Who's Lovin Applovin (APP) | Plus Unity Update

hello everyone and welcome to pixels and profits today we are doing a deep dive on app Loven and we'll discuss the outlook for the company also we will do a very quick update on Unity we'll also discuss the potential implications of unity's business to app Len as they are tied obviously the gaming industry is going through a lot of changes there's so many things happening and it's very confusing so we'll try to sort this out for you with us today we have your regular pixel Brothers myself Joseph Kim Matthew conman and Brian pegn and we have one of our favorite guests from the deconstructor of fun podcast and my former co-host and everyone's favorite podcasters Eric Crest welcome guys I don't know about favorite these days really yeah I I remember when I was on the deconstructor podcast a lot of people would always say Eric's the most entertaining uh host um I got that feedback a lot so uh I I I'm sure you've

got a lot of fans don't don't be humble Eric no no but I also have a lot of people who think I'm an idiot so there's there's there's a good sprinkling of both so means you're doing something right yeah yeah today's episode is sponsored by data. to access estimates for rankings downloads Revenue usage or engagement for millions of apps on the App Store and Google Play sign up for data. all right so start with the unity update uh Brian do you want to kick us off there yeah so uh you know we just taped last what two weeks ago and obviously some some Monumental change over Unity there's a new CEO a longtime operator a potential turnaround story on the horizon so wanted to kind of see the opinions on what's next uh Unity also reiterated their guidance for Q3 which deris the quarter a bit um I guess that the main question after the the CEO commentary is does this quell the development Community uh which is the major driver behind you know Jr leaving

um and is it logical to suggest that new pricing changes are on the horizon again given a new CEO coming in with a uh a big task ahead of right sizing the company from an Opex perspective and also um accelerating Revenue growth guys any thoughts yeah I mean I just want to jump in on kind of I like to look at employment agreements for executives and kind of extract what I think they're going to do based on how they're compensated because life is about incentives and people do whatever makes them the most amount of money that's how the world works and if you don't agree with that you've never worked in a business um so Jim Whitehurst comes in he's the interm CEO he was previously the CEO of red hat which was acquired by IBM they were IT services consulting company that specialized in helping you know Enterprises adopt open- Source uh Technologies for software y y y point being he's an experienced executive he's he's been in a lot of different Industries he's really kind of a mercenary uh executive so you know if we

look at his employment agreement and actually you know I just actually before I go into what his is I like to just point out um I noticed this like in 2017 or was it 2018 Bobby Kodak at Activision got a new employment agreement back then where he got a massive stock Grant if he executed a transformative transaction and then sure enough you know he sells the company to uh to Microsoft so you know although these things can take time to play out it is important to kind of understand what incentivizes EX tives to to make decisions and so uh for white Hurst he's getting a big Grant of 200,000 rsus um 50% vest at the end of February 50% vest at the end of May on top of an annual salary of 1.12 million um so given the drop date of May 25th 2024 for the RSU vesting and the fact that Unity has said they're going to do a search for a permanent CEO my guess is he's coming in and just drop the a he's going to come in and you know he's going to cut cost he's going to lay people off he's going to write side the business

he's going to collect his 200,000 you know uh stock which is about $6 million uh and then they're going to bring in someone else I think there's speculation we've talked in the past that they need a technical CEO to write the the product the technology and if that's the case that would make sense but um you know I think that he's a mercenary he's here to just you know drop the hammer and then pass it off to the next person yeah I think like the the kind of CEO and sorry sorry I'll hand over to you real quick Eric but like I think the kind of CEO you need is super rare right because I do think the culture at Unity is not right it's you're gonna need somebody that does the kind of thing that Elon did at Twitter at Unity but hopefully is better received more broadly than than Elon is and I just think that kind of person is so rare that I until we see who this new CEO is I I'm gonna continue to be concerned about Unity

um all right so I don't know if I agree with what what you're saying uh Matthew because I don't know if this is enough time to do what's required to do the significant Cuts right so like but whatever I I actually agree with kind of the what you're the overall picture that you're painting is that this is very similar to when Jr left EA and and this has been brought up many times in in in my uh my notes I wrote a note about uh Unity as well on LinkedIn um and basically they said this is the almost perfect parallel where Jr gets basically let go from EA and then um Andrew and then Blake Jorgenson who's the C CFO comes in and just [ __ ] cleans house right they basically just consolidate now the strategy was set by Jr and Frank but these guys came in and executed against it by cutting down like marketing you know dramatically focusing on five products a year versus 30 you know and and they actually executed

