AppLovin is learning the hard way that investors can go from lovin’ you to turning on you faster than you can explain what the company even does.
Don’t worry, we’ve got you: The adtech firm sells advertisements in mobile apps, particularly mobile games, which sounds simple but has been a wildly successful business. That’s why the stock was riding high last year, surging 700% all the way to its place as the best-performing stock of 2024. Winding back even further, shares are up over 3,600% since 2023.
But over the past week, the other shoe dropped. Three short sellers, including Bear Cave, Fuzzy Panda (no, these are not fictional characters), and Culper Research dropped reports accusing the firm of various improprieties—from “copying Meta’s homework” to showing sexually explicit ads to kids.
Shares plummeted 12.26% today, and are down 32.53% over the past week.
But the accusation drawing the most attention is the assertion that AppLovin’s highly touted AI platform—which was the rocket fuel propelling AppLovin shares to new heights in Q4—is not quite as flashy and innovative as the company made it seem. The reports argue that the platform “force feeds” app installations to falsely drive revenue, and credits AI for the boost.
“We believe these so-called dark ad practices explain the truth behind how AppLovin seems to have achieved its great growth. We believe Apple, Google, and Meta all have a vested interest in putting a stop to it,” wrote Fuzzy Panda.
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AppLovin did not respond to Brew Market’s request for comment.
The short selling salvo comes after an impressive Q4 earnings report, in which AppLovin announced it was doubling down on AI and getting out of the gaming business, which is where a huge chunk of its revenue came from.
Another headwind dragging AppLovin shares down is Unity Software’s announcement that it will be rolling out its own AI-driven ad platform, which would directly compete with AppLovin.
Resting on AI laurels is so 2024
We’ll level with you: It’s hard to argue that a stock that gained 700% in one year isn’t overvalued.
But analysts aren’t quite as pessimistic as the short sellers. After all, AppLovin’s Q4 revenue and earnings handily beat expectations, and the vast majority of analysts covering the stock still give it a “buy” rating.
To Morgan Stanley equity analyst Matthew Cost, the main question is: Can AppLovin transcend the gaming business and grow its non-gaming ads?
“Success or failure on that front will ultimately determine if APP shares are pricing in a ramp that may be hard to achieve, or just beginning to discount long-term share gains,” he wrote in a note last week, reiterating his equal weight rating.
Maybe the company should be renamed AppAmbivalent?—LB