AppLovin Q3 2026 earnings call: transcript, summary & key numbers

We'll be starting in a couple of minutes. Stand by, we are about to begin. Welcome to Apple Evings Earnings Call for the third quarter and it's September 30, 2026.

I'm David Hsiao, Head of Investor Relations. Joining me today to discuss our results are Adam Farooge, our co-founder and CEO, and Matt Stump, our CFO. Please note our SEC filings to date, as well as our financial data and press release discussing our third quarter performance, are available at investors .applovin .com. During today's call, we will be making forward looking statements, including, but not limited to, the future development and reach of our platform, form, our expected growth opportunities, the expected future financial performance of the company, and other future events.

These statements are based on our current assumptions and beliefs, and we assume no obligation to update them except as required by law. Our actual results may differ materially from the results predicted. We encourage you to review the risk factors in our most recently filed Form 10Q for the fiscal quarter end of June 30, 2026. Additional Additional information may also be found in our quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2026, which will be filed today.

We will also be discussing non-GAAP financial measures. These non-GAAP measures are not intended to be superior to, or substitute for, our GAAP results. Please be sure to review the GAAP results and the reconciliations of our GAAP and non-GAAP financial measures in our Earnings Release and Financial Update, available on our Investor Relations site. This conference call is being recorded and a replay and transcript will be available for a period of time on our IR website.

Now I'll turn it over to Adam and Matt for some opening remarks, then we'll have the moderator take us through Q &A.

Thanks everyone for joining us today. We delivered a record quarter, revenue of $2.18 billion, up 55 % year over year, the largest sequential dollar step up in revenue with well over $200 million more than last quarter both revenue and ebit .com came in well above the high end of our guidance that's the standard we've always run this business by outperforming our expectations that result belongs to our team they're carrying out a model transition as significant as axon 2.0 while running the business at full speed and they delivered both in the same quarter I want

to thank them. Here's what drove it. During the quarter, we partially rolled out the next generation of our models, built on the architectural changes I described last quarter. Performance was strong. Advertisers saw more spend, deploying profitably at their target return on ad spend goals, and budgets stepped up. And our gaming business grew nearly 50 % year over year, re-accelerating right alongside the rollout. Here's the part I want you to sit with. This was a partial rollout.

The transition is still in front of us, and the new generation gives us meaningfully more room to optimize than the architecture it replaces. It also improves performance most where data is sparser. Newer advertisers, smaller advertisers, newer categories, exactly where our consumer vertical lives. As always, model gains won't land on a perfect quarterly schedule, and we won't promise a cadence. But the headroom is real, and we're still very early. Just as important, we did it with discipline.

While part of the team trained the new models, our engineers optimized how we served them. So even as training investment increased, data center costs declined as a percentage of revenue. Every dollar of this investment is gated on return. In this quarter you saw both halves of that, the return in revenue and the discipline in margin. Consumer had another strong quarter and with Q4 now underway, the seasonal peak for these advertisers, consumers set up very well heading into the biggest spending season of the year.

On the long term, nothing has changed. We run one auction across multiple advertiser categories. Gaming keeps improving. Consumer keeps adding runway. And we believe this business can compound at roughly 30 % annually over the long term. And as this year shows, we intend to run well ahead of that whenever we can. Our focus heading into next year is consistent. complete the model transition and optimize on top of it expand spend from our current customers while really ramping up the rate of acquiring new customers keep improving our creative tools and ad formats and start expanding our efforts on ctv let me close with this the quarter ago we stood here answering questions about a miss we told you what had happened

that it was fixed and that the business was re-accelerating and everything we told you showed up in this quarter's numbers That's how we'll keep operating, build for the long term, be transparent about challenges and opportunities, and compound through the noise. With that, I'll turn it over to Matt to walk through the financials.

Thanks, Adam, and thanks to everyone for joining us today. AppLovin posted record third quarter earnings. Net income grew 72 % year-over-year to $1.44 billion on record revenue of $2.18 billion, up 55 % year-over-year.

with an industry-leading 66 % net income margin and 84 % adjusted EBITDA margin. Revenue grew 14 % sequentially and exceeded the high end of our guidance by approximately $100 million, primarily driven by the core mobile gaming business due to model improvements during the quarter, with continued scaling in the consumer vertical. Consumer advertisers' spend continues to have healthy growth, with spend up double digits quarter over quarter and growing triple digits from the same quarter last year.

adjusted EBITDA was 1.84 $1 billion up 59 % year-over-year and also above the high end of our guidance range at an 84 % margin up approximately 190 basis points from the same period last year quarter-for-quarter flow through to adjusted EBITDA was 87 % operating leverage remains strong our data center cost declined as a percentage of revenue due to optimizations rolled out by our infrastructure team even as we invested in additional compute for training our existing models and for new model development.

We manage this business EBITDA dollars in free cash flow rather than to a margin percentage and will continue to deploy dollars when we see an opportunity to produce more revenue. Free cash flow for the quarter was $1.4 billion or 77 % of adjusted EBITDA, up from 53 % in the second quarter. As I mentioned on last quarter's call, second quarter conversion was depressed by the timing of cash tax payments. We still expect full-year free cash flow conversion of roughly 70 to 75% of adjusted EBITDA.

To put our results in context, this earnings season, the largest platforms in digital advertising reported third quarter revenue growth between roughly 10% and the mid-20s year over year. We grew 55%, several times faster than the market, and we did it at margins well above all of our peers across the advertising space. The contrast is even sharper on cash. This quarter, our asset light model converted roughly 65 % of revenue into free cash flow.