against it flawlessly and so that I think is the one type of Co they may need and I just don't know if this interim guy is the guy who's going to do that and then uh but but they do need to find someone that actually can kind of clean house and get cut the fat and get them more profitable because that's the only way that that wall Street's Really Gonna I think pay attention to this name longer term anyway um the second one could be just to to package them up for sale which would be kind of the same idea as right siiz the business and sell it to like Microsoft Google or adobe um as an option potentially um because as a standalone company it may be hard for them I will uh say that app Lov acquiring them we'll get to that in a minute doesn't seem possible but we we'll get to that in later but anyway that's that's the kind of way I see it right now that that that's what they're looking for um and uh and there's some debate about whether or not he was let go or or he let himself go of uh Jr I think it's probably a combination of both but it's definitely I think think the right move for the shareholders and

for Unity going forward I would yeah I think if you I just want to note like I agree like you're not going to make these transformative Cuts within seven months but you can come in and you know lay the plan for it and then you either stick around and they extend the term three six months whatever or there's a operationally focused guy like a like a Blake that comes in and uh I hope Blake's okay I know he had a cancer bout I remember seeing that when he took a leave from PayPal but uh you know if someone like that then comes in and actually executes the plan right I mean but if you at least come in and set the stage for it there's there's two separate issues that ultimately the CEO is going to have to face and the first one that we're referring to is just the basic fundamentals of the business right like cutting Opex uh and trying to stabilize or increase revenues over time which would induce like a new pricing mechanism again for for Unity the second one is really around uh the health of the relationships with developers which again comprise like 70% of the revenues of the business uh someone's going to have to be really good at talking to Developers and getting them back on

board with the company strategy and then that trust relationship that's been impaired over the past you know two three weeks um both of those are are pretty tough problems and it kind of speaks to JK's point that this is a a pretty special CEO out there somewhere I you know I've been talking about this a little bit I don't know if I mean I know what they did was really bad for the industry and got a lot of hate you know but at the end of the day they're the only engine in town it's not like they have anywhere to go you know so it's like exactly you know like I and I think the revised deal actually kind of repairs most of the the egregious thing that was in the original one um so I kind of feel like that may have been over overstated and I I I think there is some treat to that Eric I I do think that ultimately development studios are likely going to make the best decision for for themselves um economically like you know I I do think that some companies like you know obviously app 11's never going to um use Unity again

but they're also not going to use unreal because the difference between 5% and and you know two two and a half percent is is is pretty big for them right so uh but I also think that like Studios like mine are waiting on management it's like uh I like we have seen over the past three years so many people jump from Unity to Unreal because not just because of the pricing change but because the lack of tech Tech execution and just lack of like features and capabilities within Unity engine itself so I I I think like it's it's there's kind of like a trust issue but there's also just an ability to trust whether Unity is going to be able to continue to like develop against the engine in a meaningful way and um you know they actually just released a great update um right after Jr you know ironically right after Jr announced his retirement but I do think there are going to be some

studios who you know despite the difference in pricing that they're they're probably going to be looking at engines like unreal I don't think a do is viable for a a profession well you know like a like a larger scale team but unreal if you know the engine really well and and then you know you need somebody to really understand the engine because what unreal is not good at is stripped down the ability to like because they got so much stuff in the engine so more mobile to be able to like pair it down takes extreme skill um which is not but but it's still somewhat viable and especially when you when you see the point that I've heard over and over again is that for 95% of the apps on the App Store unreal is overkill right and then and then unreal Engineers cost a lot more money because most of them work on Triple A right so it's like really I mean you know like are you going to really like build up a whole new team of Unreal Engine makers and unreal guys to like build your next you

know puzzle game I don't think so the the the rift I don't think cause any sort of near-term uh risk to software numbers for Unity I think it's more of a longtail thing of three to five years what sorts of other engines will developers rally around who's going to build something new and I think you're basically opening yourself up to that for sure yeah just I I I don't think that's a real threat I I I I could be wrong but I just they they basically secured their position this in this business by giving this thing away for basically free for the last like decade you know so it's like you know everyone got used to it it's like crack you know and so like you're not gonna be able to take it away right there's no alternative because no one was moronic and I said this in the podcast there's no one that was moronic enough to build an engine in this environment in which real Unity was giving it away for free right yeah I don't know if you guys have checked out Tim Sweeney's opening address from unreal Fest but one of the things you also says is he addresses the

