AppLovin stock plummeted Wednesday after two research firms published scathing reports about the company and said they were short APP stock. AppLovin disputed the claims made by "a few nefarious short-sellers."
Culper Research and Fuzzy Panda Research published negative reports on the app marketing platform. Last week, The Bear Cave newsletter also published a critical report on AppLovin.
On the stock market today, AppLovin stock plunged 12.2% to close at 331. AppLovin shares have fallen for seven straight trading sessions.
On Feb. 13, AppLovin stock spiked to a record high of 525.15 after the Palo Alto, Calif.-based company posted a beat-and-raise earnings report.
AppLovin's software platform enables app developers to market, monetize and analyze their apps. The company also has expanded into advertising-based e-commerce and streaming television services.
Short-Sellers Make Salacious Claims
Fuzzy Panda Research alleges that AppLovin's "AI hype story was built on ad fraud." It made the claim after speaking to former employees, the firm said in a report.
Fuzzy Panda says AppLovin copies data from Meta Platforms and adds its software to devices without user consent.
Further, Fuzzy Panda alleges that AppLovin engages in illegal tracking of children and serves sexual ads to kids.
"We believe these so-called dark ad practices explain the truth behind how AppLovin seems to have achieved its great growth," the article said. "We believe Apple, Google, and Meta all have a vested interest in putting a stop to it."
Culper Research said AppLovin senior management has connections to "notorious spyware" and "scammy ad" companies.
"We believe AppLovin's success has been driven not by AI, but by the systematic integration and exploitation of notoriously dangerous app permissions that silently trigger backdoor app installations," Culper said in a report.
CEO Responds In Blog Post
Late Wednesday, AppLovin Chief Executive Adam Foroughi published a response to the reports on the company's blog.
"It's disappointing that a few nefarious short-sellers are making false and misleading claims aimed at undermining our success, and driving down our stock price for their own financial gain, rather than acknowledging the sophisticated AI models our team has built to enhance advertising for our partners," Foroughi said.
He said the reports are "littered with inaccuracies and false assertions."
Foroughi said his company provides legitimate value for its customers and complies with app store policies. AppLovin also doesn't track children's data as the reports asserted.
Analyst Reiterates Buy Rating On App Stock
In a client note, Wedbush Securities analyst Michael Pachter said he thinks the short-seller reports are "misguided." He reiterated his outperform rating on AppLovin stock with a 12-month price target of 620.
"If AppLovin is, in fact, committing fraud, we find it highly unlikely that it has yet to face a legal challenge from former employees, Facebook, advertisers or competitors," Pachter said.
He added, "We also find it inconceivable that no regulators, attorney generals nor legal authorities have yet begun an investigation. It is important to note that APP's financial reports are audited, and the auditors have not raised any fraud issues."
Most sell-side analysts are "still pretty optimistic about the company," Daniel O'Regan, managing director of equity trading at Mizuho Securities USA, said in a client note.
"I read most of the short reports," he said. "And while they sound damning, a lot of their thesis is not new and has been around for years. But it speaks to the mentality of the market right now. Things get overdone to the upside AND the downside."
AppLovin is on two IBD stock lists: Big Cap 20 and Tech Leaders.
Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