We ended the quarter with $3.17 billion of cash against $3.5 billion of long-term debt, which puts net leverage below 0.1 times adjusted EBITDA, comfortably below the roughly 1 times net leverage where we'd expect to operate over the long term. During the third quarter, we repurchased and withheld a total of 4.1 million shares for $1.4 billion, a meaningful step up from the second quarter. and ended up with 331 million shares outstanding.

Given our continued confidence in the company's future, our board of directors increased our share repurchase authorization by an incremental $3.2 billion, bringing our total current authorization to $3.6 billion as of the end of October. Since we began the program, we have repurchased and withheld a total of 104 million shares for $9.4 billion at an average price of $90 per share, returning 85 % of our free cash flow over that period and reducing our share count materially.

Our weighted average diluted share count has now declined for eight consecutive quarters and is down approximately 2 % from a year ago, even as we invest in the business. That combination, 55 % growth with a shrinking share count, is one very few companies can match. Turning to our outlook for the fourth quarter of 2026, we expect revenue between $2.365 billion and $2.395 billion, dollars representing approximately 43 to 44% year-over-year growth or 8 to 10% sequentially we expect adjusted EBITDA between 1.995 1,000,000,002.025 $1 billion representing approximately 43 to 45% year-over-year growth at the midpoint this guidance implies full year 2026 revenue and adjusted EBITDA growth of more than

50% that outlook reflects normal seasonality further scaling in our consumer vertical significant model improvements that are already live and performing, and continued investment in training compute for new model development. To close, we exceeded the high end of our guidance on both revenue and adjusted diva, grew revenue 55 % year-over-year, expanded margins, generated $1.4 billion of free cash flow, and returned $1.4 billion to shareholders. Our fourth quarter outlook reflects that same trajectory.

With that, let's move to Q &A.

We'll now begin the question and answer session. Please be sure to unmute and turn on your video before asking your question. We'll take as many questions as time permits. And since we have many questions today, please be patient as we move through the list. Okay, our first question will come from James Heaney. Please unmute and ask your question.

Yeah, great. Just a couple for me. I'll start with Adam. Could you just talk about these new generations of models that you're rolling out?

I'm just curious what the biggest improvement that you see is compared to Axon 2, and then anything around just timing of the full rollout, and then I'll ask one to Matt.

Yeah, hey, James. We talked about it last quarter, but one of our objectives was try to get to a place where we can build bigger models, use more compute, and try to train a model that has better output. And so I foreshadowed it for you last quarter.

We're now starting to roll those out. We've seen good results. We can't tell you or commit to when we can actually see a full rollout or how the progression of these models will go. But what I said in the talk track is these models have a lot more room to optimize them than the old generation that we were on. So we're really excited about the future.

Great. And then one for Matt, just on the surface, it feels like the Q4 revenue guide of the 8 to 10 % sequential growth seems a bit more conservative versus the 14 % in Q3 when you layer in the strength of e-commerce in the quarter for Q4.

Just how would you frame up that sequential deceleration.

Yeah, I mean, our guidance velocity remains the same from, you know, what we've done over the past few quarters. We're guiding to, you know, what we know at that point in time. So we're guiding to include the points that I said in my script, which are, you know, normal seasonality within the quarter, the model updates that we've already launched and are live and performing, and then obviously the increase in the data center cost.

So nothing there has really changed from previous quarters. Thank you.

Your next question comes from Jason Bazinet with Citi. Please go ahead.

I had one question. I think last quarter you guys talked about leaning into the referral program a bit more. I was just wondering if you could give us an update on whether you're pleased or not with the progress you're making with those partners. Thanks.

Yeah. Hey, Jason. Still a work in progress. Obviously, this is going to be multi-quarter, multi-year trajectory on this business.

We're early in doing partnerships. But as you've seen, even in the rate of pixel counts, I think you're publishing is that we've been getting more and more customers coming on. And the rate is accelerating. That's only going to compound over time because not only are you going to have more partnership deals, we'll start running more ad campaigns. but you're just going to have more positive sentiment on the product in the market as more customers start getting a good experience and doing it over time.

Because the other thing you got to realize is we got customers that come on, they have to get campaigns that are scaled and optimized on our platform. They have to run an incrementality study. They have to prove that it works. And then they really scale for the long term. So we expect this stuff will just keep compounding over time.

Our next question will come from Matthew Kost with Morgan Stanley. Please go ahead.

Great. Thanks for taking the question.

I guess, does the experience that you've had with this new model that just rolled out, does that change your expectations for how much runway there still is ahead to improve gaming ad revenue? Because you've been relatively specific over the course of this year about a 20 to 30% growth expectation and sort of law of large numbers weighing on gaming. Would you reiterate all that at this point? Or is there potentially more headroom than you would have otherwise expected based on how it's gone so far?

So what we've been specific on the last two quarters that we're committed to is an expectation that we can grow this business 30 % year over year for the long term. And we are a platform that's a unified auction. So let's say in some world, we grew consumer 1000 % in the next quarter. Well, that's going to create more competition, right? So So you can't look at it verticalized as this consumer business is now growing more and more.

It's very hard to judge a vertical by itself in a silo. Now, that said, this model is for sure more accurate than the old model, and it has a lot more room to optimize going forward. So if we're able to do that, of course, we would expect the gaming could continue to grow at higher rates for the long term. It's just not something that we need, though, in order to hit that 30% if we have both parts of the business growing pretty quickly.

