The Canadian Investor - 2 Stock Deep Dives: One Boring, One High-Growth

Episode Date: August 31, 2026

In this episode of The Canadian Investor Podcast, we do a deep dive on two companies we haven’t covered much before: Royalty Pharma and AppLovin. We start with Royalty Pharma, a unique business that finances pharmaceutical and biotech products in exchange for future royalty streams. We break down how the business model works, why it has similarities to precious metals royalty companies like Franco-Nevada, and how investors should think about portfolio receipts, cash flow, milestone payments, drug approval risk, concentration risk and capital allocation. We then turn to AppLovin, one of the most talked-about stocks in the market. We look at how its AI-powered mobile advertising platform works, why the company generates extremely high margins with minimal capital expenditures, and what makes the business so profitable. We also discuss the risks facing AppLovin, including slowing growth, competition from Meta, Apple and Alphabet, concerns raised by short sellers, and why the market is having such a hard time valuing the company after a massive run-up and sharp drawdown. Tickers discussed: RPRX, APP, FNV.TO, WPM.TO, ISRG, META, GOOGL, GOOG, TTD     Subscribe to our Our New Youtube Channel! Check out our portfolio by going to Jointci.com Our Website Our New Youtube Channel! Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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At the end of the day, you have to remember that it's a business. Just my reminder to people who own cyclicals, don't be surprised when there's a cycle. If there's uncertainty in the markets, there's going to be some great opportunities for investors. This has to be one of the biggest quarters I've seen from this company. company in quite some time. Welcome back to the Canadian investor podcast. We have a really fun episodes where we're going to do a deep dive on two companies here. Companies we haven't really talked about.

I know mine we haven't talked about on the podcast before and the one you have going over. I don't think we talked about all that much either. I don't think so. I don't even like, I don't even know if it was publicly traded before I came on the podcast. So yeah, I don't think we've mentioned either of these companies. before. I think yours is going to be not known by anybody. Oh, God. Yeah. Whereas mine is kind of, I took the root of a company that's kind of getting kicked through the mud right now. So yeah, yours is definitely the one that I don't think,

I think very few listeners, including myself, have any idea on. Yeah, and it's amazing. So I'll just start, get right into it. So the name of the company is Royalty Pharma. So I'm showing their website here. The ticker is RPRX. And honestly, the more I was digging into it, I probably took me like five, six hours to go through this because as people will hear, there are some a little bit of complexity and some of the reporting. Not they're doing everything fine is just the gap. So generally acceptable accounting principle require them to do certain things that gets a little bit complex, especially when you start recognizing revenues and looking at, the cash flow generated by the business.

So these are two things. So it's a name that I heard actually listening to another podcast. I can't remember exactly the one, but I wrote it down as I was listening. And it's really a company that is a similar business model to Franco Nevada in terms of essentially its business model is it gets royalties from the biotex sector or pharma sector. And we talked about Moderna's big jump. last weeks. I think it was up, what, like 150% in one day because of the trials. And it goes to show how volatile the pharmaceutical sector can be because you have drugs that sometimes will have

a whole lot of potential, but that they don't get the approval or there's always some risk in the, you know, the trials, but also then finally getting, especially the FDA approval. And we talked about how difficult, and I know for me it is to invest in that field because you really have to almost be an expert in the field and know it if you're going to invest in individual companies. Of course, you can look for some ETFs, but royalty pharma is another alternative. So essentially, they finance pharmaceutical drugs in exchange for a percentage of their future sales, which is the royalty. And it's like I said, very similar to Franco here where Franco Nevada,

finances future mining project in exchange for either a royalty or a stream. And a royalty just simply means that they provide an upfront cash payment in exchange for a percentage of future sales. And I'll get a bit deeper into how they structure that and how they actually have structures that mitigate risk. So there's basically three main royalty types or three main avenues for revenue for them. So there's third party royalties. So there's existing royalties on approved or late stage development therapies that are typically acquired from a counterparty other than the marketer or developer.

The majority of their current portfolio consists of third party royalties. And I took this directly out of their IR, one of their IR pages. So they have also synthetic royalties that they call. So these are newly created royalties on approved or late stage development therapies with strong proof of concept that are typically acquired directly from the marketer. or developer. And then there's other funding. So it's a small portion, but they can also deals that include debt, direct equity investments, launch in development capital in exchange for fixed long-term payments. So all in all, simplest way to put it is they essentially back companies that are developing drugs in exchange for a percentage of future revenues.