5% he's like do we need 5% he's like yeah actually we you need 5% to be able to to have a you know kind of profitable sustainable business and so they don't they lose their ass on that engine they don't make money on [ __ ] unreal uh so he he said that at times in the past uh unreal was their only source of Revenue and that that's what allowed them to be profitable not it's it's not profitable they make the fortnite yeah the point the point I'm making though is like okay even Unity at at two 2 and a half% whatever that is like is that even sustainable or are they gonna increase it again and so there's there's that issue um I mean it's not really sustainable as stated anyway right because it's just two 2.5% of any game in the future not not anything that's been made already so yeah so we we'll see and uh I think those are some of the considerations that developers including uh you know Studios like mine think about and in fact you know like we're

we're going to start a new project in unreal so um anyway uh one other thing I think we should talk about for our audience and is is to um highlight the relationship of unity or the impact of unity to app L and uh for our audience It's really because of by owning the the engine I think there is the potential to bundle as Unity is trying to do with the pricing change with level play and uh so that's like the main issue there I don't know if you guys have any thoughts on that as well and in my opinion that's one of the main reasons why app L is trying to acquire Unity whether that's viable or not um is because app l through its history has historically always tried to not compete on a Level Playing Field they've always looked for various types of competitive advantage and they see that as an advantage for Unity

um well I mean I I I don't know if that there's even any debate at this point but clearly this move particularly when it was tying royalties to downloads was a way of trying to leverage their position in the marketplace to get them to move to level play right so I mean but that was never really stated specifically because I think they would probably gotten sued to Oblivion if they did that um but um because I think it is anti-competitive by almost the definition of anti-competitive 70% market share but um but yeah I mean this is a direct blow to app Lovin I mean this is like a big [ __ ] you to app Loven clearly right um but I I just don't think app Loven has I mean sorry un need doesn't want anything to do with app Lov I I don't even know if that's even a possibility right given the history between the two companies and how ruthless app Loven has been over the years um they don't like each other right it's not like you know like there is like egos involved right so I yes I

can understand why App 11 would want to buy Unity because then they would own the entire ecosystem basically but I don't know if that's in the cards uh but I don't know I see if you guys disagree yeah I mean we already know that uh you know Q3 numbers are reaffirmed so the shock to level play uh the other way probably didn't happen um and you have to think about like the go to motion for Apple sales folks over the past few weeks like do you think it made it incrementally harder for them to land deals or whatever in this environment with uh the way that Unity ju oppose their their fee structure to have credits or whatever um I don't think it's gonna play out this quarter uh and I'm not really sure which way to go on this one it's like it's it was definitely an assault against appen I'm not sure it really panned out as as expected and and I mean we can get into it but like the math just doesn't work like there's there's no way that you can structure this deal that it comes out

good for app Lov it's no matter how you do it it's massively diluted I mean if if you lever up the proor IIT forx you've got 9ish billion of you know of debt on the books they already have 3.6 so that's like less than six billion of debt financing that you can kind of go out there and get you know unity's market cap is whatever but it's significantly underwater they're not going to take the current price in a deal they're going to want something much higher than where it is so you're going to need massive Equity delution to buy an unprofitable business like this it just doesn't just doesn't work and not to mention they made all kinds of assurances to iron Source when they did that deal right and if this deal were to happen iron Source would get annihilated like that entire team would be unnecessary it would be redundant you know um so it's like no I I just I think that's I think that's just people pontificating it's like the EA Disney thing everyone always wants Disney to buy EA it's been long enough we'll

probably get that rumor again soon or comcast for someone no no it just happened recently this last week I'm just like how many [ __ ] times do I have to answer that goddamn question you know over the last 25 years it's like nuts you know um but but actually that's another whole another subject but I hting my point of view may be changing on that one all right moving on all right okay so let's dive into Apple's business and just for our audience I will kind of describe their business at a high level and it's actually some degree uh easy to understand at the high level uh they've got some window dressing and stuff like that and the financial filings but basically app 11's business is comprised of two main parts the software platform and secondly the apps although it should probably just be called games and the software platform is basically focused on ads uh more specifically user acquisition meaning um game marketing through ads that appear in games attribution which really is