And as we touched on in the talk track, the other side of the business, the consumer side is growing triple digits. So when you have a business like that that now isn't immaterial in our business, growing at that rate with a lot of opportunity to grow in the future as we go get more customer penetration, it gives us a lot of headroom on future growth opportunity.

Got it. Thank you. And then I noticed you mentioned CTV in the prepared remarks.

I think it's been a little while since that's something you chose to highlight. I guess how prominently does that feature into your product roadmap right now relative to six months ago?

Yeah, we're making more progress there. I mean, if people watch anything on connected television, you'll start seeing some of our ads. And we've got pilot campaigns going now. The product is actually looking very promising. It's early. It's a whole new market. So I wouldn't bank on it at all for being accretive to numbers anytime soon.

But it's something that the team is actually gaining a lot of confidence in with where they're at in the product roadmap. And so if we get to the point where it actually starts showing really good results for customers, we'll talk about it more. Internally, we're now very excited about it. Great, thank you.

Next, we'll go to Benjamin Black with Deutsche Bank.

Great, thank you for taking my question. So, Adam, you've spoken in the past the need to collect more data on the consumer side to refine the model and to improve performance, and then the flywheel around that.

But now with the new architecture, do you have sort of line of sight to potentially getting the flywheel to reach a tipping point to where you were with gaming a few years back? And if not, which incremental investments do you think are required?

Look, these two things go hand in hand, right? Every day that we stay in business, we get customers that come into the platform, they share data with us. So we get more data density.

So as you fast forward that quarters, years, you then need to pair it with model architecture that can actually process more data and generate better output. So you write a bigger model, a more complex model, you train it on a larger compute cluster, and you end up with better output. And what this new architecture allows us to do on the gaming side and on the consumer side is just train bigger models. So we're going to be starved for data.

The more data we get into the system quicker, the better the output of our predictions model is going to become. And so we're never going to stop looking to go get data, whether it's promoting ourselves through referrals and advertising, as we just touched on, for new customers, or potentially some sort of data acquisition. We're going to be looking for ways to get data into this model because we've seen every single time we add more data, we're able to write a more complex model, we're able to train a bigger model and just get a better output on the other side.

Great. And I guess our consumer advertiser budget's shaping up for the holiday shopping season relative to last year. And if you think advertisers see strong returns this quarter, how much of that spend could ultimately prove sticky into 27? Or should we expect a seasonal reset as usual in Q1?

I think it just follows the normal patterns. I mean, look, we're still early in the curve. It's not even into the holiday season. So that stuff takes form really over the next couple of weeks.

But that seasonal reset, I mean, that's consistent in e-com. Now, we do have the benefit that so long as we're growing this business at this rate and we're pretty early in its evolution, we still have rate of customer acquisition allowing us to grow the business, even in more traditionally seasonally difficult quarters like the Q1 versus Q4 comp. But that said, like the same advertiser, like for like, will have a huge Q4 and follow it up with a week Q1.

That's just the reality of the e-commerce business. Traditionally, if you looked at the business growth sequentially in our business, our Q1s have been pretty strong because gaming has a phenomenon called Q5. We're going into Q1, they know that there's not as much competition. And so the models, whether just selecting gaming more often because return on ad spend is compelling or the customers being willing to take bigger risks because they're coming off of a very high priced Q4 into this post Q4 season, they end up spending very competitively.

So we've been more insulated than other advertising companies, but as we get more deep into e-commerce, we should see bigger Q4s followed by tougher Q1s. Great. Thank you very much.

For our next question, we'll go to Steven Ju with UBS.

All right. Thanks. Hi, Adam. Hi, Matt. Thanks for taking the time. So I think I was talking to some of the advertisers on your platform and they said something curious. They were anticipating that the pricing on the auction is going to start getting inflated because you're going to have incremental bidders from e-commerce coming in and taking up the prices.

So they were preemptively taking some of the budgets to some of your competitors in anticipation of what might be compression of ROI. So, you know, which kind of seemed like a strange thing to do, but it did make me worry about, I guess, the amount of inventory, which I think you've addressed in prior periods of this being, I guess, a demand-constrained industry as opposed to supply-constrained industry. So can you talk about how your thinking might have evolved or things have changed at all in terms of AppLovin's ability to absorb all this incremental ad spend without having some of the ROI get compressed for some of your incumbent customers?

Thanks.

Yeah, I mean, if you look at our business over the last three years, we've gotten a lot more competitive. The business is much, much bigger. The ROI or return on ad spend for customers is stronger than it was three years ago because the spend is materially larger, right? So the better these models get at taking an impression and predicting an outcome, the more accurate they can price. Our step up this quarter in net revenue dollars against the last quarter, I don't know how much of our competition that's publicly reporting has in terms of scale to directly compare to that.

But I think it's a lot of their annual reported revenue that we just put up in one quarter of growth. So I think these industry checks tend to end up being flawed because you're looking at a small subsegment of the ecosystem and the customers that are taking time talking to you all probably aren't working that hard. The ones that are working hard and succeeding probably aren't talking to you all. So I would say we're a pretty good indicator on the market and our technology has proven to be great at getting better pricing for customers.

that doesn't mean that just looking at a CPM, the price is not going up. In fact, if we get better targeted so that our conversion rate goes up, the CPM will go up. But the down funnel effect of a better prediction is that the return on ad spend is going up. And that's why we're able to grow so quickly.