Should the drugs hit the market? That's essentially what it is. Pretty easy business model to understand. Easy business model to understand. I would guess this is higher risk than something like a metal streamer. I don't know. Yes. Yes and no. So you're betting on the expertise.

So really, if you invest in this company, you're really betting that they're essentially underwriting these drugs. So what they believe will happen in the future. And they're placing a bunch of different bets. And I'll talk about the number of bets. But of course, it's very different than the mining field. Obviously, I'm not a geologist or anything like that. But I assume that it's relatively easy to, like, prove whether there's, like, deposits of something.

And then. That's what I was thinking. Yeah. Yeah. Yeah. So that's probably the different there. But there's also variables like if we think about Franco Nevada, the Crowberry Panama mine, right? That was a big percentage of their revenues.

There are variables that you're not really in control of that can still happen. Yeah, that was kind of my idea, like initially when I think of the risk, is if you're a company going to Franco, you have an asset, you can say, hey, we probably, we have a very good idea of as to how much gold we have in the ground here. We need money to get it out, whereas this is like, you know, we're in phase one of a drug development, you know, which a lot of these like micro nanocap bio companies pretty much go bust if the drug does not make it the market. Not all, but a lot of them do. So, yeah, that was kind of my initial thought of it. I would imagine they more so back into like the stage two or three. There's some risk mitigation that I'll talk about. So that makes it definitely less riskier.

So essentially it's a pretty big industry, but it requires massive capital investment. So in one of their, I think of their latest annual report, they were saying in 2025, royalty transaction reached 10 billion for the sector, not them specifically, but they are. quite a large part of that. An industry-wide R&D is expected to exceed $1 trillion in the next decade. Of course, you can always take that with a grain of salt, but I think we can all agree that it does require massive investments. And you can take that $1 trillion with a grain of salt, but even if it's like $500 billion, even like it's still a large number and does require a whole lot of financing.

And in 2025, royalty pharma deployed $2.6 billion into new royalty deals. So that's why I'm saying like 10 billion, they're a pretty big chunk of that. So essentially, this is a company that underwrites pharmaceutical drugs. And you're betting on their expertise like I mentioned earlier and how they evaluate the probability of the drug being approved. The market size, market share that they might get with that drug, the pricing, the patent life and potential legal challenges as well. So you're betting on them that they have the expertise to properly evaluate that. that. Just like you're betting on a Franco Nevada or Wheaton to have the expertise and properly like do deals and evaluate deals for metal streaming or royalty. So what's good for them is they

have no manufacturing cost, no salespeople, just like a miner or a streamer, which will have a finite life expectancy. So does the drugs with their patents. So they have to consistently or constantly find new deals, which, you know, if you're familiar with Franco, again, I know, I know. I'll use that as a parallel a lot. They constantly find new deals as well because there's just a finite amount of gold in the ground for a given mine. And that's why I really like the business model because it gives you exposure to the pharma sector, but it's a model that is diversified in itself and not reliant on just

one drug being like a bloodbuster drug. And they currently have over 35 commercial approved products plus 19 development stage therapies. They finance, so development stage therapies is they're not like quite approved just yet. It could be late stage. Could be waiting FDA approval, for example. They finance royalty deals through cash generated by existing royalty deals and debt. And the debt part is interesting because essentially they're borrowing and lending at a higher rate when you think about it. So based on their assessment of the royalty. And what's kind of nice is their average interest rate or average weighted interest rate right now is like just below 4%.

So it's very, yeah, very manageable. It would make even some governments enviable in terms of that rate. Yeah, that's what I was thinking too, yeah. Yeah, and the company was found in 1996. I actually just became public in 2020. So relatively small or has been public for relatively small duration of time, has a market cap of around 35 billion. I say around because obviously market caps will change quite a bit.

It has had quite the run up over the past year. So it is up 71%. In 2025, they generated $3.2 billion in portfolio receipts. So basically money they make from investments that they made mostly as a real royalty. So that's really important here because portfolio receipt is the thing you need to look at. So I'm going to start getting into like the weird stuff here. And it's not on them. it's really just the accounting principle.

So if you just remember what I just said here is you had the portfolio receipt of $3.2 billion in 2025, yet revenues were $2.3 or $2.4 billion. Having cash on hand is essential for any business. Traditional business accounts hit you with high fees while paying little to no interest on the cash you need for data. operations. That was our experience too, until we switched to the new EQ Bank business account. Now, every dollar earns high interest with no monthly fees and no minimum balance. You also get free everyday transactions like EFTs, bill payments, mobile check deposits, and 50 outgoing and 100 incoming free interackey transfers.

