Key Takeaways

  • AppLovin executed an unconventional stock buyback by directly approaching private market sellers instead of open-market purchases.
  • This targeted buyback strategy removed specific selling pressure from the cap table and generated approximately one-third of the company's current value.
  • Short seller attacks, while frustrating, compelled AppLovin's leadership to proactively clarify its business narrative to the market.

The Method

During AppLovin's low point in 2022, CEO Adam Foroughi implemented an unusual stock buyback strategy. Instead of a traditional open-market repurchase program, Foroughi and his team identified specific private market shareholders on what he termed their "flimsy cap table."

These were often early investors or employees seeking liquidity, whose selling pressure was perceived to be depressing the stock. The tactic was direct: rather than buying shares from every shareholder proportionally through open market operations, AppLovin sought out specific sellers.

Foroughi explained their approach: “When we went and did our buyback, we didn't say, 'Hey, we're just going to go to the market and take float out like take a share back from every single shareholder.'... what we instead did was go and say, 'If you are a seller, please work with us to sell back to the business.'” This allowed them to selectively reduce overhang from particular groups without affecting the broader market float or price.

This strategic move paid off handsomely. Foroughi estimated that “roughly a third of the company's value came from that buyback,” indicating a substantial return on investment made during a market downturn.

Where This Breaks Down

This targeted buyback method depends on several conditions. First, a company needs a cap table with identifiable, motivated private sellers. This is more common in early-stage public companies with founders, employees, and early VCs still holding large, illiquid positions. Mature companies with widely dispersed ownership will find it harder to identify and approach specific sellers this way.

Second, the company must possess substantial cash reserves to execute such a large-scale buyback. For a smaller startup, this strategy is impossible; they lack public stock, a cap table large enough for specific sellers to impact valuation this directly, and the necessary capital. Additionally, while Foroughi criticized short sellers for "overly dramatic articles," the underlying business must be healthy enough to recover and justify the buyback. If the short sellers are correct about the business's fundamentals, even a clever buyback won't sustain a failing company.

What to Do With This

Even if your startup isn't public, the principle of understanding and managing your cap table's weak points applies. If you have multiple early investors or employees with significant equity nearing potential liquidity windows, identify who might want to sell and why. Understand their individual situations. While you can't do a public buyback, knowing their intent allows you to anticipate potential selling pressure or coordinate private secondary transactions if cash permits. This week, list your top 10 largest non-founder equity holders. Estimate their typical holding period and likely liquidity needs. Understand your cap table's potential weak points before they become a problem.