For our next question, we'll hear from Robert Kolbrith with Evercore.

Great. Thank you for the opportunity to ask the question.

Just wanted to ask a little bit more about the architecture. Is that something, you know, as it becomes larger or allows for more data and models get bigger? Is that something that also becomes more generalizable? I know in the past you've talked about keeping the consumer and the gaming models separate, but is that something where the models become sort of more generalizable across media types, across client types over time?

Yeah, it's possible. Oh, sorry to interrupt on the second question, but you're right.

It is possible that we will eventually be able to take this architecture that direction.

Okay, got it. And then just want to ask a little bit about me brand performance, if you will. We're hearing from more brands maybe because of the issues in mobile web, both in terms of inventory supply, but also iOS 26. You focus more on mobile app inventory. Do you see that as an opportunity that's potentially attractive or interesting for Apple 11 going forward?

I mean, certainly if it's a performance marketer. So, I mean, I would split up performance brand into true performance where they're optimizing the incremental ROAS or like a down funnel purchase transaction. Then you've got performance brand that still is looking for audience reach. A lot of the mobile web advertising and a lot of what's called, I guess, traditionally open web is more of the latter. They're just trying to buy audience and trying to price effectively as cheap as possible to reach that audience.

We try to price the discovery all the way to the point of transaction. So if that's what they care about and they're able to track it all on digital, then yes, we think a lot of those dollars will shift into the app space. It clearly performs really well. It's much, much bigger. I mean, I said this, I think, on the All In pod at the All In Summit. The scale of this space is getting very, very large.

We have, I mean, you can back into the gross spend numbers that we have and they're pretty substantial. and if you then gross that up for the whole space this is one of the the largest advertising opportunities that there are outside of social and search maybe the largest outside of social and search so we fully expect more dollars will follow given the performances there great thank you

our next question comes from clark lampin with btig

hey guys good evening um i had two if i may I guess, Adam, I sort of wanted to pull at this model thread.

And based on everything that I understand about where you guys are going right now, I think one of the bigger derivative benefits of success would be opening up a lot more inventory or available inventory, I guess, within the same sort of base of games and supply that you have right now, which probably should get filled because of auction dynamics by non-gaming advertisers. Is that right? I guess just sort of number one as we think about the second order benefits beyond just sort of more ads per hundred that you're buying right now translating to revenue generating customers for a commerce or gaming developer.

And if so, I guess, is there a way to frame for us just how significant, I guess, this sort of available or effective supply expansion could be?

Yeah, I mean, look, I think the challenge with supply expansion is that the max market or the gaming advertising market is a lot bigger than people realize. So when you've got this market that's in the tens of billions, we can go get new supply. And in fact, this model that we're now on and that consumer vertical growing gives us a lot of opportunity to go get more supply.

But there aren't that many supply sources that are sort of open to third parties. They could be a huge needle mover in one shot. So then you'd need to compound it over time. The reason CTV is compelling to us is there's not a true top of funnel to bottom of funnel performance offering on connected TV. If we can figure that out and be the first to market with something that's scalable there, there's a lot of available inventory that's under monetized there.

It's sort of what mobile looked like to us 10, 15 years ago when we started the business. So something like that could be impactful. Anything else, not so much. But that's why we've always talked about this conversion rate. We're still very low on what we think is the possible conversion rate inside this gaming ecosystem. What consumer gives us is the chance to diversify the ads that someone's seeing. Instead of showing the same user 20 gaming ads in a week, we might show them 15 product ads and five gaming ads.

That doesn't mean that the gaming customers lost 75%. It just means that the model can get much more targeted. So those same five impressions that would have driven the conversion are still going to sit there. And now all of a sudden you have all these product ads. So that's really the focus area. That's the largest needle mover in the short, medium term. But long term, for sure, supply expansion is something that we're going to be focused on.

Okay, that makes sense. And for Matt, I guess just sort of net of, you know, what I think we were seeing just a moment ago in terms of after hours share price reaction, your stock is still down ballpark 40 % year to date and it has only retraced most of the sort of post 2Q earnings step down. Does the buyback give you flexibility or the added authorization that you guys just layered on give you flexibility to be more aggressive, I guess, and opportunistic?

If you think that the share is or the share price is meaningfully disconnected from intrinsic value, or is this mostly going to be programmatic going forward?

No, I mean, you saw within the quarter as well, Clark, that we did a meaningful step up. And so that was directly as a result of what you're referring to, right? That was us opportunistically ramping up the buyback because we saw this dislocation in the stock price versus the actual intrinsic value of the company.

So we have the ability to do that going forward as well. Thank you, guys. Yeah.

Next, we'll go to Martin Yang with Opco.

Hi, thank you for taking my question. A question for Adam. At an industry conference, you referenced that dynamic product ad for e-commerce sometimes can work better than video. So once you get your thoughts on the longer term, do you think a more diversified ad format is the ultimate goal to make e-commerce more effective or are you still just waiting on of Gen AI video creation to make volume and the quality of video ads higher?

And this dynamic product app is just an intermittent step for your advertisers to get volume to in front of customers.

Look, I'd say it's both. I mean, as the large language models that are applied to creative continuously improve, and there's a lot of companies in this ecosystem building ads now out of the box, you're going to see better advertiser performance. We're also going to create more ad formats that can service the advertisers in hopefully better ways.

