AppLovin (APP, Financial) experienced a significant stock decline of 20%, marking its largest single-day drop, following a critical report from the short-selling firm Muddy Waters. This report accused the company of losing e-commerce advertising clients. This is the third short-seller report targeting AppLovin within a month, with previous analyses from Fuzzy Panda and Culper Research in February alleging that AppLovin exaggerated the benefits of its AI platform and artificially boosted revenue through forced app installations.
In 2024, AppLovin was one of the top-performing tech stocks, with its value skyrocketing over 700% due to the AI boom. The company was added to the NASDAQ 100 index in November, pushing its market capitalization to over $110 billion by year-end. Despite its past success, AppLovin's stock has faced pressure, with a 19% decline in its value this year.
Muddy Waters' report specifically accuses AppLovin of data misuse and violating platform service terms. It claims that the company's advertising strategy systematically breaches app store service terms by improperly extracting proprietary IDs from companies like Meta, Snap, TikTok, Reddit, and Google, to deliver targeted ads without user consent.
Fuzzy Panda and Culper Research had previously criticized AppLovin for allegedly inflating its AI platform's effectiveness and revenue through forced app installations, contributing to a 12% stock drop in February. Despite these challenges, AppLovin's CEO, Adam Foroughi, has dismissed the reports as misleading, emphasizing the company's AI advancements.
Earlier this month, Fuzzy Panda reiterated its accusations of advertising fraud in a letter to the S&P 500 index inclusion committee, urging AppLovin's exclusion from the index. Muddy Waters' analysis also highlighted a 23% client attrition rate among AppLovin's e-commerce advertisers, challenging the company's claims of no client losses.
Despite these reports, Wall Street remains optimistic about AppLovin, with 21 "buy" ratings, 6 "hold," and only 1 "sell" according to Bloomberg data. Analysts from firms like Wedbush, Benchmark, and Citi Research have defended AppLovin, suggesting the stock's decline presents a buying opportunity.
