AppLovin (APP) stock experienced a significant decline on Wednesday, dropping 12.2% to close at $331. This decrease followed the release of critical reports from research firms Culper Research and Fuzzy Panda Research, which cited allegations regarding fraudulent practices and stated they were shorting the stock.
AppLovin has faced scrutiny as the two firms published negative assessments of the app marketing platform.
On February 13, AppLovin shares reached a record high of $525.15 after the company reported an impressive earnings increase, noted as a “beat-and-raise.” AppLovin’s platform assists app developers in marketing, monetization, and analytics, while the company has also expanded into advertising-based e-commerce and streaming television services.
Allegations from short-sellers
Fuzzy Panda Research alleged that AppLovin built its “AI hype story” on a foundation of ad fraud, claiming insights from former employees. The firm accused AppLovin of copying data from Meta Platforms (META) and installing software on devices without user consent. Fuzzy Panda further claimed that AppLovin illegally tracks children and serves inappropriate advertisements to minors.
“We believe these so-called dark ad practices explain the truth behind how AppLovin seems to have achieved its great growth,” the report asserted. The firm added that major tech companies like Apple, Google, and Meta may seek to halt such practices.
Culper Research highlighted concerns about AppLovin’s senior management, linking them to “notorious spyware” and “scammy ad” companies. They stated, “We believe AppLovin’s success has been driven not by AI, but by the systematic integration and exploitation of notoriously dangerous app permissions that silently trigger backdoor app installations.”
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CEO’s response and analyst perspectives
In response to the allegations, AppLovin CEO Adam Foroughi released a blog post expressing disappointment in the short-sellers’ claims. He characterized the reports as “littered with inaccuracies and false assertions,” clarifying that the company follows app store policies and does not track children’s data.
Wedbush Securities analyst Michael Pachter defended AppLovin, arguing that if the company were committing fraud, it would likely have faced legal challenges by now. Pachter maintained a bullish stance on AppLovin, reiterating an outperform rating and a 12-month price target of $620, asserting that the company’s financial reports are audited without noted fraud issues.
Daniel O’Regan, managing director at Mizuho Securities USA, added that most sell-side analysts remain optimistic about AppLovin. He noted that while the short-seller reports may sound damaging, many of their claims are not new and reflect current market sentiment.
Despite the recent negative reports, AppLovin remains highly regarded on Wall Street. Of the 27 analysts covering the stock, 20 (74%) are bullish, while only one is bearish. The company’s recent performance, which included a 73% increase in advertising revenue to nearly $1 billion for the fourth quarter, followed the announcement that it would spin off its mobile gaming segments and further expand its AXON model into other e-commerce sectors.
Fuzzy Panda and Culper Research’s reports came in the wake of AppLovin’s strong earnings, amid a broader backdrop of a 700% stock surge in 2024, making it a top performer in its sector. On Wednesday, AppLovin shares plummeted as much as 23% during intraday trading, marking a record decline.
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Featured image credit: AppLovin