What we want is diversity of what the consumer sees. When you serve as many ads a day as we do, that diversity of content can create an uplift. And so that's why in my talk track, that was one of the bullets. It's an area of focus for us. This product is still really new. I know we're a couple of years in, but it's a really new product. The ad format hasn't evolved that much yet. but I would fully expect it to evolve a lot more over the next couple of years.

Got it. A follow-up on e-comm, if I may. When you compare this year going into the holiday season versus last year, how would you say the learning budget or learning time is for e-comm customers? How has that improved, if any?

Yeah, I mean, look, learning is two-sided. So our model has gotten better. and this new model architecture also, as I said in the talk track, is faster when there's less data. On the other hand, customers are risk averse going into a new relationship.

So when they buy on us, even if the result looks better, they still need to validate it. So in this category, if you talk to the customers, not only do they want to see spend and return on ad spend, they need to run incrementality studies too. So there is a slow ramp up. That's just a fact of the industry, but our product is getting better. Every quarter that we go on and we have a new release part of the space of getting it better is just improving it for current customers the other space of getting it better is that so customer now clicks in they don't have much data in our system how quickly can you show them a good

result because that's how you lower your churn rates thank you

our next question will come from rob sanderson with loop capital

yeah thank you good afternoon everybody um a couple questions um on consumer as well um growing triple digits obviously you know, good trajectory here. Any commentary on sort of conversion of new leads coming through self-service or through your referral partners or, you know, any specifics on customer outcomes? I'm just kind of wondering, you know, there was still a bit of hit and miss kind of depending on sophistication of the advertiser is, you know, are we still seeing sort of similar trends or anything you can comment on sort of, you know, how the go-to-market's progressing?

Yeah, I mean, look, we're still early in the product. So like if a customer goes through our team, much higher likelihood to succeed than they just go through self-service channel and they're on their own. Now, if they go through self-service and they're on their own and they're sophisticated, they absolutely can have success. If they're a very small business, something that is just what you would classify as complete SMB, that's still further into the future for us.

So there is a roadmap on this thing where the more data you get into the system, the more predictive you can be in the absence of data. And we're not at the point yet where somebody can just plug in tiny business selling jewelry we've never seen them before very little data very little GMV and it just plugs in and then they go but five years from now if we've got a lot of scale of data and the model has time to get evolved to that the point of five years from now you're gonna have much better outcomes across the board so this is a roadmap I mean we got to build this product out over time to tackle every single

circumstance it is working really well for the customers that we either handhold or they come in and are sophisticated

is ad creative still a primary barrier? Like that was, you know, a lot of the points of failure, a lot of things that weren't working, it's kind of stalled out at the ad creative. Is that still kind of the primary sticking point? And, you know, if we kind of asked this question a year ago, I mean, did you expect the industry would be a little further ahead on Gen AI tools by this point, you know, one year ago?

It seems like, to me at least, maybe things are a little bit slower than we would have thought.

Yeah, I mean, look, on the latter, the large language model companies in the West are focused on something else and so you have less less r d outside of us on this problem right on the former i wouldn't call it a barrier but it is an opportunity cost or opportunity lost for customers that don't invest in creative if you talk to customers that buy on meta they buy on tick tock they buy on us there's there's a constant like point that they make that you need to put more creatives into app loving to have success on our platform so the ones

that know that have more success than the ones that don't know that the ones that don't might be smaller they may it's probably not a barrier to working at all but they're missing a point of scale and the challenge is is that our ads are just much longer and they are seen so when you go into another platform and you load 10 ads they're not seen that long and a lot of them aren't seen you load 10 ads into our platform on average you're getting over 35 seconds of watch time you can't do anything else on the screen it's a full screen ad and so they are being seen with 100 certainty so ad count and quality of that combination

is what creates scale in our platform. Some customers know it, they're able to become our large spenders, the others have to learn it. You know, try to sneak one more in.

So you're talking about significantly larger models, right? Step function in scale. Are you generating enough data organically to, you know, you got to feed the models? You did talk a little bit, Adam, about maybe opportunities to acquire data. You know, I'm assuming you'd be looking for, you know, customer data, transaction data, but you know, what types of data would be most helpful?

Does it need to be evergreen? Do you need it even? Are you generating enough organically?

I mean, look, like obviously this quarter, we had a fantastic quarter, best we've ever had with the data that we had. So there was no incremental data into the system, right? So there's on the one hand, just processing the data you have available to you in smarter ways can create uplifts. On the other hand, like these models just need more data.

I mean, that's consistent across any company in a modeling space. And so getting more data into the system is important for us. We're not rushed. the business is doing really well every customer we get live is a data relationship on top of a business revenue relationship but long term if we can add ways to get data into our system quicker the business is going to have much more runway in the short term okay thanks guys thanks rob

next we'll go to shweta kajaria with wolf

okay thank you for taking my question i have a high level question, some of my questions were asked.

As an ad tech company, for investors who are questioning the visibility of your business model and how much confidence you have in the durability of your top line growth, is there something else incremental that you would consider sharing that would give more confidence in terms of the way your product works, the visibility you can offer, and the moat that you're building? Thank you.

Yeah, I mean, look, I think over the last, I don't know, it's been 16 quarters or something, we've had 15 phenomenal quarters.

