AppLovin's Stock Plunge: Unraveling the Short Seller Saga

On Thursday, March 28, 2025, AppLovin Corp. (APP) experienced a dramatic 20% drop in its stock price, marking its steepest decline on record. This sudden plunge was triggered by a report from Muddy Waters Research, which raised serious concerns about the company's digital ad technology and alleged violations of app store rules. This isn't the first time AppLovin has faced such scrutiny; earlier in the year, Fuzzy Panda Research and Culper Research had also published critical reports, leading to a 12% drop in February. So, what's behind this latest turmoil, and what does it mean for investors?



The Short Seller Allegations

Muddy Waters Research's report accused AppLovin of "systematically" violating app stores' terms of service by extracting proprietary IDs from major platforms like Meta, Snap, TikTok, Reddit, and Google. The firm claimed that AppLovin uses these IDs to funnel targeted ads to users without their consent, a practice that could lead to deplatforming if proven true. Muddy Waters also suggested that if AppLovin isn't deplatformed, competitors might start copying its techniques, indicating a lack of technological sophistication.

Fuzzy Panda Research and Culper Research had previously critiqued AppLovin's AXON software, which has been a significant driver of the company's earnings growth. These reports alleged data theft, revenue fraud, and the exploitation of laws protecting children. Fuzzy Panda even penned a letter to the S&P 500 inclusion committee, urging them to keep AppLovin out of the index due to these concerns.

AppLovin's Defense

AppLovin's CEO, Adam Foroughi, swiftly responded to the allegations in a blog post, defending the company's technology and practices. He described the short sellers' claims as "false and misleading," aimed at driving down the stock price for their own financial gain. Foroughi emphasized the sophistication of AppLovin's AI models, which he claims are designed to enhance advertising for their partners.



The Market's Reaction

The market's reaction to these allegations has been swift and severe. AppLovin's stock has tumbled 20% in a single day, and it's down 19% for the year. The company's inclusion in the S&P 500 has also been called into question, with Fuzzy Panda Research encouraging the committee to keep AppLovin out of the index.

What's Next for AppLovin?

Despite the recent turmoil, AppLovin has a strong track record of financial performance. The company beat its EPS estimate 100% of the time in the past 12 months, and its overall industry beat the EPS estimate 50.75% of the time in the same period. This strong financial performance can help to counteract the negative impact of the short reports on investor confidence.

However, the allegations raised by the short sellers are serious and could have long-term implications for the company. If proven true, they could lead to deplatforming, legal action, and a loss of investor confidence. AppLovin will need to address these concerns head-on and take steps to regain investor trust.

Conclusion

AppLovin's stock plunge on Thursday was a stark reminder of the risks associated with investing in high-growth tech companies. The allegations raised by the short sellers are serious and could have long-term implications for the company. However, AppLovin has a strong track record of financial performance and is taking steps to address these concerns. Investors will need to weigh the risks and rewards carefully before making any decisions.