development expenses as a percentage of revenue to fluctuate period-over-period in the near term as we invest to enhance our Advertising solutions and improve our existing Apps and develop new Apps, and to decrease over the long term as we benefit from greater scale.
General and administrative. General and administrative expenses consist primarily of costs incurred to support our business, including personnel-related expenses such as salaries, employee benefits, and stock-based compensation for employees engaged in finance, accounting, legal, human resources and administration, professional services fees for legal, accounting, recruiting, and administrative services (including acquisition or other transaction-related expenses), insurance, travel, and allocated facilities and information technology costs.
We plan to continue to invest in our general and administrative function to support the growth of our business. We expect our general and administrative expenses as a percentage of revenue to fluctuate period-over-period in the near term as we invest to support the growth of our business, and to decrease over the long term as we benefit from greater scale.
Goodwill impairment. Goodwill impairment expenses consist of a non-cash impairment loss recognized for the goodwill of the Apps reporting unit in the three months ended March 31, 2025, as a result of the impairment analysis we performed during the first quarter of 2025.
Other Income and Expenses
Interest expense. Interest expense consists primarily of interest expense associated with our outstanding debt, including accretion of debt discount, and issuance costs.
Other income, net. Other income, net, primarily includes interest earned on our cash and cash equivalents, fair value adjustments relating to our non-marketable equity securities, and foreign currency gains and losses.
Provision for income taxes. We are subject to income taxes in the United States and foreign jurisdictions in which we do business. These foreign jurisdictions have different statutory tax rates than those in the United States. Additionally, certain of our foreign earnings may also be taxable in the United States. Accordingly, our effective tax rate will vary depending on the relative proportion of foreign to domestic income, impacts from acquisition restructuring, deduction benefits related to foreign-derived intangible income, future changes in the valuation of our deferred tax assets and liabilities, and changes in tax laws. Additionally, our effective tax rate can vary based on the amount of pre-tax income or loss.
Results of Operations
In this section, we discuss the results of our operations for the three months ended March 31, 2025 and 2024.
The following tables summarize our historical condensed consolidated statements of operations:
| Three Months Ended March 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| (in thousands) | ||||||||||||||
| Revenue | $ | 1,484,021 | $ | 1,058,115 | ||||||||||
| Costs and expenses: | ||||||||||||||
| Cost of revenue(1)(2) | 271,232 | 294,148 | ||||||||||||
| Sales and marketing(1)(2) | 182,956 | 226,687 | ||||||||||||
| Research and development(1) | 122,918 | 155,323 | ||||||||||||
| General and administrative(1) | 54,501 | 42,398 | ||||||||||||
| Goodwill impairment | 188,943 | — | ||||||||||||
| Total costs and expenses | 820,550 | 718,556 | ||||||||||||
| Income from operations | 663,471 | 339,559 | ||||||||||||
| Other income (expense): | ||||||||||||||
| Interest expense | (52,888) | (74,182) | ||||||||||||
| Other income, net | 7,811 | 2,568 | ||||||||||||
| Total other expense, net | (45,077) | (71,614) | ||||||||||||
| Income before income taxes | 618,394 | 267,945 | ||||||||||||
| Provision for income taxes | 41,975 | 31,762 | ||||||||||||
| Net income | $ | 576,419 | $ | 236,183 |
__________________
(1) Includes stock-based compensation expense as follows:
| Three Months Ended March 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| (in thousands) | ||||||||||||||
| Cost of revenue | $ | 1,125 | $ | 1,468 | ||||||||||
| Sales and marketing | 16,325 | 21,963 | ||||||||||||
| Research and development | 29,662 | 59,446 | ||||||||||||
| General and administrative | 14,271 | 12,376 | ||||||||||||
| Total stock-based compensation | $ | 61,383 | $ | 95,253 |
(2) Includes amortization expense related to acquired intangibles as follows:
| Three Months Ended March 31, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| (in thousands) | ||||||||||||||
| Cost of revenue | $ | 53,488 | $ | 88,142 | ||||||||||
| Sales and marketing | 17,255 | 16,819 | ||||||||||||
| Total amortization expense related to acquired intangibles | $ | 70,743 | $ | 104,961 |
The following table sets forth the components of our condensed consolidated statements of operations for each of the periods presented as a percentage of revenue(1):
| Three Months Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Revenue | 100 | % | 100 | % | |||||||
| Costs and expenses: | |||||||||||
| Cost of revenue | 18 | % | 28 | % | |||||||
| Sales and marketing | 12 | % | 21 | % | |||||||
| Research and development | 8 | % | 15 | % | |||||||
| General and administrative | 4 | % | 4 | % | |||||||
| Goodwill impairment | 13 | % | — | % | |||||||
| Total costs and expenses | 55 | % | 68 | % | |||||||
| Income from operations | 45 | % | 32 | % | |||||||
| Other income (expense): | |||||||||||
| Interest expense | (4) | % | (7) | % | |||||||
| Other income, net | 1 | % | — | % | |||||||
| Total other expense, net | (3) | % | (7) | % | |||||||
| Income before income taxes | 42 | % | 25 | % | |||||||
| Provision for income taxes | 3 | % | 3 | % | |||||||
| Net income | 39 | % | 22 | % |
(1) Totals of percentages of revenue may not foot due to rounding.