speaking about associating installs to sources and tracking spend in games by players and finally ad monetization which is ability to show ads in a game that game Publishers can make money from So within the area of ads App 11 has four specific products app discovery which is campaign management tool that UA managers use to buy advertising from App 11 um and we can talk about this later but this product also does things like roaz targeting and other kinds of targeting capabilities which in theory they aren't supposed to be able to do some companies like app love and unity Tik Tok and others have basically not really adhered to the spirit of Apple's privacy initiative and idfa deprecation was supposed to kill these kinds of product features off but through fingerprinting and other means they still exist in the market okay so that's app Discovery uh adjust is the company that they bought that is their attribut tion platform it tells you things as I

mentioned earlier how many installs how much revenue from what sources you made in the apps that you instrument with this thing Max is the the product that I think people are becoming more and more aware of because it's been brought up this is the thing that that um that Unity is trying to fight with its version of the product level play Max has just been destroying in the market it's been gaining so much market share but Max is an ad mediation product that game Publishers use to make money from their ads and their games and finally App 11 has this thing called R which you know maybe not worth mentioning too much it's some kind of connected TV platform I don't know too much about it but that's there as well and the second part of the business so that's the first part that adds business the second part of the business is the apps or games business and they own and partner with a number of game studios that develop mobile games um this has been through internally developed Studios like Lion Studios and matchington mansion Studio of firecraft Studios now they label firecraft

sometimes as a partner or some other game studios as a partner but um according to the word on the street a lot of these Studios were actually fully kind of initiated by app L they just didn't want it make it too public because of the potential customer adversarial relationship and there's all sorts of other things we can dive into I won't go into those issues um here but there's ways in which Apple 11 can use uh their customer sta against them anyway um just to wrap up the the appside of business um today the business is 350 mobile um free-to-play games across 11 Studios and that's basically the business ads and games now maybe some uh final background in terms of the business is is maybe to uh walk the audience through a little bit of the historical context behind the company uh but you know app Len kind of came up on the ad side of the business they were

known with a reputation of being very aggressive for doing whatever it takes to get deals done and they were very successful early on in the ads business but then what happened is with the rise of like the data driven ad platforms like Facebook and Google uh the the sand Network self- attributing networks these uh companies through machine learning and through targeting basically started kicking everyone's ass app 11 was then concerned with their ability to compete and with their future viability so then started moving into games so that started in 2018 with a launch of lion Studios and firecraft as mentioned uh later with the impending launch of idfa deprecation then APPL really start to work on two big initiatives the first was they talked about okay we are now going to become the Netflix of games and like the ad platform becomes a recommendation engine against their Suite of content or you know 350 mobile games that they have they try to make

that work they don't talk about that in their financial filings anymore I don't think that's really panned out and then they Acquired ajust and kind of the speculative theory is that the idea would be by acquiring ajust and this vast Treasure Trove of player data that you'd be able to even with limited attribution that you have with Apple's um you know uh with the current capabilities that that you have from Apple today that you'd be able to take limited windows or limited data and then map them to kind of the player spending behavior that we you would expect from these players and if you were able to do that then even with limited attribution you'd be able to have better predictive capability and be able to predict things like Raz and things like that that also uh I believe has not worked out so kind of like the two big things that they were working on have not worked which leads us to today

where they have given you know the the new environment with idfa deprecation but still having the ability to do uh roas based targeting and things like that and with the success of Max they've just been killing it on on the ad side of the business but now we've got Unity coming in with the new pricing and trying to like push level play and that takes us to today so hopefully that wasn't too boring for people but that's like the historical context and a description of their business and Eric maybe you could talk about some of the the financials from here unless you guys have any thoughts on on their business side okay uh kind of my sense here is that um they have been struggling along with the rest of the market from their app side of their business and I think they've been downsizing that like so they've been down like almost I think it was 25% year-over-year um last quarter and uh now they're expect ing the the portfolio to perform

better in the next two quarters so basically stabilize and that seems to be happening according to the data that I'm looking at um so that actually will not be such a a a detraction of their business um they but my my whole problem with this whole story really is that and this is the big rant that I've been doing for like I don't know who knows how long is that app 11 has been cheating this whole time right and so like they divested their business out of their the games business because they saw the writing on the wall and that the games business was not going to be as lucrative as has been the past right that was like kind of their head fake when they were struggling on the on the adtec side to build up their games business um to uh show growth right now they're divesting out of that because they know that business is going to be to struggle and and now they're going to make investments into um and now they're just focusing on attech and so the max platform is killing but I think they're killing because they're