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family-friendly museums, and the nature to explore just across a river in Gatno Park, there's a lot more going on than people might think. Listing our home on Airbnb could let another family experience our beautiful city while we're away and bring in some extra income to put towards our own trip. Your home might be worth more than you think. Find out how much at Airbnb.c.ca. So why is it so different? Well, that's because essentially what happens and it took me like just an hour

or so just to wrap my head around it as I was like kind of rereading and just going through some examples here. But to keep things simple, essentially what they look at is they'll make, for example, a billion dollar payment and then to essentially back a drug or finance a drug. And then they might say, okay, well, for that $1 billion payment, we expect to get $2 billion worth of revenue. And then they'll break it down as a essentially, like, per year in terms of that $2 billion. So they'll say we'll get about like $100 million a year from that drug for a certain amount of years. Well, that drug this year, for example, they may have it as a revenue item as $100 million, but the drug actually generated 200 million in cash.

So that's why you end up having this discrepancy where portfolio receipts are actually, most of the time they're actually quite significantly higher than the actual revenue. But the good news is they readjust that constantly, but still you'll see that revenues are consistently lower than portfolio receipts. And portfolio receipts are better at actually looking at the actual cash coming in.

So I think that is the metric. So this is a company that you're looking to invest in. You definitely want to look at the portfolio receipts that I'm showing here on fiscal. com. So this is the much better metric to use for them. Anything want to chime in that? Hopefully I explain that in a way that makes kind of some sense. No, yeah, you explained it reasonably well.

I kind of thought of like my first thought was like a life insurer when they sell a policy. They got to book it. they got to book that profit out over the long term instead of booking it all at once. I would imagine. Obviously much different, but that was the first thing that I thought. I will say when you text me, I had no idea. Like I had to read it like five or six times when you were showing me like the portfolio receipts and stuff. But no, I think you did a good job.

Yeah. So and the other thing too, because of that, the price to earnings is not really useful. Because price to earnings is based on revenue. That's not necessarily reflective of the actual cash. cash in sales or revenue coming into the company. So I would kind of disregard the price or earning. Same thing for the price of free cash flow or free cash flow, not useful at all because they have zero capex.

What they have instead is investment. So what you really want to start doing with this kind of company is you want to start looking at the cash flow statement. It's not a perfect metric, but it's much better. So you start looking here at cash from operating activities. And then if you're on the platform, like fiscal.AI, you want to subtract the purchases of investments. So this is essentially the money that they're spending on royalty.

There's a bit more stuff that's in there. For example, if they purchase treasuries, like short-term treasuries or cash equivalents, if you actually look at the financial statements, they actually have the line items in the cash flow statements. So you can actually do your own cash flow metric. And that is the way you should be looking at the company, not with traditional free cash flow because they don't have CAPEX. But essentially for them, the CAPEX, when you think about it,

is the investments in these future royalty streams. Yeah. Yeah. No, it makes sense. Makes sense. Okay. And that's why it took me a while because then I was starting to look at that, I rub my head around it.

I'm like, okay, really interesting company, but you have to factor that in. And I think that's just really important for people to understand. When you start looking at companies, some companies, and we talk about free cash flow a lot and price or earnings. But there are some companies depending on the actual business that it's not a useful metric whatsoever. Like cash flow is not useful for banks. So you have to just be careful that you're not using it across the board and just using it without actually thinking of the business model here.

One thing that's really interesting is that you'll see if you look at the cash flow statement, you'll see milestone payments. So these milestone payments is what they do to reduce risk. So for example, let's say they have a deal that's $500 million to finance a new drug that's in development stage. They give the company $100 million upfront. And then $200 million milestone payment only paid if the drug is successfully completes phase three, for example. And then another $200 million that's only paid if the FDA approves the drug.

