Secrets of the Largest 668% Soaring Company This Year Will Transform How You See Business Potential

In 2024, Applovin emerged as one of the biggest stock market winners, surging an impressive 668% so far (as of November 19, 2024). And believe it or not, this surge was somewhat predictable—let me explain why.

Applovin’s business revolves around ads in gaming apps, with two primary revenue streams. First, its platform business: When you download free mobile games, you’re likely to encounter numerous streaming ads. Applovin acts as a crucial intermediary, connecting advertisers looking to promote their products or services with publishers who want to monetize their free game apps through ad placements. Publishers offer what’s known as “advertisement inventory”—the total available ad space they can sell to advertisers.

Secondly, Applovin develops its own game apps, generating revenue through both ad fees and in-app purchases.

This year has been remarkable. Platform sales skyrocketed, with profits jumping from $108M in Q3 2023 to $434M in Q3 2024—a fourfold increase—while sales only grew from $864M to $1,198M, representing a modest 38% increase.

How is this possible? The answer lies in intangible assets. These unique assets—like software—have three key characteristics:

1. Unlimited Simultaneous Use: Unlike a physical product (like a car that can only be used by one person at a time), software can be used by multiple people simultaneously. For instance, millions of people can use Google Docs or a popular mobile app at the exact same moment without reducing its availability.
2. No depreciation with use: Physical items wear out or get consumed when used, but software doesn’t degrade. Each time someone uses a computer program, it remains exactly the same – there’s no reduction in its quality or functionality.
3. Consistent Cost Structure: The cost of creating the asset remains fixed, regardless of how many people use it. Once a software is developed, the primary expenses are the depreciation of its initial creation cost. Whether 10 or 10 million people use the software, the core development costs don’t change at all.

Applovin’s platform business, which simply connects advertisers and publishers, is essentially an intangible business. As user numbers increase, costs remain nearly constant (with minimal server cost increases).

When platform sales grow, the additional revenue comes at virtually no extra cost. A sales increase of $300M translates directly into profit.

Typically, increasing sales without proportionally increasing sales and marketing expenses is challenging. Many companies struggle to boost profits in intangible businesses. However, Applovin is different. Despite maintaining consistent quarterly marketing expenses around $200M, its sales have grown rapidly.

The key differentiator is Applovin’s remarkable retention rate, which exceeds 100%. Customers not only stay on the platform but continually increase their spending. This means ads from previous years remain effective, and the customer base compounds without additional marketing investment.

Applovin’s platform sales growth has been particularly impressive. Throughout 2023, quarterly increases consistently exceeded 10%, and 2024 has followed a similar trajectory.

Using these insights, the company’s surge was predictable. A conservative 10% quarterly growth projected three times would suggest sales of $767M, representing a $200M increase. Crucially, this growth comes at minimal additional cost, meaning profits could potentially multiply threefold compared to the $100M in Q3 2023.

While this projection seemed ambitious, the actual results exceeded expectations, with Q3 2024 sales reaching $835M.

Hence, the 668% surge—a testament to the power of a well-executed intangible business model.