Our growth rate has been higher than almost any tech company in the world that's public at the scale that we operate at, and our margins are probably second to none. And so you've got a business that while is unpredictable in the future, we can't really to give KPIs to predict something that isn't there. A lot of it is tied to actually us being able to improve our technology. And then a lot of it's tied to new customer growth, but we're so early in that consumer segment that there's nothing that's material there yet that can be predictive in the future.

You sort of have to make your own guesses. I said this, I think, I don't know, maybe 12 quarters ago, early in Axon too. I said when human beings tend to think about predicting something, everyone gets negative on the future. In our business, they can be negative and positive, But almost all those quarters, I mean, I think it's been 14 out of 16 that we've beaten the high end of our guidance and not by an immaterial amount.

We've been consistently outperforming what anyone would have expected. So I think a lot of this is over time. People have to go, this is a bigger ad tech company that's sort of independent ad tech without a first party site. Bigger than anything we've ever seen before. We're a very large business at this point. We create a lot of cash flow and we're delivering to our customers in a very large amount of scale return on ad spend.

Tens of billions of dollars of revenue on the other side of the ad spend that they put into our platform in any given year. So we're a very large economic force at this point. That ad spend is creating GDP, is creating new transactions that otherwise wouldn't have been there. So as a very large business, we're growing quickly. We can't give those KPIs that you're looking for because we're just not at that point of stability. but we have something that is a catalyst that is also very valuable.

Our engineers improving our models and more data into the system is not predictable, but it can create very high upside.

That's fair. That's helpful. Thanks, Adam. Yeah.

Next, we'll go to Ralph Shackert with William Blair.

Hey, Adam and Matt. Adam, in the talk track, you talked about a reference. This model step change is as big as Axon 2.0, I think you said. I'm just curious, is it fair to think of this as an Axon 3.0?

Just really trying to frame this model update because when the model transition to Axon 2.0, you had a fairly significant inflection point. Obviously, the business is a lot larger now. But just to help conceptualize how impactful this new model will be once it's fully rolled out and impact on the business would be great. Thanks a lot.

Yeah, I'd put it from a technology standpoint in terms of technical complexity on that level in terms of business.

Look, this is the next generation of the model. We're not a direct-to-consumer AI company, and so we don't increment the model. But the reality is this gives us a lot bigger path in the future in terms of processing more data and spinning up bigger clusters and hopefully getting better output. Team's really excited about what it means. We're still in partial rollout, so it has to roll through all of our models. There's still a lot of complex R &D work there, but it gives us a much longer roadmap than the old models would have given us.

So that gets the team really excited.

Right. One follow up. Obviously, the results tonight speak for themselves. But after last quarter, there was a ton of competitive concern. Maybe just give us an update on the market and the competition as you see it today. Thank you.

Yeah, I mean, look, like the industry checks out there show you all other companies are performing really well in the market. We've said since we went public, this is a zero sum.

Our prediction, the impression, what we price for a customer is going to be different than any other model. What makes this category great is that the sum total of all the models improving give these customers better businesses. So it's never been the case that other companies growing should squeeze us. I said on the last earnings call, that was not something that actually happened. And it was our own foot fault. that now shows true to you all in the face of other companies doing well.

And it's not just one, it's multiple all at the same time. We put up a massive quarter.

Awesome. Thanks, Adam. Thanks, Adam. Yep.

For our next question, we'll hear from Brian Smilic with JP Morgan.

Great. Thanks, guys, for taking the questions. I guess, you know, just really curious, Adam, you had mentioned at the All-In Summit, I believe that gross spend flowing throughout Blobens ecosystem was approaching maybe like $20 billion annualized. Can you just talk about going forward in order to achieve that 30 % long-term growth algorithm overall?

How much of that growth will be from greater ROAS achievements through this new model versus incrementally adding new customers both on the gaming and consumer side? And then I guess, Matt, more near-term, obviously good to see that performance in 3Q, implied 8 % to 10 % sequential. Totally appreciate greater consumer seasonality into year-end. But just curious, like, you know, what's embedded there from a gaming perspective as you continue to roll out the new model?

Yeah, look, long-term growth for us, like the components of are hard to predict. Of course, new customers coming on is now going to be a component, not in gaming. We have every mobile gaming company live probably, but in consumer, we're really early. The data in the system will improve. The model architecture now gives us a long runway to improve it. So we don't know. It's also interesting that every quarter, it can be different. And if you verticalize the business, we could have a lift on the gaming side that doesn't apply to the consumer side.

And that takes off one quarter and the next quarter flips. What gets us really excited is that consumers growing very quickly and is starting to become more and more a part of our business. That on its own has much longer runway because we're so lightly penetrated into the market of customers. As each quarter goes on, more customers find out about us. That business is going to grow really quickly.!

Yeah, on the guide, Brian, we don't break out, obviously, between gaming and consumer.

And I won't give you the specific splits, but what we've assumed for gaming and for consumer is consistent. I mean, there's seasonality, right, as we look into Q4. Obviously, both are strong for different reasons. You have the consumer period, right, a Black Friday, Cyber Monday, and then the holidays. You also have on the gaming side of the business, there's seasonality as well. And Q4 is always strong. So we've assumed that within the guide. And then obviously the model improvements that we've had thus far, you know, those are reflected in the eight to 10 % as well.

Great. Thank you both. You're welcome.

Next, we'll go to Alec Brandolo with Wells Fargo.

Yeah. Hey, can you hear me? Yeah. Thanks so much. Appreciate the question. Maybe two for me. I think first you mentioned in response to a question about e-commerce or web advertising, the idea of a data acquisition. And I think that there's this kind of idea percolating that there could be Tuck and M &A leverage to kind of accelerate the capabilities of e-commerce.