So that's how they mitigate risk is they can have these milestone payments where they're not on the hook for the whole financing deal unless it actually goes through and they can profit from the drugs. So that's an interesting way essentially to look at it and mitigate risk. And they pay a dividend that currently yields 1.5%. Again, the payout ratio will be difficult to establish, but you definitely want to compare it with that kind of free cash flow metric that I just talked. about so what's nice about the you're looking at the cash flow statement if you look on their actual statement is the first line won't be net income it'll be portfolio receipts which is another kind of weird thing yeah yeah yeah yeah exactly how it has that yeah yeah yeah not not fiscal but they're actually their their own cash flow statements yeah fiscal yeah yeah I'm bad at the names yeah

yeah so which is interesting fiscal has the net income though it has so I think it just defaults into that, but if you actually look at their own financial statement, yeah, it's portfolio receipts. So it's an interesting way, general accepted, you know, accounting principle, but something just to keep in mind. And the debt is manageable, especially when you start considering the average interest rate on the debt, like I said, is 4%. Based on their adjusted EBITA, which is using portfolio receipts and not revenue. Again, this is a metric that is useful in this instant. It would take them about 2.5 years to pay down the debt if they just put all the money towards that. Adjusted the EBITA to interest costs is about 10 times.

So they have interest costs more than covered. Now, there are some risk, and they're very similar to the risk that you'd have for a company like Franco Nevada. Not the same, but there are some similarities here. So capital deployment risk, are they making the right investment when factoring all the risk involved? So you're putting a whole lot of fate in the experts at the company and making sure that they're making the right decision in capital deployment allocations.

The regulatory approval risk, that one is pretty straightforward. If the drug can get approved by the FDA, then it's basically some costs. And you do have it, the most recent report, I did see it that there was a, they give you kind of an update and there was a, there was one that like didn't pass a stage trial. So I think at that point, that's likely just a loss. Yeah, there's no liability for the people developing the drug to pay. pay them back any money at all. It's kind of a...

No, I think I wouldn't think. So I think the reason they Medicaid that, it's with those milestone payments. Yeah, yeah. At the end of the day, they're making a bet, right? So it's like it's a calculated bet, but it's still a bet and they're making a bunch of different bets. And the technological advancement, especially in the world of AI, so even if a patent is still active, does a new drug get approval that actually works better and completely

erodes years of revenue that they were planning to get from that. specific royalty that is always a risk involved and concentration risk so in their most recent earnings release the vertex cystic fibrosis drug accounted for 25% of their portfolio receipts in Q2 that one drug so think of it a little bit like Franco Nevada the Cobre Panama like this is almost like the exact same percentage the Kobe Panama was like about a quarter of their revenues. So it's something to just keep in mind that concentration risk is something to just look at if it's a company that interests you. But overall, I mean, really interesting business model.

It's a company I'll have on my radar. And honestly, I don't have much, if any, aside from my index funds, exposure to pharma. I do have intuitive surgical, but it's not really pharma. It's the same kind of, it's the same sector, but not. the same industry, I would say. So this is one that I'm really intrigued, and it would give me some, yeah, some pretty nice exposure.

I'm not sure if I would start a position just yet, but it is something I'm debating if I'm being perfectly honest here. Yeah, it's definitely one I'm going to put on the radar because I didn't even know a kind of royalty pharma company even existed. Because a lot of people, when they want to bet on these drugs, just,

go to the nano-cap, you know, bio companies that are, you know, pretty much all in. And if they don't, you know, if the drug doesn't make it to trial, they just, you lose all your money. Whereas with this, you're kind of giving it in the hands of people who know what they're doing. There's going to be situations where they burn money as well. I mean, it just happens in this space, but there's also probably going to be a lot of home runs that they hit for sure. Yeah. I was looking, they didn't have, they didn't have exposure to that melanoma. vaccine. I was looking if they had money

in that, but they don't. No, I'm not surprised. But they do. Madurna probably wouldn't have needed the money. Yeah, they do have royalties with pretty large companies, though, as well. Oh, do they? Yeah. So, I mean, it's also, it's, I think was it Franco or

Wheaton? I can't remember. But one of them like purchase, like a royalty from BHP, right? So it's, you know, it's not that uncommon for large companies to maybe trying to offset some of the risk. with getting some, you know, giving away some of the upside,

but just offsetting some of the upfront risk. So they do have, I can't remember the exact names, but I saw some of the names, like these are large pharma companies. So just keep that in mind. I guess the last thing too I forgot to mention is that last year, they also essentially bought out. They were like ran externally. So they were paying a management company to essentially run the company

and have the employees. and now it's all internalized. So it was a weird thing. I came across that. So I just wanted to mention it. But essentially now it's a done deal. Everything is internal. They've reduced because they were paying like higher fees for that.

So essentially what they're saying, it was a short term hit last year in terms of the cost. But long term, it will be saving them a whole lot of money. So just a little side note I think was important. But so, yeah, for me, I think it's one of the most compelling ways I've came across. if not the most as an alternative to an ETF, for example. And you know what? So far, their track record seems pretty good. Like portfolio receipts are doing quite well.