still doing fingerprinting right so if it and this is where I think this this whole story kind of is going to fall apart starting this quarter and probably in q1 is that I think Apple's going to make an example of them when it comes to fingerprinting um and that that that is going to be a problem for them so I don't know maybe we'll get to this later um yeah but uh anyway yeah they did they did note last quarter they're going to start to invest more for growth in the appside of the business particularly in the second half and that's where you'll see that acceleration you just talked about the games business runs at about 18% margins which is actually quite high for mobile gaming so they do have some room there with some eot do impression obviously um I guess like it's it's kind of instructive to note like why they're so worried about share loss specifically in uh ad mediation uh because if you look at the the market cap is $14 billion so the overall company trades that call it 4.5 times revenues mid

teens cash flow if we take that one step further the apps business let's call it like a$ 1.2 billion run rate depending on stabilization again 18% margins declining revenues maybe the market gives you a two and a half multiple on that uh or3 billion doll uh but if you look at their software business which actually isn't software you have to make up the rest of the 11 billion uh let's call that a $ 1.8 billion run rate or six times revenues which is not bad for Tech but it's certainly not software right software is anywhere from low teens to High Teens depending on what you're looking at so the risk for them in losing share and revenue in software is much more prudent and impactful to the overall uh value of the company than losing a little bit of money in apps business yeah and I think if you know just to put some numbers around as we' talked about unity and App 11 and kind of comparing the the adtech businesses because I I think that's where most of our audience really cares App 11 Revenue in the most recent quarter is $750 million 46 million of which was from the

software so that's a little more than half and then you know the rest was was the games the apps business um unity's grow Solutions which admittedly is more than just adtech there's other stuff in there there's like you know other game services but it's just not the engine business right that that uh that generated $340 million of Revenue so it is a little bit smaller than than Apple 11's uh you know software business uh but I think you know two more important points um Apple's business is much more profitable Unity doesn't make money I mean Iron Source made a little bit of money and and the adtec business does probably make some amount of of EBA dat offset that the losses in the engine business but you know Apple 11 software business has a 67% EIT margin last quarter like it's it's just printing money at this point so big difference there and also the growth rates you know Prof former for iron Source uh Unity was the grow business was only growing growing 7% last quarter Apple 11's

business is growing 28% so the updates to Max and what they've done with the platform with the new engine has really been working now as as Eric alluded to will that fall apart with fingerprinting I I think that's that's the big question yeah you know it's funny because I'm surprised that they're suggesting they're going to invest more on the app side just because the word on the street is that over the last couple of years they've been preparing to uh divest that business including like um you know uh internal Market shifted and then there the buyers just disappeared for anything right I mean like you always thought like oh embracer will eventually buy this crap because embracer buys all the crap and then the gravy train for everyone just ran out you know in 2021 early 22 the market just turned and capital dried up for everyone you know I I I was kind of alluding to it they just rolled out the the latest version of Max the mediation engine Eng it whatever they claim it's a new Advanced AI engine I don't I don't

know I mean we talked to matate and he said like yeah it's way better than than Unity so whatever Unity is offering with level play so whatever Tech they did it's working um I'm gonna probably get hated for this but customers are clearly app loving it sorry um but you know you see it in the financial performance the last few quarters so it's so it's it's real um I I still think at some point what we were just discussing the endgame is to sell the apps business I don't think it makes sense to keep it but that the Market's just not there anymore um so so so I I kind of think that is fingerprinting really going to kill this business because you know I I mean idfa was supposed to kill it whether they're cheating or not they've clearly survived better than the biggest bears thought they would at this point is this going to be the shoe that really you know really drops them yeah I think when we did the podcast with mate he felt like using an SDK and predictive

that you still might be able to get around even with the death of fingerprint I I mean that that's an open question I I don't think anyone has a definitive answer on that but it'll be interesting to see how that plays out but it it could have a Eric to your point I think if they can't do that yeah they're in some trouble yeah I you know like I'm really torn here because it's really clear that applovin is the leader in this industry right they're they're just destroying the competition across the board really you know um from efficacy of of their adtec right and and Max is killing it um you know they may be kind of the only Survivor in this like UA Ragnarok that was thrust Upon Us by Apple for no [ __ ] reason besides being Apple being Apple you know um on the other side though every UA person I talked to even mate says if the fingerprinting ends app lov's Reign ends you know and every