Comparison of Our Results of Operations for the Three Months Ended March 31, 2025 and 2024
Revenue
| Three Months Ended March 31, | 2024 to 2025 % change | |||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| Advertising Revenue | $ | 1,158,974 | $ | 678,370 | 71 | % | ||||||||||||||
| In-App Purchases Revenue | 227,541 | 259,196 | (12) | % | ||||||||||||||||
| In-App Advertising Revenue | 97,506 | 120,549 | (19) | % | ||||||||||||||||
| Total Apps Revenue | 325,047 | 379,745 | (14) | % | ||||||||||||||||
| Total Revenue | $ | 1,484,021 | $ | 1,058,115 | 40 | % |
Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024
For the three months ended March 31, 2025, our Advertising Revenue increased by $480.6 million, or 71%, compared to the same period in the prior year due primarily to improved AppDiscovery performance, where net revenue per installation increased 49% and the volume of installations increased 22%. We do not recognize Advertising Revenue from transactions with our studios.
For the three months ended March 31, 2025, our Apps Revenue decreased by $54.7 million, or 14%, from the prior year period. For the three months ended March 31, 2025, our IAP Revenue from Apps decreased by $31.7 million, or 12%, due primarily to a 15% decrease in the volume of in-app purchases, partially offset by a 3% increase in price per in-app purchase, and our IAA Revenue from Apps decreased by $23.0 million, or 19%, due primarily to a 43% decrease in the volume of advertising impressions, partially offset by a 43% increase in price per advertising impression.
Cost of revenue
| Three Months Ended March 31, | 2024 to 2025 % Change | |||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| Cost of revenue | $ | 271,232 | $ | 294,148 | (8) | % | ||||||||||||||
| Percentage of revenue | 18 | % | 28 | % |
Cost of revenue in the three months ended March 31, 2025 decreased by $22.9 million, or 8%, compared to the same period in the prior year, due primarily to a decrease of $35.7 million in amortization of intangible assets resulting from the end of the useful life of certain intangible assets and a decrease of $13.2 million in third-party payment processing fees as a result of the decline in IAP revenue, partially offset by an increase of $27.6 million in expenses associated with operating our network infrastructure driven by the growth in our Advertising operations.
Sales and marketing
| Three Months Ended March 31, | 2024 to 2025 % Change | |||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| Sales and marketing | $ | 182,956 | $ | 226,687 | (19) | % | ||||||||||||||
| Percentage of revenue | 12 | % | 21 | % |
Sales and marketing expenses in the three months ended March 31, 2025 decreased by $43.7 million, or 19%, compared to the same period in the prior year, due primarily to a decrease in user acquisition costs of $39.2 million.
Research and development
| Three Months Ended March 31, | 2024 to 2025 % Change | |||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| Research and development | $ | 122,918 | $ | 155,323 | (21) | % | ||||||||||||||
| Percentage of revenue | 8 | % | 15 | % |
Research and development expenses in the three months ended March 31, 2025 decreased by $32.4 million, or 21%, compared to the same period in the prior year, due primarily to a decrease of $39.3 million in personnel-related expenses related to a decrease in stock-based compensation expense, partially offset by an increase of $7.6 million in professional services costs related to development of new games by third parties.
General and administrative
| Three Months Ended March 31, | 2024 to 2025 % Change | ||||||||||||||||
| 2025 | 2024 | ||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| General and administrative | $ | 54,501 | $ | 42,398 | 29 | % | |||||||||||
| Percentage of revenue | 4 | % | 4 | % |
General and administrative expenses in the three months ended March 31, 2025 increased by $12.1 million, or 29%, compared to the same period in the prior year, due primarily to an increase of $6.2 million in professional services costs primarily associated with transaction-related expenses and an increase of $3.2 million in personnel-related expenses including an increase in stock-based compensation.