They're not, they've been like improving, yeah, steadily over at least the time that they've been publicly traded. So yeah, it's one I have on my radar. Yeah, it's one I'll add to the watch list as well. Do we want to get on to mine? Yeah, let's do it. Yeah. So I'm going over probably one of the most popular stocks, at least on X right now, I would say, but probably in the market in general, probably one of the most conflicting ones as well.

Whenever I hear this name, I think of Superbad, where he gets the fake ID. So you probably know what company is. Yeah. Yeah, McLeaven. The company is actually App Loven. They trade under the ticker APP, I believe it is. Yeah, APP on the NASDAQ. and I've been digging into it quite a bit this week because I've been getting a lot of questions on it.

So I'll lay out kind of what I have thus far. I'm probably going to continue to digging into it over the course of the week because there's kind of a lot to look at with this company. That is one kind of thing I will say is this is a company that's trading probably 60% down from its highs. But there is reasonings for this. I think it is actually a very strong company in terms of growth and potential overall. but there's also a lot of nuances around this company. So you could have gotten it. It's absolutely wild.

I'm this stock. Oh, yeah. Well, you could have gotten it for 10 bucks a share in 2022. I know I had said at the start of the episode that they weren't publicly traded before I started the podcast. They were. I think they IPOed in 2021, 2020 or 2021. But yeah,

you could have got this thing for 10 bucks in 2022 before it ran up to 715 at the end of 2025. and now we're around 60% off those lows, low 300s. So what the company does, if you've ever played a mobile game and you kind of saw an ad between levels or maybe an ad you watch to unlock something or just a timed ad, whatever it may be, it is very likely that App Lovin was the company

that you have been seeing served this ad. So customers will come to them, mostly like game developers, mobile game developers, to a certain extent, e-commerce, but I'll talk about that later. And they'll say, we'll give you X amount of dollars

for every person that downloads my game. So App Loven will then buy the ad space on those games, and it'll use its engine to kind of figure out, you know, AI-based ad engine to figure out which players would be most likely to download that customer's game. It will serve them the ad. And if they downloaded App Loven effectively pockets the difference.

So if the client says, I'll pay you $5 a download, and App Loven spends one, dollar to buy the ad slots before they get that download. There's there's kind of there's four dollars coming their way and that's kind of why you see the company has 85% EBITA margins. Like they're very very high profitability company. And kind of what this,

what makes this so unique again is it owns the software that runs the ad auctions inside of the mobile games. So when you develop these mobile games, you're most, you're probably putting their software in it. So they see all the traffic, all the demographic data, all of the, you know, information about anybody playing these games.

So they kind of have a heads up if somebody else comes with a similar option to say, okay, this person is very likely to download this. And if they can serve that to them for even cheaper costs, they effectively just pocket the massive difference between what the developers are going to, going to pay them. So a few other unique things. The company has a market cap around $100 billion, yet it only has 900 employees. So the company generates more than $7 million in revenue per employee.

So if you look to other ad companies like Meta Alphabet Trade Desk, so meta was $2.8 million per employee, alphabet $2.2 million, and trade desk $760 million. So they're generating, I mean, almost, you know, a little more than double the revenue per employee as a company like Meta, kind of other ad companies in general. And the other thing is capital expenditures. they're pretty much non-existent. I had to go through like three or four websites

because I thought there was errors and actually how much this company's capital expenditures were, but it just comes in at virtually nothing. So they had operating cash flow of $869 million and they spent $1.4 million on property plant and equipment. So almost no KPEX period. The system pretty much just runs on AI computing. They have no inventory.

They have no factories. they have no stores. It's just... I guess an asset-light business is what... Oh, yeah. Yeah, you could say that. It's just, it's an algorithm with employees from the, you know, that's what I took from the brief, you know, day or two here that I've had to dive into it.

And, yeah, I mean, the amount of money that they're generating per employee, it's not really all that surprising that they have to spend virtually nothing. It kind of sounds like when you say this, it's an algorithm with employees. It sounds terrifying, but extremely profitable at the same time. because when I first looked at it, I kind of thought, you know, fragile was the first thing. Yeah. Yeah.

Yeah. The algorithm controls the employees. Or is it the other way around, hopefully. Yeah. Who knows? But yeah, they, the other interesting thing here is they had, I mean, I have in my notes a few short reports, but they had a lot of short reports last year.