other competitor has basically succumbed to not doing fingerprinting starting with Facebook then Google well Facebook and Google together snap you know I've heard that now um Unity is no longer doing fingerprinting and that's part of the reason that they are are falling behind um and so it's like it's only and problemistic attribution is [ __ ] fingerprinting okay it's not just you it's just it's all the same [ __ ] I don't care what they call it you know so if finger ISM if fingerprinting is eliminated this quarter or Q yeah Q4 and and q1 I mean it's going to be rolled out over the next six months these guys may become the poster child for Apple's you know ire right you know they may actually go after Apple 11 specifically and say hey look if you have this SDK in your app we are not updating it right because this thing we know is fingerprinting right and then then they're doomed right now I don't know you know I don't know

what's going to happen with that right um and the real irony behind all this by the way just as a clear clarification is that you know for all these privacy Hawks at Apple the two biggest releases this year have been all based on fingerprinting right it's like uh hawkey star rail as and as well as Monopoly go these guys are just juicing the system with with fingerprinting with both unity and of them so it's like I don't know I I I I feel like Apple's not going to let this slide um and they're not going to let them continue to operate they are they're going to be on the same Level Playing Field as the rest of us as the rest of the adtech world and they may start to lose share to Google to Facebook um Etc so I think q1 is when they're going to start to have challenges and we'll start to see evidence of them going after Apple going after uh um Apple ofen directly um but I don't know to your point Eric it may be

that if Apple oven is is so set on trying to acquire unity in some way even even though it doesn't make sense it maybe because that might be the only play if they if they don't have confidence in a post fingerprinting world that may be the only play they have left to gain that competitive advantage that they're always looking for I me you could say that that was a similar reaction to what they had for idfa right that was timed with the first transaction um last quarter Apple 11 was asked about the impact of privacy changes in iOS and Androids specifically over the next six to 12 months by an analyst uh that might impact execution at all and Adam's direct answer was actually like that he didn't see anything in the next six to 12 month term that was going to be a material change in how they are able to operate the business and he continued by saying the biz has already been uh you know constantly evolving through similar changes that they move really fast and they've always been able to operate with in the boundaries of guidelines so that

answer you know kind of suggests that somewhat clear sailing for the next couple of quarters but at the same time the Stock's only down 10% from the highs and expectations are somewhat elevated with regards to what app prints and guides uh we also know that the Apple process is evolving in real time right so starting with iOS 17 in mid-september apple will be reviewing all sdks and any issues around fingerprinting will then have a cure period and then in Spring 2024 Apple will start rejecting and so anyone with experience in dealing with apple as a platform will understand it's not much of a coordinated relationship it's you need to abide by the rules and apple wants to be the Privacy forward Network and frankly they've they've kind of hobbled bigger companies over the last 10 years in the ecosystem for for similar or lesser charges right and kind of to Eric's Point many of the industry's biggest launches of the last year have been driven by fingerprinting and there's still a push from from Publishers to launch big titles ahead of potential Market shifts which does

suggest some near-term Tailwinds to app uh all you know Al although just Loft to your expectations if you if you look back at last quarter the setup was completely different uh the stock was heavily shorted there was a lot of fear around fingerprinting Unity was suggesting the ads Market was flattish and then Apple just had this huge beaten raise uh that's not the same this time around at least not right now so I certainly wouldn't expect another 30 to 40% rip post numbers so you have to kind of ask yourself is like what is app what is like the coordinated story that app is is suggesting right now like are we already at the highs uh right it's all the wrong thing yeah and the other point here is that they have a really tough comp in q1 and Q2 next year right because because these these games were just they were spending gajillions of dollars on UA and most of a lot of it a lot of the share went to App 11 right so y to the extent that we don't have these big releases and scopely spending all the Saudi money on on the next big

release or honai spending like what1 $200 million on on acquisition I mean so it's like yeah is there is there anything coming up in q1 and Q2 that could even come close to that you know and then on top of it you know may they may have apple like breathing down their necks You know despite what he says you know I I think they he uses his words very carefully I know I like I like the line that they they oper operate their business um within boundaries of guidelines so he's basically admitting that they live in the gray area he's not we don't operate within the guidelines we operate within the boundaries of the guidin we live in the gray area um you know if if you watched Ahsoka recently he's basically Balin skull he's the gray Jedi in this right and and so um you know they they it's it's probably somewhat of an admission that yes they're doing things that Apple doesn't like but hasn't explicitly forbidden um and you know as things change they'll continue to do things that Apple doesn't like but aren't explicitly forbidden

