AppLovin (APP) , the best-performing tech stock in 2024, dropped 14% after two short-selling reports.
The stock of the Palo Alto., Calif., adtech platform for mobile gaming apps surged 8 times last year. It went public in 2021 and rode the wave of online-game excitement during the Covid-19 era.
Since then, it has built a position in the crowded digital ad market, competing with major players like Alphabet (GOOGL) and Meta (META) .
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Culper Research revealed its short position in AppLovin on Feb. 26.
The short-seller said AppLovin’s surge last year was driven by investor enthusiasm for Axon 2.0, an ad-search engine.
However, it said, “AppLovin has used Axon 2.0 largely as a promotional tool — a smokescreen to hide the true drivers of its mobile gaming and e-commerce initiatives, neither of which have much to do with AI.”
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The New York investment firm says AppLovin is “force-feeding users with silent backdoor installs and copying Meta’s homework.” Culper says Applovin could go down as the “single largest US stock promotion unraveling since at least the [global financial crisis].”
Short sales are bets that a security’s price will decline.
Bloomberg News reported that Applovin declined to comment.
Fuzzy Panda also shorts AppLovin, alleging the company steals data from Meta and violates Google and Apple’s app-store policies.
“Axon 2.0 is the nexus of a House of Cards built upon tactics that formers and experts refer to as ‘Ad Fraud,'” Fuzzy Panda said in a Feb. 26 report.
“We believe these so-called dark ad practices explain the truth behind how AppLovin seems to have achieved its great growth,” it added.
The two short-sellers cited each other in their AppLovin reports.
Last week, the Bear Cave also issued a cautious report on AppLovin, saying it believed AppLovin’s rapid rise was fueled by “low-quality” revenue growth from ads that are “deceptive, predatory, and at times unreadable or unclickable,” thefly.com reported.
AppLovin is down 4% year-to-date.
AppLovin‘s recent earnings
Fuzzy Panda also noted that in recent years AppLovin has had exceptional revenue growth while growing both earnings before interest, taxes depreciation and amortization and cash flow even faster.
“The impressive financial performance has turned AppLovin into a Wall Street darling, with its shares up +>3,600 % since 2023,” the firm said.
On Feb. 12 AppLovin reported Q4 and full-year earnings that surpassed analysts’ estimates. And it issued better-than-expected guidance.
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For Q4, the company earned $1.73 a share, higher than Wall Street’s estimate of $1.24.
Revenue was $1.37 billion, compared with the consensus of $1.26 billion. That includes advertising revenue of almost $1 billion, which was up 73% year over year.
The company’s free cash flow for Q4 and full year 2024 was $695 million and $2.1 billion, respectively.
A bullish analyst view on Applovin
Last week, Loop Capital raised its price target on AppLovin to $650 from $450 and affirmed a buy rating, according to thefly.com.
Loop noted that the stock’s sharp rise, growing excitement, and competition for the highest price targets naturally draw skepticism.
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However, the firm finds it difficult to “punch serious holes” in the bull thesis. Loop also notes continued positive feedback from advertisers and expects the company’s breakout momentum to persist.
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