Okay. It's really not all that much of a surprise. Again, if you think of this being an algorithm with some employees, growing at an absurd rate. We're talking like 70 plus percent a year. It's almost hard to believe. So that's going to generate a lot of short action on the stock, especially when it's expensive.

I won't go over a ton of the details of the shorts, but it kind of range from outright fraud as in fake downloads to devices. So they would pretty much download on fake devices and charge these advertisers saying, hey, we got you a download to kind of fake click-throughs. to actually having like back-end deals with phone carriers that auto-download apps on phones. We're also accused of tracking children and utilizing that data.

There was a whole ton of stuff on the company last year. And the big one, the one that actually kind of spooks me a bit and is not necessarily this short report, but just the concept of it overall, is that Apple oven used data and builds user profiles on kind of data, on collection methods that violate

Apple, Android, and meta's terms of service. So like if you get punted from me. Yeah, they're the ones listening to when I'm having conversation with my wife, huh? Yeah, so if you get punted from using those platforms, it would not be good. And we see in Apple, they pretty much turfed all of their data tracking.

I think it was back in 2021. So things could change. It would make sense being them when you think about it, though, because, like, literally you'll mention something. I've seen it before where I will just talk, oh, we might need to buy this. And then surprise, surprise, now, like, I start getting ads that are, like, exactly that thing. And I've not used my phone to search it. Oh, yeah, they're listening to you. There's zero question.

It's, yeah. But the thing is, the interesting thing is, App Loven kind of made its big money from when Apple didn't allow these platforms to track because their system, their AI, you know, ad generator, ad server could kind of run on, you know, it doesn't necessarily need all that data. I'll get to that in a bit, though, because I have some information on that with meta. But the short, the reason I wanted to mention the short reports is this just came out a few weeks ago.

The SEC did an investigation and pretty much closed it with zero action. So, I don't know, clearly a lot of. of them, I'm pretty sure there was a lot of them where they kind of lawyered up and some reports were taken down or they were changed or whatever. A lot of it seemed pretty crazy. Having cash on hand is essential for any business. Traditional business accounts hit you with high fees while paying little to no interest on the cash you need for day-to-day operations. That was our experience too, until we switched to the new EQ Bank business account. Now, every dollar earns high interest with no monthly fees and no minimum balance.

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Your home might be worth more than you think. Find out how much at Airbnb.ca.com slash host. So why is the stock so interesting? Growth is slowed, but it's still high enough. that, you know, the massive multiple compression have made this one look dirt cheap on the surface. So it's gone from 35x expected earnings to just 16x. And this is a company growing at a 30% plus clip. And some might kind of look at this first and think that that 30% number is wrong because they've grown 50, 60, 70% in the past. But they're guiding to 30% in the future.

So we're probably going to see 30% growth in 2027. so I would more so look to that rather than the 50% plus they've done in the past. The deceleration is kind of inevitable because Apple Oven already controls a dominant share of the market. I believe over 50% of mobile game ad spend is utilized through their systems. So if when you control 50% of the market, it's very difficult to accelerate that further. I mean, you can't possibly double your market share from there. because then you'd own the whole thing. So it gets a little bit more difficult.

And you can kind of tell this because installs fell by 2% year over year. That would be downloads overall, while revenue per install increased 58%. So the first engine, I guess you could say for this company, at least in my opinion, would be market capture. That's probably, I don't want to say it's dead, but you just can't exponentially grow it anymore. You kind of need to find out how to squeeze more juice. juice out of the market share you have. And they're doing that right now, but it's, you know,

they're telling you it's going to slow down. And that's why I think the market is having a very, very difficult time valuing this one is where the deceleration is going to land. Do they continue to grow 30%? Does it dip to 20? Does it dip to 15? 10%? All that type of stuff. The alternative growth angle would be when I mentioned the e-commerce at the start. So in June of 2026, they released the exact same mobile app advertising system, but for e-commerce, it's pretty much the same plan. You're selling a product, let's say children's books or something, they'll use their system to find you parents that are likely to buy them and you pay them when they do buy them. So same model, but for physical products.

And it's been around for a few years, but fully launched in June of 2026. So I think they started it in 2024. And they mentioned it's going very well right now. But from what I've been reading, it's really concentrated in some very large advertisers. So it's a very skewed example. And in addition to this, there's no data from Apple oven on how this is doing. They don't disclose it. They don't disclose the advertiser counts.

