Tim Nollen: Okay. That makes sense. Thanks. Any comments on Wurl’s growth or contribution to revenues or anything you can share?
Adam Foroughi: It’s still too small to break out, so we don’t talk about it, but they’ve done a great job of bringing a lot of supply online. So, now the other side is the opportunities bringing the demand on
Tim Nollen: Got it. Thank you.
Operator: Moving on to Eric Sheridan with Goldman Sachs.
Eric Sheridan: Thank you very much. Maybe following up on Tim’s question, but asking a little bit different way, Adam, when you think about entering new verticals or new canvases, we’ve seen you taken a number of different approaches, purchasing companies, taking stakes in companies, partnerships. How should we be thinking about the capital allocation dynamics around thinking through organic versus inorganic growth? And where the — how to sort of maximize for ROI when you think about how far reaching the platform can become as you look at some of these canvases over the medium to longer term? And then second question would just be incremental margins. Obviously, you guys continue to produce very high incremental margins after the investment cycle you had been through in the prior 12, 18 months. Just continued thoughts on guideposts around incremental margins as the business continues to sustain relatively high levels of growth. Thanks so much, guys.
Adam Foroughi: Yeah. I’ll start with the first and Matt can answer the second. Thanks, Eric. That really, when we think about our business, we built a very, very compelling implementation of AI, one of the most powerful systems the world has ever seen in this space. And so organically, we have a huge advantage to continue to build on that and how do we build on that? It will come from a few different things, get more partnerships, get more data and get more reach. And so, all of that in terms of like the way we think about it and getting more reach is accessing eyeballs. Well, we have a carrier OEM business now, we have a CTV business and we have our core business and there’s over 1 billion daily active users just on the core business.
So, we access a lot of eyeballs already. So, the reach is sort of there, sitting there for us to go capitalize on. Demand diversity is we fundamentally believe is an organic problem. The algorithms are going to be able to execute on any transactional vertical. And so, we just have to get this product rolled out. The R&D effort was building the system to be able to do web marketing for the first time. This is that’s just not something a company named AppLovin really thought about over the last 12 years. And so, now as we go forward, we’ve got that technology, we’re going to be able to execute in that space. And so, that again is an organically charged effort. And the hardest part of all of this was building the algorithms, building that that the AI models are incredibly complex.
And a lot of companies obviously in the world today and technology, almost every company will talk about the AI strategy, but very, very few have been able to actually execute on a large scale implementation of complex systems like these. So, having that at our disposal really keeps us excited about this organic path we’ve got going forward.
Matt Stumpf: And just in terms of expectations around margins, Eric, I mean, we expect the margins to continue to expand to the extent that we see increased development for AXON, right, as Adam has talked about in the past, the improvements to the actual technology because we’re already reporting net revenue essentially dropped to the bottom line. So, what you’re seeing is as margins grow through that development is that it should continue to expand. Obviously, as volumes growing, then margins should stay relatively flat. So, at this point, we wouldn’t expect any decrease from our existing level of partner.
Eric Sheridan: Thank you.
Operator: Jefferies, James Heaney has the next question.
Ed Alter: Hey, guys. This is Ed Alter on for James Heaney. Thanks for the question. From piggybacking on some of the earlier questions from some of our checks, we’re seeing that the bigger the app developer is, the more they actually are kind of spending share of AppDiscovery. So, like besides obviously AXON, what are you seeing that is winning those incremental dollars versus others, and where are the bounds of that?
Adam Foroughi: I mean, in our system, we don’t really have a limit to what an advertiser spends. Most all of our partners don’t set any sort of budgetary limitation. So, the bigger advertisers obviously by definition have a better base business. They’ve got probably in mobile gaming, a more successful games, so they’re a bigger company, then therefore, they can spend more dollars per day. But the really nice thing about our system today is somehow someone on our research science team tomorrow had a breakthrough and our models got twice as effective, the business would double overnight because there isn’t a budgetary constraint. So, we think like at this point, our job in mobile gaming to deliver value to the advertiser has been effectively accomplished.
