AppLovin Stock Drops 20% After Muddy Waters Report

AppLovin, a technology company that experienced a remarkable surge of over 700% last year, faced a significant setback as its stock plummeted by 20% on Thursday. This dramatic decline followed the release of a short-selling report by Muddy Waters, a prominent short-selling firm. The report is the third in approximately a month to target AppLovin, with previous reports from Fuzzy Panda and Culper Research in February alleging that the company exaggerated the benefits of its AI platform and manipulated revenue through forced app installations.

Muddy Waters' report accused AppLovin of misusing data and violating platform service terms. The report claimed that AppLovin's advertising strategies systematically violated the terms of service of app stores by extracting proprietary IDs from companies like Meta, Snap, TikTok, Reddit, and Google without user consent. This allowed AppLovin to push targeted ads to users without their explicit permission. Muddy Waters warned that if AppLovin is not removed from app stores, other competitors may follow suit, as the practice does not require significant technological barriers.

The allegations from Muddy Waters come on the heels of previous reports from Fuzzy Panda and Culper Research, which also criticized AppLovin for overstating the effectiveness of its AI platform and manipulating revenue. These reports, released in February, led to a 12% drop in AppLovin's stock price. Despite these claims, AppLovin's CEO, Adam Foroughi, dismissed the reports as containing "false and erroneous statements," asserting that the company's advanced AI models have significantly enhanced advertising services for its partners.

Muddy Waters also highlighted that AppLovin is losing e-commerce advertising clients. The report analyzed 776 active advertisers in the first quarter and found a customer churn rate of approximately 23%. This contradicts Foroughi's claims that there has been no customer loss. Muddy Waters' analysis was based on observing e-commerce websites that used AppLovin's AXON pixel code in early January 2025 and found that many of these sites had removed the code by late March.

Despite the multiple short-selling reports, analysts remain largely optimistic about AppLovin. The company has received 21 "buy" ratings, 6 "hold" ratings, and only 1 "sell" rating. Several prominent analysts have defended AppLovin, even suggesting that the recent stock price decline presents a buying opportunity. This optimism is likely due to the company's strong performance last year, driven by the AI boom, and its inclusion in the Nasdaq-100 index in November, which further boosted its stock price.