AppLovin Stock Drops 20% After Muddy Waters Report

AppLovin, a prominent technology stock that had a stellar performance in 2024, recently faced a significant setback as its stock price plummeted by 20% following a scathing report from the renowned short-selling firm Muddy Waters. This marked the third such report targeting AppLovin within a month, adding to the mounting pressure on the company.

Muddy Waters' report accused AppLovin of systematically violating the service terms of various application stores by extracting proprietary IDs from companies without user consent. The report alleged that AppLovin used this data to push targeted advertisements to users, raising serious ethical and legal concerns. The firm warned that if AppLovin were not removed from these platforms, other competitors might follow suit, as the practice does not require significant technological barriers.

Earlier reports from Fuzzy Panda and Culper Research had also criticized AppLovin for exaggerating the benefits of its AI platform and using aggressive tactics to boost revenue, such as forcing the installation of applications. These reports, released shortly after a cautious review, led to a 12% drop in AppLovin's stock price in February. Despite these allegations, AppLovin had reported better-than-expected revenue and profits earlier that month.

AppLovin's CEO, Adam Foroughi, responded to the February reports by dismissing them as filled with "false and erroneous statements." He argued that the company's advanced AI models were delivering significant improvements to its partners' advertising services. Foroughi also noted that the timing of these reports, which came after the company's financial results were released, prevented AppLovin from addressing the allegations through its financial performance.

In a recent development, Fuzzy Panda sent a letter reiterating its claims of advertising fraud by AppLovin and asserting that the company did not meet the index's "gold standard." The firm called for AppLovin to be excluded from the S&P 500 Index.

Muddy Waters, founded by Carson Block, is one of the most respected short-selling firms. Block has previously stated that despite recent declines in Tesla's stock price, he would not short the company due to Elon Musk's ability to "pull off magic." One of Muddy Waters' key allegations is that AppLovin is losing its e-commerce advertising clients. The firm analyzed 776 active advertisers in the first quarter and found a customer churn rate of approximately 23%, contradicting Foroughi's claims of no customer loss. Muddy Waters' analysis was based on observing e-commerce websites that had removed AppLovin's AXON pixel code by March 24-26.

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 defended AppLovin after the February short-selling attacks, even suggesting that the stock price decline presented a buying opportunity.