AppLovin’s shares (APP) plummeted by as much as 22% on Wednesday following reports from two short-selling firms that accused the technology company of engaging in various fraudulent and deceptive practices. The stock had previously skyrocketed over 700% in 2024, making it the top performer in the Russell 1000 index last year, driven by increasing revenue and investor excitement over its AI model, “AXON 2.0,” which was said to enhance ad matching efficiency for mobile games.
The company chose not to comment on the allegations from the short sellers on Wednesday. Earlier this month, AppLovin’s stock reached an all-time high of $510.13, representing a gain of more than 57% since the beginning of the year. However, this peak has been followed by seven consecutive days of losses, as enthusiasm for many AI-related stocks has begun to wane.
Culper Research, one of the short-selling firms, labeled AppLovin’s claims about the AI capabilities of AXON 2.0 as a “smokescreen” intended to divert attention from the company’s actual growth drivers. The analysts argued that AppLovin’s success was less about AI and more about the systematic integration and exploitation of risky app permissions that enable backdoor app installations without user consent.
According to Culper Research, AppLovin’s software, which can be pre-installed on various Android devices, allows direct app downloads bypassing the Google Play Store. This capability lets AppLovin create advertisements within mobile games that can download additional games without users’ knowledge, making its ads appear more effective and increasing per-install revenue. The second report, from Fuzzy Panda Research, accused AppLovin’s expanding e-commerce advertising division of effectively “stealing data” from Meta Platforms (META). The analysts claimed that AppLovin uses information from advertisers on Meta’s platforms, such as Facebook and Instagram, to “reverse engineer” ad performance data, which again makes their ads seem more effective than they truly are. They also alleged that AppLovin’s software can track users, including children, without their consent.
The report stated, “Even without substantial fines from the [Federal Trade Commission] or violations of California privacy laws, the power to halt AppLovin’s troubling business practices lies with three major tech companies — Apple, Google, and Meta,” expressing expectation that these firms would take action against AppLovin’s software. As of recent trading, AppLovin’s stock was down nearly 16% at around $318, although this price remains nearly five times higher than its value a year ago.
