Last year, IronSources sales jumped 83% to $332 million, and it expects that figure to almost
double to $622 million by 2022. Its Ebitda in 2020 reached $104 million, or an impressive one dollar in free cash flow for every three in revenues; Bar-Zeevs long-term goal is an even higher
Ebitda-to-sales of 40%. IronSources dollar expansion rate with existing customers is 150%, meaning that its average client pays it 50% more each year than the year beforea
$1 million customer in 2020 will typically purchase $1.5 million for its IronSource services in 2021. Once developers hop on the IronSource platform, they stick: Last year, it retained 97% of its customer list from 2019.
Bravo relishes the model because it provides extremely high returns on capital. Its the opposite of the templates of the past, where to grow
earnings 20%, you need to grow assets 20%, he says. Warren Buffett would love this company. Adds Bar-Zeev, We can grow the top line fast without injecting outside capital.
So far, the dollops of new investment yielding gobs of free cash approach is working. But bear in mind that growth through acquisitions is central to the
IronSource strategy. This year it purchased two companies, including Luna Labs, a startup that enables developers to create and manage video and playable ads. The danger is that in its rush to expand, IronSource overpays for acquisitions.
Thats been a major problem in the software industry. Young companies that achieve huge returns on capital in their early years often stumble by paying inflated prices for hotshots that can deliver only by adding lots of growth, and fail to do
so. That pounds share prices by severely diluting existing shareholders. (Bravo notes that so far, IronSource has been careful in not paying excessively for acquisitions, and that it can grow well without relying on M&A.)
Roadblocks for app developers
Bar-Zeev and his seven
cofounders started IronSource to overcome the roadblock they themselves encountered as app developers. As a computer scientist, Bar-Zeev launched several failed ventures in his twenties, and at age 32 decided to give entrepreneurship a last go.
It was one more startup, and if that flops, work for a big company, he recalls. My wife just had our second daughter, and I was broke. So we moved into the second floor of my parents house in Tel Mond.
Prior to starting IronSource in 2010, Bar-Zeev specialized in hatching consumer web apps. Customers liked them, but his tiny shops lacked the cash and
expertise to bring his handiwork to a wide audience. I saw firsthand how hard it was to succeed in the app business, he says. It was much easier to create a product than build a business. He says that virtually every app
developer was struggling because they lacked automated tools to do things on a huge scale and couldnt afford to assemble them in-house.
The narrative replayed when he and his partners started IronSource. The group developed appealing consumer apps for PCs; the mobile app economy was still in
its infancy then. It wasnt enough to create great content, says Bar-Zeev. We needed to build the technology ourselves to grow. Getting there would forge something similar to the cloud-storage revolution, he predicted.
With the cloud, you didnt need on-premises for storage. Instead of hiring IT people, you could use Amazons AWSjust press a button to add computing power. That made it so much easier to
start companies.
Sundry startups benefited from outsourcing storage to Amazon and husbanding resources for their strengths. Bar-Zeev aimed to do
the same thing for the mobile app economy. He and his partners saw that the best business for IronSource wasnt creating content but building a platform for scaling great apps.
IronSource has two main types of customers. The first and largest group are game developers. We provide the infrastructure to scale the app, says
Bar-Zeev. We have a platform that can get a clients app out to millions of users. We take care of monetization, analytics, and growing the customer base, so that the developers dont have to do it themselves. We cover all their
commercial operations except for developing apps, and things like accounting and HR.
IronSource has a particularly strong mobile advertising
platform. It helps developers attract users by finding the best way to advertise their apps, and guides them to making money by running campaigns for other developers games on their own apps. It also provides the technology enabling clients to
build highly creative playable ads that attracts users inviting them sample interactive demo versions of their games.