And now, a lot of the growth is going to come from new advertisers, both in gaming that we don’t work with 100% penetration of the market or even close to that. So, gaming customers around the world now are hearing about this platform that a year ago didn’t exist and now is outperforming every other platform in the world. And so, that as we continue to see organic adoption of our platform in the gaming category, we will see growth from these new advertisers, which some are large, some are small, but all adds up. And then secondarily, again, this expansion outside the mobile gaming business is something we’re really excited about.
Ed Alter: Yeah. Great. Maybe just to follow up on your view of the where we sit in the mobile gaming market in general, after a couple of years of down, most — some are expecting growth this year, is that what you guys see as well, and what’s driving that?
Adam Foroughi: Yeah, totally. We said it on the talk track, but our platform is really large. If you think about a net revenue reported advertising network, which is the vast majority of our software business, for us to have doubled the software business in the last year, there’s billions of incremental dollars that were spent in the mobile gaming category on our platform. That didn’t hold from other channels. So, companies in mobile gaming don’t go. Today, I can spend $0.10 extra over here. Therefore, I’m going to take $0.10 from this other channel and move it over. They’ll just say, I can spend $0.10 more in my goal, therefore, I’m going to spend more on my goal and that’s it. And so, it takes a while for that to compound and be reflected in the $100 billion TAM that everyone looks at because these — the paybacks on the user acquisition tend to be somewhere between three months to 12 months.
So, if you build-out like, okay, well, what happened? Well, AppLovin doubled in a year, their business. So, billions of more dollars were spent on an industry that spends tens of billions of dollars of user acquisition. So, there is certainly material amount of growth in the dollars invested because of the AXON breakthrough, then you’ll start seeing the TAM start expanding once that starts paying off, users are paying back into those cohorts into the games that they downloaded, the cohorts start stacking and the whole category will expand. And so, a lot of the TAM expansion you’re starting to see reflected by single-digit growth, which is what a lot of that is attributed directly back to the success our technology is having driving growth to these advertisers.
Ed Alter: Yeah. Thanks. Thanks. Congrats on the quarter.
Adam Foroughi: Thanks.
Operator: Moving on to Vasily Karasyov with Cannonball.
Vasily Karasyov: Good afternoon. I have a question about your competitive dynamic. Obviously, your results are so good. AXON 2 is working so well. Do you see any competitors ramping up to go after your business and put up a fight against you? And if so, how do you feel about it and obviously, the returns are too good, right, to pass up? Do you see any changes in the competitive situation at this point? And how are you preparing for that? Thank you.
Adam Foroughi: Yeah. Thanks, Vasily. We’ve been asked about competition for years and we always say we don’t necessarily pay attention to the competition because look, there’s some — people look at the technology that we have and in the industry that we do and they view it in an oversimplified manner and think one company builds some sort of algorithm and everyone else can just copy and everyone’s going to catch up. These systems are really, really complicated. We built cutting-edge AI technologies. It’s a multi-year effort for anyone to be able to look at that and go be able to replicate that. And I don’t even think it’s conceivable that it’s something that can be replicated. So, by the time there’s anyone that’s actually going to be able to compete against our technology, we will be years advanced from where we are today because we’re continuing to evolve the technology.
Second piece is, we can open-source our code tomorrow. We can hand-out the code to competition. It still won’t matter because these technologies need data that they’re achieving in the marketplace to be able to drive themselves. So, if you think about like AI models, like what makes an AI model impactful? Well, they’re utilized and that data feedback that they get from human behavior retrains the model and allows the model to continue to improve itself. ChatGPT being a perfect example of an AI model that’s super compelling. Every search that every word that we all type into it gets a result and that result in the efficiency of that result and the way the user engages with that result retrains that model if you give it a thumbs up, thumbs down.
In our model, we’re getting an insane amount of data into the system every single day. System is continuing to improve itself. So, we sort of look at the world now and say, we’ve got cutting-edge technologies. We’re in a leadership position in a category that’s pretty large, this isn’t the largest and certainly isn’t very fast-growing, but we’ve got an opportunity to really go out and expand our business and go deliver value to companies all over the world well outside of mobile gaming and allow them to unlock value for their business through our use of AI. And that’s something that we’re very excited about and we think is going to continue to allow us to distance ourselves from other players in our ecosystem.