They don't, you know, what percentage of their revenue is from e-commerce. I would imagine when this gets bigger, they'll start segmenting it out and reporting it, but they just haven't yet. I don't know if you have any more comments. Yeah, no, I was just looking at their IR page and trying to find like presentations or something. And it's like just the bare minimum. It's just like the financial results like just consolidated say statements and that's it. So it's just kind of weird that there's just especially after looking at royalty pharma and like they break everything down so well. They give you the amount of money that they're actually getting for each royalty. Like they have the portfolio.

Receeds, they tell you how much you're investing in new companies and new deals. Like, they go in detail. They make it pretty easy to view and then you get this where it's like, okay, nothing. These are just financial statements. Yeah. Yeah, because before, well, when you were talking, I was trying to look up. And even before we were recording, we were trying to find a slide deck and I couldn't find one.

And then when you started talking about the royalty company, I couldn't find one either. There's no, the information you're going to get is probably from the MD&A. and the annual reports and stuff like that. I'm actually, I'm pretty shocked that they don't have an investor presentation or anything because I don't want to say this is a complicated company, but it's one that, you know, a lot of people probably would just not be able to wrap their head around how it works. But in the competition side of things,

so Abloven didn't have a lot of competition, and then it kind of did all of a sudden, but nothing to the scale of what, you know, this company does itself. The only thing about running a business that effectively prints cash and costs you nothing to do so is you're inevitably going to get a ton of competition in the space. And the difficulty here is your competition is the platforms you directly benefit from right now. And they have a ton of money. So, for example, back when Apple killed ad tracking, meta kind of gave up on that space. And Apple oven, as I had mentioned, took massive advantage of that.

They kind of got into that space. there was fewer competition. They felt, you know, they didn't need all the ad tracking, the demographic information, all that type of stuff. And meta has kind of mentioned they believe their AI is good enough to benefit from that untracked traffic base again. So, I mean, now you're going up. You're lurking.

They're lurking in the water. Yeah. Yeah. You're going up against a mega player again. And, you know, I like this company, but you would lose, in my opinion, against meta. Like, I don't really, I don't really see how. you win. Even if you have advantage at this point in time, they have money, even though, you know, they are kind of dumping it all into AI. Maybe they'll kind of ignore this space for a while. The other

interesting one is Apple giving people access to build their own AI games. I don't know if you've messed around with that. No. It's wild. So you can, it's effectively like an LLM type chat thing where you can build your own game. It's called nerd something. I can't remember the, I can't remember the name. it but anyway if the other the main issue with mobile games at least when you're developing them you're typically putting app loving system on them so if you have this this system that alphabet is creating where you're building them in that universe you can almost guarantee it's going to be alphabet's ad system unless you can somehow get that mobile app oh is it alphabet or apple you said apple oh alphabet sorry i said apple yeah alphabets yeah

Alphabet. Yeah. They're going to put their ad system on that app. Yeah. Unless you can get it away, but I would imagine, you know, there's a reason they're building these tools for free. So yeah, that's the one thing. If it's not even just Alphabet, if other tools come along like this that have their own systems and they don't want App Loven's software on them, they want alphabets. That's an issue. And the other main issue just with these systems being developed is, you know, look at mobile games, at least the good ones, they've been historically very reliable assets with longevity. Like you look at, it's one off the top. I had like Clash of Clans, something like that, like those massive mobile games. But now, I mean, the moment you can get something that can replicate a lot of these games, and I'm not saying these would be able to replicate Clash of Clans, but as soon as somebody can just sit on their computer and build these games out, they become more disposable, I guess, which is an issue for. for an ad serving company on these mobile games

because that will ultimately tank the amount of money people are probably willing to give you per download. So last thing would be valuation and then just kind of a quick summary. But they're the cheapest name in ad tech by quite a wide margin. It's way cheaper than meta. It's growing much faster. And I kind of know it's easy to say this in hindsight,

but this company had $710 plus was insane. Too much money, in my opinion, for a company with a market share that is mostly captured and, you know, a moat that could very realistically be impacted. When I look at this one, and again, I'm not done looking at it fully, but when I look at this one, I go back to other companies like Trade Desk and Acuity Ads, which is now Illumin. They were a Canadian company. Same thing.

I mean, both of these companies were ad tech companies with, you know, superior systems and both of them just got obliterated. It makes me hesitate a bit, you know, as soon as the growth story, and either of those names, the stock price absolutely cratered. This one is such a difficult company to value. On one hand, I think, you know, base case, if growth stays in the 30% range, you could easily see it return to 500 plus. If e-commerce can gain a bit of traction, maybe it's even higher than that.