yeah but see that's see this is where I they have been expressly forbidden like they've been actually expressly forbid in what they're doing right and you can call it whatever name you want to call it but if you're basically targeting individuals and getting information about these individuals and using that for attribution and targeting that is [ __ ] fingerprinting you know so and so I I I've heard that there are solutions around this the one solution is basically uh batch uh attribution right or batch you know figuring out groups of players and and figuring out what their attributes are and using that but even then you're still having to track individual attributes and this is where my knowledge kind of like I'm I'm I'm way over my skis and I need to talk to someone like mate to figure this stuff out um the other thing which I think is the most egregious thing he could do and and and he may do it I don't know right is you take a partner like scopely and you say hey look we

want to do fingerprinting but we're no longer allowed to do it so what we will do is you collect the information and send it to us at app Loven and then we will send you back the information about attribution and targeting Etc and that way they completely eliminate the um middleman of apple and their platform and so Apple has no way of tracking that so not through the SDK but they collect it through the SDK of the app and that that's sent back to the to to the um so they're just not get they're getting it indirectly that would be [ __ ] gangster dude so if they do that more power to them dude I just I just don't I don't have that in me to like even consider that as an option but um but they may actually do that but I don't know it just seems like it's it's going to be a struggle for them despite what they're saying if this if they could carry on I've got a little bit of a conspiracy theory which is um just based upon observing J I mean every everything you say is conspiracy theory at this

stage but this is through observing behavior and talking to some people here in Silicon Valley but um kind of like the idea is that certainly a apple is idealistic in in some sense and wants privacy for the right reasons but there's also some Rumblings that Apple just hates Facebook and to the extent that idfa deprecation hurts Facebook and some other players might be benefiting in taking share from Facebook they'll just kind of Let It Go but at some point they will drop the hammer and and and make make it right amongst all the players and so that conspiracy theory suggests that now that Facebook has been properly kind of hurt by by this initiative that then now it's time to to like actually roll roll it out for real anyway I I I don't agree with that but

it's an interesting Theory I just I mean writing the writing's on the wall for Apple like whatever happens somehow the appstore Monopoly is going to get broken down it's to some degree and so they're doing everything they can to position themselves as a privacy Centric we're better than everyone else and so when there is competition of some sort you know they have a relevant Place rather than everyone just hates apple and we go to other Alternatives at some point in the future that that's that's the way that I've been thinking about it I mean I I'm actually I'm I'm such a simple person when it comes to this sorts of things like I I think the reason that Facebook Google and apple sorry Facebook Google and snap immediately eliminated fingerprinting was because they were fa afraid that their apps would be banned from the app platform right I mean that's what it comes down to it's like it's very simple to say hey Facebook is not abiding by the privacy rules so we are going to not allow Facebook to be updated and so basically your app is useless right on

the flip side app love and unity and iron Source at the same time had like a gajillion apps right so it's impossible to police you know all the sdks that are in every single app that's known to man right and so it's like it was much easier targets and so Facebook was like look we have no other choice but to stop fingerprinting and doing what we've you know been doing or when idfa happened so um so anyway that's that's the way I kind of look at it so but to your point Joseph I think at the end of the day if they want to be honest about really giving a [ __ ] about privacy for their customers they need to stop fingerprint Ling fingerprinting like that it's so freaking clear you know it's like that that is that is not part of their privacy policy right that is not private that's not a private device you know and and and and the other part that we're not talking about is the Google part where Google is going to come out with actual privacy policies right right they they are going to do what Apple was trying to do right but they're they're

doing it in a much more efficient and effective and and and a nice way for their publishing partners and doing it over time and really thinking about it and leveraging their publisher group and trying to figure out the best way of doing it effectively and that's happening as we speak as well which also will be an impact to app Lov and going forward as well so um yeah all right uh anything you guys want to talk about from here or should we end with just just overall Outlook I mean I kind of get the sense of what what you guys think in terms of outlook for APPL but uh I think it's going to be an interesting pair trade uh unity and App 11 for the next few quarters I mean it's been an interesting pair trade for a while now um you know but I I think until the fingerprinting you know nail in the coffin really drops I think App 11 will continue outperforming Unity you know if I think about Unity like I think the downside is is mostly valuation like I don't think there's like a ton of

