AppLovin shares tumbled more than 13% on Wednesday after two short-selling research firms, Culper Research and Fuzzy Panda Research, published critical reports alleging fraudulent advertising practices and data privacy violations.
The stock drop follows a week of mounting scrutiny, including a separate report from The Bear Cave newsletter.
The stock, which had surged to a record high of $525.15 on February 13 following strong fourth-quarter earnings, has now fallen for seven consecutive trading sessions.
AppLovin’s rapid ascent in 2024, driven by AI-powered advertising growth, is now under intense scrutiny as short sellers claim its success is built on deceptive practices.
Fuzzy Panda Research, Culper Research make damning accusations
Fuzzy Panda Research alleged that AppLovin’s AI-driven AXON ad model is “the nexus of a House of Cards” built on fraudulent advertising tactics.
The firm claimed that AppLovin unlawfully extracts data from Meta Platforms and has engaged in activities that violate Google and Apple’s app store policies.
“We believe AppLovin has pulled every trick in the book,” Fuzzy Panda stated.
We’ve been told they are stealing data from Meta in their e-commerce push and exploiting consumers in clear violations of platform policies.
The report also alleges that AppLovin engages in illegal tracking of children and has served inappropriate ads to minors, raising potential regulatory concerns.
Culper Research made similar accusations, claiming AppLovin’s success is tied to “notorious spyware” and “scammy ad” companies.
It further accused the company of exploiting app permissions to install backdoor applications on users’ devices without their consent.
“We believe AppLovin’s recent success in mobile gaming stems from the systematic exploitation of app permissions that enable advertisements to force-feed silent, backdoor app installations directly onto users’ phones,” analysts at Culper Research wrote.
What did The Bear Cave newsletter say?
Wednesday’s jolt to AppLovin comes after last week’s release of a newsletter by The Bear Cave which exposed potential problems with the company, triggering a share price plunge of about 9%.
“The Bear Cave believes AppLovin’s rapid rise — up ~750% over the last year to around 35x revenue — is fuelled by low-quality revenue growth from ads that are deceptive, predatory, and at times unreadable or unclickable,” Edwin Dorsey, author of the The Bear Cave newsletter, said in a report.
AI-fueled rally now under threat
The allegations come after a remarkable run for AppLovin, which saw its stock surge over 700% in 2024.
The company became one of the biggest beneficiaries of the AI-driven boom in digital advertising, attracting significant investor interest.
Last year’s rally was concentrated in the fourth quarter amid excitement over its AI-powered advertising engine.
AppLovin’s inclusion in the Nasdaq 100 Index in November also helped boost its valuation by over $100 billion.
However, the company remains significantly smaller than tech giants like Meta and Apple.
The rally continued into February, with a blockbuster earnings report that sent shares soaring.
However, since then, investor sentiment has weakened following The Bear Cave’s report and an announcement from Unity Software that it would launch its own AI-driven ad platform.
Wall Street remains largely bullish on APP
Despite the controversy, many analysts remain optimistic about AppLovin’s long-term prospects.
Wall Street analysts currently hold 21 buy ratings, six holds, and no sell recommendations on the stock.
The average price target of $542.59 suggests a potential upside of over 40% from its pre-plunge levels.
In a note dated February 21, Benchmark analyst Mike Hickey described the decline in AppLovin’s shares following Unity’s announcement as a potential buying opportunity.
“While some investors fear competitive pressures on AppLovin’s ad model, we believe this reaction is unwarranted,” Hickey wrote.
“Unity’s relaunch is an ambitious, multi-quarter transformation with unproven results, whereas AppLovin’s ad platform is already well established, high-margin, and scaling effectively.”
With regulatory and legal scrutiny likely to intensify, investors will be closely watching how AppLovin responds to the allegations.
The company has not yet issued a formal rebuttal to the reports.
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