But I think the, you know, if the growth story kind of breaks down to where it's only growing in the mid-teens, I mean, we're probably going lower from here, and it's just so hard to, so hard to figure out where it's going. I think we're going to very quickly find out what the end result is because the company missed guidance last quarter because it said improvements to its platform. Axon came in a bit late. That would be the underlying software. And the company, because it owns so much of the market, it pretty much grows its revenue by billing customers more. And it bills customers more by improving the platform. So they said that they were a bit late on those improvements this quarter.

they mentioned that it will come next quarter. So you're probably going to see if they miss guidance again next quarter, it will probably, or they miss expectations, it will probably not be good. Do I think it's a buy? I've considered taking a flyer here, but I'm also doing it from the standpoint of it being maybe a bit more of a speculative investment.

I think the ceiling is high. I think the ceiling is higher than the floor right now, but the floor is not completely priced in. If you look at Trade Desk, I mean, they've gotten obliterated. What are they down? down 95 plus percent probably from the bottom. Yeah. Like that.

Yeah. It's an interesting play, but there's a lot of people who I found at least on X who were just sitting there thinking, oh, they're kind of saying like, oh, look at this company. They're growing 70 plus percent. They're only trading at 16 X earnings. First off, that growth is going to be cut in half. And if that growth continues to accelerate downwards, you're going to see more pressure. Forward earnings is what analysts expect them to earn.

they can easily be revised downwards. So I think it's a very interesting, high quality, high margin business that you just kind of have no idea what's going to happen over the next five years here. So it's very difficult to value, but I'm going to try to spend the rest of the week to figure it out. But I just, I didn't get it figured out by the time we recorded this. Yeah, I think I think I'm going to stick with royalty pharma. Oh, yeah. I think it's, I think it probably has a. higher floor. Again, one of the risk of royalty pharma that I didn't mention, it could be a risk and a

benefit, but AI, obviously. So AI could be a risk for its existing drugs, maybe something else with the help of AI comes through and actually is better and beats their existing drugs. So that is a risk, but it could also benefit from AI for some of its newer investments as well. So I think, I don't know whether it's one offset to each other, but I do like the floor. a bit more of, yeah, royalty pharma over something like the trade desk. Sorry, Applovin. McLevin. The ceiling, the ceiling, I would say with Applovin is higher.

But yeah, the floor is definitely. Oh, for sure. Because if you look to even that melanoma vaccine, they developed, like, that was heavy AI. They said they're using it, like, you know, you can pull like a thousand mutations out of a, like a piece of skin cancer or whatever. and AI can kind of develop cells to fight them, whereas they mentioned that like a human doctor to do it would have taken years and years and years. The patient would be long gone by then.

So like you're seeing massive advancements in that space. I think it's pretty underrated. But yeah, that's all I got for App Lovin. I'm not throwing it away yet. I might still consider it, but I got to dig into it more because I think, yeah, there's a lot of risks here. The one with meta getting back into the space kind of worried me a bit, especially with Google and the app building as well.

Like there's just so there's a lot of people with a lot of money in this space, a lot more than app loving. Yeah. No, that makes sense. But again, a company I just heard of but never got around to actually researching it. So I think it was fun to hear you that as here you go over that. And then I hope everyone liked both of our names probably again, Applovin, probably a bit more well-known. or at least people will have heard of the name, but I feel like Royalty Farma, not a lot of people. I know it's not the sexiest business model, but we invest to make money.

And I think Royalty Farma definitely is intriguing there. The only thing I wasn't able to touch on was evaluation. I'd have to do some customized valuation with the metrics that I came up with, which are similar than what management does provide. But I think they're probably a bit more accurate in terms of the cash will generate. So that is one thing I still need to do on my end just to get a sense is that trading at high valuation or not. Like I said, the traditional valuation metric just, they're not really useful for this kind of company. But let us know if you enjoy this, these kind of deep dive episode.

I know we've had people ask for more of these, but it does take us a bit more time. I pretty much took me like a day of research once I got into it to really get to know the company well enough that I could explain it. on the podcast and hopefully I did a good job of that. So hopefully enjoy this. We will be back with our news and earnings episode. It won't be on YouTube for those listening on YouTube, but you can watch it. You can listen to it on your favorite podcast player or you can join for $15 a month, join TCI and watch it there along with our portfolio updates every single month. So thanks for listening. We will be back on Thursday. The Canadian Investor podcast should not be construed as investment or financial advice.

The host and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.