fundamental downside to Unity at this point right you know in the numbers and so you know you're really just talking macro stuff so you it's you can kind of get beta risk there and then you can kind of play the the guidance uh cycle for App 11 and nice little pair trade so I think that's going to come back in the market here um for those that are not stupid Finance dorks like me and Brian what I'm talking about is you long a stock and you sell and you short another one and you try Arbitrage the difference in returns between them so if you think App 11 is going to outperform Unity you can long App 11 and short Unity um because they are such similar businesses you're kind of hedging some of the overall Market risk that affects all of them and you can extrapolate the specific differences in the fundamentals that are occurring and so I think that's going to be an interesting trade that comes back in the next few quarters and then when that flips if we do think that you know app 11's q1 guide or Q2 guide is going to be you know kind of puky as fingerprinting really hits you know that trade can flip and then you'll see the other side of it yeah I think right now

for me this these two stocks are entirely about sentiment and positioning and for me I'm getting the sense that Unity is starting to bottom out in terms of sentiment uh but I would want to own it on a reset I do think there's still potential for next year's numbers to be marketly lower than the street is expecting or investors expecting for appen like I said before it's we're entering into a different quarter it's a very important one and the setup is entirely different so from a tactical perspective uh I'm still not sure I want to you know feed into um investor narrative that you know they're expecting another big beat and raise and everything is fine uh because of these platform risks I'm not saying it won't happen but I'm not comfortable with uh owning a stock where potentially um you know Revenue could have very big headwinds for something that seems fairly obvious but maybe they're able to mature the way around it I don't know um but I'm inclined to believe that uh you know I would see some weakness versus you know a year and a half of strength

yeah I I I would agree with you Ron I think just the risk profile for App 11 given what's coming up is just really high and you know there's there's some potential for them to like navigate through it with you know different different things but I also think one one thing that might be interesting although it sounds kind of crazy is if if uh if app actually does try to kind of create like the Red Hat Linux version of gdau um I I've heard they've been looking at gdau a lot and they obviously you know they they they've been trying to give people reasons to move off of unity just because of the the recent stuff that's been happening but I don't know it it'll be obviously interesting to see what happens but go ahead Eric [ __ ] good do give me a break dude that's like a pipe dream um I actually agree with both Matt uh and Brian I I think is going to just absolutely crush the year right I mean they're just destroying it right now and so it's like

you know the fundamentals could never be strong but I think stronger but but I think q1 and Q2 yeah it's gonna be tough for them right and so it's like it's it's not going to be this easy breezy like you know growth story that you saw for the first half of this year I don't see any big products coming out next year that that can comp um that um and I think Unity you know I don't think fundamentally they're in any great spot either and I think part of the reason that they had to make this big change to their engine is because they were [ __ ] knowing that they were gonna have a tough tough second half of the Year despite the fact that they reiterated guide which doesn't mean much you know because the guide wasn't all that great to begin with it's like you I don't think Q4 is going to be anywhere near consensus I'll be honest so I think so I think it's it's tough and and and the big thing here is as as a as a as an analy covering this for investors is that these things are hedge fund hotels now right these are not real stocks that like big companies like Fidelity and tro

are really investing in and hope you know these are these are people that are trading in and out and it's going to be very volatile um uh but uh but it's not for the not for the uh um un just look at the earnings day volatility on these stocks like it's insane you know in that pair trade people trade in and out and you know Brian and I were kind of saying opposite things but I think we're actually saying the same thing like I'm talking about you know the pair trade is the last you maybe a quarter or a month or two right and then it's going to flip right and that's that's how these stocks trade they're very volatile it flips on a dime these are not Blue Chips they're not profitable significantly they're not dividend stocks right these are trading Vehicles hedge funds are in and out of them and you need to be really cogniz of that yeah yeah buyer beware right but there's money to be made you know that's what the B that's what the uh hedge funds love they love these volatile stocks I wish these days of old used to would come back we haven't seen say it's like the the long only position like you said in these names is non-existent uh

hedge funds for sure the one big difference is that uh you know in terms of relevance for the stock market because of the volatility they've gone from like being folded at around a two to like a nine and a half or a 10 which makes the volatility even more perverse it's going to be a rough quarter one way or the other all right well gentlemen thank you so much for all of your insights and thoughts and I think that's it for our audience we will catch you next time thanks guys later [Music] thanks [Music]