And so perhaps if you could talk about what the ideal acquisition candidate or what the ideal data you're looking for is, that would help people kind of frame that opportunity. And then secondly, you know, you mentioned the pixel data, so I guess it's fair game. Clearly, APAC, most of the inflection in the pixel data, it seems like most of the inflection in e-commerce customer growth is coming from APAC. Why do you think that region is finding kind of stronger product market fit first relative to the U .S.

and Europe? Thanks.

Okay, I'm going to take a second first. We've got sales teams on both North America, I guess, EMEA as well. But APAC and the North America team are the two biggest. We've always traditionally been focused on both those two markets, which are big ones on the Western advertising side. The APAC customers, because they're tapping into the Asian supply chain, a lot of times they spin up sites that are specific to certain type of products that aren't buying elsewhere.

So for them, if they go spend $1 ,000 on us, they either make money or they lose money. But it's very easy because there's no attribution complexity. So sometimes those pixel sites are brand new sites that just didn't exist that are spun up specifically for our channel. North American customers are bigger enterprises. They're not going to go spin up the next version of Wayfair, right? It's one domain. And so I wouldn't read into the counts as I'm seeing more pixel counts out of Apex.

So they're getting more penetration into the customer base over there. It might be just one is creating a lot because they don't have the same attribution complexity that some of the Western companies do because they're just longer standing brands. On the acquiring data point, the M &A that we did in the past that maybe is our best is when we bought Mopub. We were already succeeding with Max, so it was a great product. And at the time, no one understood it.

This crazy company bought a company and put it out of business. I mean, we put it out of business in 90 days, but we got all the customers over to our platform because we just build great products. And by doing that, we ended up with what Max is today, which everyone knows is a really valuable business. That transaction has paid for itself many times over now. What we would look for is, can we buy data relationships, customer relationships, that are valuable for us.

We're going to get all these customers over the next decade anyways, but if we can buy it and get the shot in the arm to bring all these customers onto our platform quickly and get all that data into our platform quickly, it'll accelerate this business to get through what could be a decade's worth of work in much shorter amount of time. Same sort of structure as that kind of deal is what we would look for. Thank you so much.

Our next question comes from Omar Dasuki with B of A. You're on mute, Omar.

Thanks. Hi, Adam and Matt. Thanks for taking my question. In your old models, you used to continuously retrain on live impression data, and that resulted in a steady 3 % to 5 % self-learning growth, and that's distinct from engineer-directed model uplifts. You didn't address it specifically on the last conference call, So can you tell us if you see that same 3 % to 5 % tailwind from self-learning and intra-quarter model retraining off of live impression data?

Did you see it in Q3? Is it assumed in your Q4 guidance? And kind of looking forward, how much visibility do you have as to that component of growth? Or are you just wholly reliant on engineer-directed model enhancements going forward?

Look, in all these models, you have this sort of reinforcement that happens. You get a prediction, you get data that comes into the system, and they get smarter. This is true in any sort of category of companies that are writing these deep learning models at this point.

So you don't actually know, is it 3 %? Is it 3.2 %? Is it 4 %? You can't really track what the model is improving on its own. But there is always going to be this self-learning notion that exists in a company that's running a model, creating a prediction, reassessing its own prediction, and hopefully getting smarter as it goes forward. That's what these models are built to do, right? Like they're structured similar to the human brain.

We as humans learn from our memories and get smarter as we go forward. These models do the same exact thing. So I just wouldn't split it up into this is a growth driver. Let's plug this number in here. And then on top of it, let's put a model enhancement. because we talked about back in the day also, we'd have one big one a year. Well, probably over the last 16 quarters, we've had multiple A-B test lifts, pretty much every single one of those quarters except the last one that contributed to very outsized growth for the business.

This stuff's not all that predictable, nor is it able to be dissected down to a specific percentage, but it all compounds into the business that we have today.

next we'll go to jim callahan with piper sandler

hey guys thanks for the question um adam i think last year you mentioned supply growth across max growing double digits uh any comment on what that looks like you know this year to 2027

yeah i mean look it's still strong double digits i think last quarter we told you in a single quarter it grew double digits so it's a very fast growing space in the advertising ecosystem where I think like most ad spaces in terms of just supply growth and value of that

supply aren't growing all that fast probably like like very low double digits to possibly single digits this max market is growing a very strong double digit growth rate every year

great and then anything on the cost of supply acquisition we've kind of heard this come up in checks a little bit that you know the cost of impressions broadly has gone up um any way to frame you know how that looks today and kind of how that could look into next year as well

yeah i mean look it's there's two drivers to max growth more supply and the cost going up so cost effectively companies getting better at monetizing the impressions the value of the auction goes up the publisher makes

more now on the other side of that we're either gonna have to pay out more for publisher inventory or improve our own technology at that same rate or improve our own technology and more than that rate to grow our business even faster than that market and so a lot of the innovation that we've had over the last four years has been the latter. We've been improving our technology better than the market, and therefore our business is growing much faster than the market's grown.

For our next question, we'll go to Vasily Karasioff with Cannonball.

Thank you. Adam, I wanted to ask you to comment on the take rate directionally, maybe, compared to last quarter and maybe year on year, whatever is easier. And then the question I had with this model, separate models for consumer and gaming, would there be a reason why the take rate fluctuation on one would be greater than the other? Can you help us frame it for us how to think about it?

