MW How a national-security review made AppLovin America's hottest stock - and its founders billionaires

By Chris Matthews

Who says government can't create wealth? CFIUS, an obscure panel playing an increasing market role, blocked the sale of AppLovin years before a stock-market bonanza.

In 2016, Adam Foroughi agreed to sell a majority interest in the California-based mobile-advertising company he co-founded, AppLovin, to China's Orient Hontai Capital for $1.4 billion. Foroughi and his two AppLovin co-founders had built the company in five years with just $4 million raised from angel investors, according to the press release that announced the deal. A nice payday seemed to have arrived.

Then Washington intervened. An obscure and powerful federal government panel called the Committee on Foreign Investment in the U.S, or CFIUS, put the brakes on the AppLovin sale in 2017, citing national-security concerns.

At the time, it seemed like a major setback. Instead of cashing out, Foroughi and his team were forced to hold on to their company, restructure the deal and push forward on their own. In response to CFIUS's apprehensions, AppLovin and Orient Hontai Capital overhauled the agreement, settling on a $841 debt-financing deal paired with Orient taking a relatively modest 10% stake in the company, allowing AppLovin's founders to maintain control of the company while fueling its growth.

The CFIUS intervention turned into the best thing that ever happened to Foroughi and his AppLovin co-founders, John Krystynak and Andrew Karam. Today, AppLovin (APP) is America's hottest stock. It has soared by 689% in the last year, more than any other U.S.-listed stock with a market capitalization greater than $10 billion during the last 12 months, according to Dow Jones Market Data. AppLovin's market capitalization recently stood at $150 billion and its three co-founders are all billionaires, with Foroughi worth $18.3 billion, according to Forbes. Even AppLovin's President, Herald Chen, is a billionaire.

These massive American fortunes would have never been built had CFIUS let the sale to Orient Hontai go through.

On one level, the AppLovin story is an example of government red tape accidentally creating one of the biggest tech fortunes in America - and leaving its would-be Chinese buyer in the dust. But it also shows the increasing role CFIUS is playing in the global economy - determining winners, losers and unusual financial outcomes in the name of U.S. national security and keeping China at bay, regardless of which political party is in the White House.

The deal that almost was

When Foroughi cofounded AppLovin in 2011, the idea that the company presented a national-security issue for the United States would have been far-fetched. Based in Palo Alto, Calif., AppLovin initially found success by building a lucrative business helping mobile-game developers acquire users and optimize ad revenue. By 2016, the company had become a prime acquisition target, and Orient Hontai Capital stepped up with a $1.4 billion check.

The deal made sense on paper: AppLovin's technology would complement Hontai's ambitions in mobile gaming, and the three founders would get a substantial payday while continuing on to grow the company further and boost the value of the remaining equity.

Foroughi said at the time that the deal "validate[d] the outstanding product we've built," and that it was of "profound significance for the entire advertising industry" because it was "the most sizable outcome for a mobile-advertising company ever."

But the federal government had other ideas. Led by the Treasury Department and composed of representatives of nine federal government departments, CFIUS had grown increasingly wary of Chinese firms buying American tech companies. In the case of AppLovin, CFIUS had concerns about the company's data and its potential exposure to foreign control, according to news reports at the time, and ultimately blocked the deal.

More than anything, AppLovin got swept up in a wave of anti-China political sentiment that was exemplified by Trump's first campaign for president, driven by increased concern over China's technological prowess and the impact of China's strength on domestic employment and geopolitical competition.

In 2017, the year CFIUS nixed the deal, the panel reviewed what was then a record-high 237 transactions, with 60 of those deals related to China, according to the council's biannual report.

Roughly half of all the reviews conducted that year by CFIUS were over companies in the "finance-information and services" sector, which that year surpassed manufacturing companies as the most reviewed sector.

As an adtech firm, AppLovin was squarely in the category seeing the most government pushback. By late 2017, the deal was effectively dead.

A loss? Maybe at the time. AppLovin wouldn't have been the first company weakened by the CFIUS review process and a scuttled deal. When the U.S. government blocked a sale by the Dutch company Philips $(PHG)$ (NL:PHIA) of 80% of its California-based Lumileds division to Chinese investors for $3.3 billion, Philips was forced to turn around and sell it to Apollo Global Management $(APO)$, a U.S.-based private equity firm, for $1.5 billion-significantly less than the original deal.

More recently, President Biden leveraged CFIUS to block Nippon Steel's (JP:5401) $(NPSCY)$ acquisition of U.S. Steel $(X)$, causing the legendary Pennsylvania company's stock to plummet and reenergizing criticism of the CFIUS review process and its harmful impact on some U.S. companies. CFIUS has also been at the center of the saga over the U.S. future of TikTok, the popular video-sharing app. President Trump has said he is trying to put together a deal for the company, owned by China's ByteDance, that would keep Tik Tok from being shut out of the U.S. over security concerns.

Martin Chorzempa, an expert on CFIUS and a senior fellow at the Peterson Institute for International Economics, told MarketWatch that the review process can be grueling for companies, especially since they are often in urgent need of investment to keep their operations afloat.

It's almost unheard of for a company to be glad that CFIUS quashed an acquisition, he said.

"Anybody can sell a company and then turn around and see it worth more a year later, but that's not a reason to say, 'Praise God, CFIUS was there to save me,'" Chormzempa said. "That's not really what they're there for."

But holding on to AppLovin instead of selling would soon pay off beyond anyone's wildest expectations.

AppLovin becomes a $150 billion giant

With no easy exit, Foroughi, AppLovin's CEO, doubled down with his team. Instead of just helping game developers buy users, AppLovin transformed itself into an advertising powerhouse.

In 2018, the company secured a $400 million equity investment from private-equity firm KKR $(KKR)$ valuing AppLovin at $2 billion. It used that cash to fuel a spree of acquisitions that cemented its reputation as a mobile-gaming ad juggernaut.

By 2021, AppLovin went public at a more than $28 billion valuation, or 20 times the intended sale price in the deal struck in 2016. Then the real growth began.

Vasily Karasyov, analyst and founder of Cannonball Research, told MarketWatch that the company's development of Axon 2.0, an AI-driven ad-buying platform, has become a crown jewel in the enterprise, fueling intense interest in the stock.

He said that the technology being developed by AppLovin today wasn't possible when it was considering its sale back in 2016, and that investors are eager to see if its game-based marketing strategies can be applied just as successfully to other e-commerce ventures.

"There's no reason why they shouldn't be able to branch outside of gaming to direct-to-consumer and other merchants," Karasyov said.

Foroughi and AppLovin declined to comment, but the decision not to sell the company in 2017, as forced as it was, ultimately made Foroughi and his co-founders far richer than if CFIUS had just looked the other way. It also paved the way for what has become the hottest stock on Wall Street over the last year. AppLovin shares are up 1,200% since the IPO.

CFIUS reviews "skyrocketed" during the first Trump administration, according to Chorempa of the Peterson Institute, and he said there's reason to believe that the panel will only grow in importance for entrepreneurs looking for investment from abroad, whether that money comes from allied or enemy countries.

"You increasingly hear of firms abandoning planned investments," he said, "either in M&A or expanding their U.S. footprint, due to CFIUS concerns."

-Chris Matthews

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February 21, 2025 08:03 ET (13:03 GMT)

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