Goodwill impairment
| Three Months Ended March 31, | 2024 to 2025 % Change | ||||||||||||||||
| 2025 | 2024 | ||||||||||||||||
| (in thousands, except percentages) | |||||||||||||||||
| Goodwill impairment | $ | 188,943 | $ | — | ** | ||||||||||||
| Percentage of revenue | 13 | % | — | % |
| ** Not meaningful |
For the three months ended March 31, 2025, we recorded a non-cash goodwill impairment charge of $188.9 million resulting from an interim quantitative goodwill impairment analysis performed in the first quarter of 2025 for the Apps reporting unit. There was no goodwill impairment expense in the prior year period. For additional information, see Note 5 – Goodwill and Intangible Assets in the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Interest expense
| Three Months Ended March 31, | 2024 to 2025 % Change | |||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| Interest expense | $ | (52,888) | $ | (74,182) | (29) | % | ||||||||||||||
| Percentage of revenue | (4) | % | (7) | % |
In the three months ended March 31, 2025, interest expense decreased by $21.3 million, or 29%, compared to the same period in the prior year, due primarily to a $20.6 million decrease in interest expense as a result of lower interest rates under our senior unsecured notes and our unsecured credit agreement compared to our prior credit agreement.
Other income, net
| Three Months Ended March 31, | 2024 to 2025 % Change | |||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| Other income, net | $ | 7,811 | $ | 2,568 | ** | |||||||||||||||
| Percentage of revenue | 1 | % | — | % |
| ** Not meaningful |
In the three months ended March 31, 2025, other income, net increased by $5.2 million, compared to the same period in the prior year, due primarily to certain third-party costs of $6.2 million incurred in connection with the refinancing of our term loans in the prior year period, partially offset by an increase in net foreign currency losses of $0.4 million.
Provision for Income Taxes
| Three Months Ended March 31, | 2024 to 2025 % Change | |||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| Provision for income taxes | $ | 41,975 | $ | 31,762 | 32 | % | ||||||||||||||
| Percentage of revenue | 3 | % | 3 | % |
In the three months ended March 31, 2025, the provision for income taxes increased by $10.2 million, or 32%, as compared to the same period in the prior year. The increase was primarily driven by higher pre-tax income from business operations during the three months ended March 31, 2025 and global minimum tax, partially offset by higher stock-based compensation benefit and foreign income taxed at different rates.
Comparison of our Segment Results of Operations
The following table presents the results for our Advertising and Apps segment adjusted EBITDA for the periods indicated:
| Three Months Ended March 31, | 2024 to 2025 % Change | |||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||
| (in thousands, except percentages) | ||||||||||||||||||||
| Advertising Adjusted EBITDA | $ | 943,228 | $ | 492,020 | 92 | % | ||||||||||||||
| Apps Adjusted EBITDA | $ | 61,799 | $ | 56,751 | 9 | % |
Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024
The $451.2 million, or 92%, increase in Advertising Adjusted EBITDA for the three months ended March 31, 2025 was primarily driven by an increase in Advertising Revenue of $480.6 million and a decrease of $4.5 million in personnel-related expenses, partially offset by an increase of $28.2 million in expenses associated with operating our network infrastructure driven by the growth in our operations.
The $5.0 million, or 9%, increase in Apps Adjusted EBITDA for the three months ended March 31, 2025 was primarily driven by a decrease of $39.2 million in user acquisition costs, a decrease of $13.2 million in third-party payment processing fees as a result of the decline in IAP revenue, and a decrease of $9.5 million in personnel-related expenses, partially offset by a decrease in Apps Revenue of $54.7 million.
Liquidity and Capital Resources
As of March 31, 2025, we had cash and cash equivalents of $551.0 million, consisting primarily of cash on deposit with banks and short-term liquid investments in money market deposit accounts. We believe that our existing cash and cash equivalents, cash flows expected to be generated by our operations, and, if necessary, our borrowing capacity under the 2024 Credit Agreement, which provided $793.7 million of remaining availability as of March 31, 2025, would be sufficient to satisfy our anticipated working capital and capital expenditures needs for at least the next 12 months. Our future capital requirements will depend on many factors, including our revenue growth rate; sales and marketing activities; timing and extent of spending to support our research and development efforts; capital expenditures to purchase hardware and software; our continued need to invest in our IT infrastructure to support our growth; and the volume and timing of our stock repurchases. In addition, we may enter into additional strategic partnerships as well as agreements to acquire or invest in teams and technologies, including intellectual property rights, which could increase our cash requirements. As a result of these and other factors, we may be required to seek additional equity or debt financing sooner than we currently anticipate. See the section titled “Risk Factors—Risks Related to Financial and Accounting Matters” for more information regarding risks related to liquidity and capital resources.