Yeah, I mean, look, we don't talk about take rate in the business. And frankly, it happens after the fact. When you have a conversion rate that's a little bit over 1%, If we were buying on a thousand impressions, somewhere around like 987 of them we're losing money on. So there's no take rate. We lost everything. On the other ones, you have almost an infinite take rate because you're making a ton of revenue with a very small amount of outlay.

So it's just not a function that we optimize to. And it really does tie to the point that I made earlier. If our engineers created a massive uplift in the next two weeks, we'd be able to take more because we out innovated to everyone else in the market. If we innovate at the rate of the market, the market pricing stays consistent. We're sort of where we always are, which is pretty consistent. And then if we fall way behind, we just disappear for five years, our take rate will contract because the market pricing will get better than the rate of improvement on our technology.

Now, what you've seen with our team and the opportunity that we put in front of us with these different business lines and where we are in them is that we're really good at executing. We've been able to execute better than others in the ecosystem for a very long amount of time now. Our team is very seasoned on improving these technologies. And when they have R &D breakthroughs like we just had, usually those end up being before everyone else.

So before anyone else even understands how to have a technological breakthrough like that, we're many quarters or years ahead. And is there something inherent to consumer versus gaming that would drive different? It'll be consistently similar. This is why I always say it's like one auction. Let's say gaming has a predictive value of $20 CPM, so two cents for the impression. And a consumer comes in and wins that impression and had $21. It's so close to each other.

You're paying out to the publisher. And if the model is very predictably accurate, you're not going to have like one be at $50 and the other one be at $20. They're pretty competitive to each other.

Makes sense. Thank you.

Next, we'll go to Tim Noland with SSR.

Hi, thanks so much. I have a question about data, and it's about data provenance versus data processing. The question is really who owns the data in your transactions? Is it your mediation platform that processes the data, or is it like the original game developer, the monetization platform that handled the transaction?

What data are you talking about? Just mediation data? I don't know. We have a lot of data in our system.

Yeah, well, the data originates through transactions, however, whoever processes them. But your mediation platform kind of creates these packages and you have this sort of new package data. So I guess my question is, who owns that data?

What is package data? If you just give me an example with like an ad served, it'll help me answer it for you.

So if an ad is served and you process the transaction versus somebody else processes the transaction, you can see the data that is going through these transactions. You incorporate these data into your mediation platform. So I guess my question is, does the data belong to the original game developer or ad tech company that processes the transaction? Or through the mediation platform, do you gain provenance over that data?

Not really, because I think there's a disconnect on what you think we have access to in mediation.

When we have a mediation auction run, every company bids into the auction. The only data that's available, so to the max system, of course, we see all the bids. We don't know what people bid for. But the only data that's available to our Axon models or our system are, did we win the ad or did we not win the ad? What was the price for the winning auction? And then everyone who loses gets the price for the losing auction.

That's it. No one should have access to what other people serve. We don't have visibility into an auction cleared.! Someone else wanted it. They served exactly X. That exact X is the ownership of the advertising company, the company that wrote a model that created, that processed a ton of data, has a relationship with customers and consumers to show an advertisement. That's their data. It's an output of their models that remains with them. And so there's nothing that gives us magical data access from the mediation.

In fact, when we built Max, what we did was we commoditized it all. We said everyone's going to have the same access to data as we will as a bidder into Max because what we wanted was a fair marketplace. The reason Max out-monetizes the rest of the world of mobile gaming is because we made it fair, and that fairness is what drove the price of every single impression to be the highest possible.

Okay, that answers it.

Thanks very much, Adam. Yes, I got it. Thank you.

We'll take our last question from Matthew Swanson with RBC.

Oh, great. Thanks for squeezing me in. Congratulations on the quarter. I guess on the consumer side, Adam, you mentioned there's some handholding in terms of like the initial on-ramp if you're not a more sophisticated customer. I guess a two-parter there. One, how much of it is like on you versus them in terms of improving that initial performance?

Is it still about the models? Is it about them learning how to kind of better optimize their usage of the platform? And then secondarily, when you're kind of targeting customers, it seems like these real sophisticated users are the more likely to generate revenue immediately. Is that more the priority or are you looking for kind of the best long term partners for Apple?

Yeah. And so, I mean, I think a lot of this is a learning curve.

We're new platforms. So a lot of these customers have not bought in games. They're not used to an ad that actually gets watched and certainly not used to an ad that's watched for that much time. If you have a shop, I mean, like think about like when I sometimes I think about like we're asking the customer to create 60 seconds of content to showcase the shop. I mean, what are you even showing that at? It's like shops aren't that exciting.

On the gaming side, they're creating mini games. So someone's playing a preview of their game. It's straightforward. So this is just there's a learning process here that has to happen so that the media buyers really understand the framework. And then once they do and more and more media buyers understand it and more agencies are trained, then it'll become standardized. there'll be playbooks for our platform but it's not dissimilar to buying on social 10 years ago it was brand new the scale was way smaller people didn't know what to do now everyone knows what to do because if you don't you're probably not scaling your business and on the the priority of the type of customers we go for we are

looking for the more sophisticated ones that's why these partnership deals make a lot of sense rather than just run apple and ads everywhere through strategic partnership deals we can get real customers coming on

And that concludes the question and answer session for this quarter. We thank you all for joining us today. Have a good afternoon. Thanks.