The following table summarizes our cash flows for the periods indicated:
| Three Months Ended March 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Net cash provided by operating activities | $ | 831,712 | $ | 392,779 | |||||||
| Net cash used in investing activities | $ | (22,664) | $ | (31,635) | |||||||
| Net cash used in financing activities | $ | (1,002,217) | $ | (424,612) |
Operating Activities
Net cash provided by operating activities was $831.7 million for the three months ended March 31, 2025, primarily consisting of $576.4 million of net income, adjusted for certain non-cash items, which included $188.9 million of goodwill impairment, $79.9 million of amortization, depreciation, and write-offs, and $61.3 million of stock-based compensation expense, partially offset by a net decrease in operating assets and liabilities of $82.9 million.
Net cash provided by operating activities was $392.8 million for the three months ended March 31, 2024, primarily consisting of $236.2 million of net income, adjusted for certain non-cash items, which included $112.7 million of amortization, depreciation, and write-offs, and $95.3 million of stock-based compensation expense, partially offset by a net decrease in operating assets and liabilities of $59.9 million.
Investing Activities
Net cash used in investing activities was $22.7 million for the three months ended March 31, 2025, primarily consisting of $18.7 million in purchases of non-marketable equity securities and $2.3 million in capitalized software development costs.
Net cash used in investing activities was $31.6 million for the three months ended March 31, 2024, primarily consisting of $28.3 million in purchases of non-marketable equity securities and $2.5 million in capitalized software development costs.
Financing Activities
Net cash used in financing activities was $1,002.2 million for the three months ended March 31, 2025, primarily consisting of repurchases of stock under our share repurchase program of $1.0 billion, payments for withholding taxes related to the net share settlement of equity awards of $185.7 million, and payments of licensed asset obligation of $13.5 million, partially offset by proceeds of $200.0 million from borrowings under the revolving credit facility pursuant to the 2024 Credit Agreement.
Net cash used in financing activities was $424.6 million for the three months ended March 31, 2024, primarily consisting of repurchases of stock under the repurchase program of $752.2 million and payments for withholding taxes related to the net share settlement of restricted stock units of $80.1 million, partially offset by proceeds from issuance of debt of $1.1 billion net of principal repayments of debt of $669.0 million and $9.8 million in proceeds from exercise of stock options.
Credit Agreement
In March 2025, we borrowed $200.0 million under our revolving credit facility pursuant to the credit agreement entered in 2024 to fund share repurchases under our repurchase program. As of March 31, 2025, $793.7 million remained available for borrowing under the facility, net of $6.3 million in outstanding letters of credit. We repaid $100.0 million of the outstanding borrowings in April 2025 and the remaining $100.0 million in May 2025.
Stock Repurchase Program
During the three months ended March 31, 2025, we repurchased 2,931,609 shares of Class A common stock for an aggregate amount, including commissions and fees, of $1.0 billion. As of March 31, 2025, $1.3 billion remained available for repurchases under the program. In February 2025, our Board modified our stock repurchase program such that $500 million was immediately available for repurchase of shares of our Class A common stock, notwithstanding the amount that otherwise would have remained available during the quarter under the prior program limitation, and such limit shall be increased in future quarters by the amount of free cash flow generated in the preceding fiscal quarter, with such increases to be carried forward and remain available for future repurchases if not used (up to the total authorized amount available for repurchases). Repurchases may be made from time to time through open market purchases or through privately negotiated transactions, subject to market conditions, applicable legal requirements and other relevant factors. For additional information, see Note 6 – Equity of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Contractual Obligations
Except for scheduled payments from the ongoing business, there were no other material changes to our commitments under contractual obligations since December 31, 2024. For additional information, see Note 4 – Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Critical Accounting Estimates
Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets liabilities revenue, expenses, and related disclosures. On an ongoing basis, we evaluate our estimates based on assumptions that are believed to be reasonable under the circumstances. These estimates are inherently subject to judgment and actual results could differ materially from those estimates.
An accounting estimate is considered critical if it involves significant subjectivity and judgment, and if changes in the estimate have had or are reasonably likely to have a material effect on our consolidated financial statements.
There have been no material changes to our critical accounting estimates during the three months ended March 31, 2025, as compared to those disclosed in our Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in our Annual Report on Form 10-K for the year ended December 31,
- For additional information on all of our significant accounting policies, see Note 2 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2024.
Recent Accounting Pronouncements
See Note 1 – Description of Business and Summary of Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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