AppLovin's AI Claims Under Scrutiny as Short Sellers Allege Fraudulent Practices

Wall Street vs. Short-Sellers: Is AppLovin a Buy, Sell, or Hold? | The Motley Fool

Artificial intelligence-powered ad-tech company AppLovin (APP -1.46%) had a dream year in 2024. Its stock exploded roughly 713%, which was exceptional performance even for a stock in the popular AI trade. However, 2025 has been a different story. The stock is down about 6% year to date, and it plunged in mid-February after several short reports came out. (Keep in mind that if someone is short a stock, they make money when it falls.) These reports launched various allegations against AppLovin, from ad fraud to "notorious spyware." Management and several Wall Street analysts have rebutted the reports, setting the stage for a battle between the short-sellers and Wall Street. Is AppLovin a buy, sell, or hold after these recent events? Three different short reports emerged within a week. The first came from a popular newsletter called The Bear Cave, which publishes monthly investigations into publicly traded companies it believes are engaging in questionable practices, or into whether a stock is simply undeserving of its valuation. In its report, The Bear Cave alleged that AppLovin has "low-quality" revenue fueled by advertising that is "deceptive, predatory, and at times unreadable or unclickable." As such, it claimed that the stock did not deserve to be trading at 35 times revenue at the time of the report. Another entity that publishes under the name Fuzzy Panda Research issued a lengthy, fiery short report on Feb. 26. Also on Feb. 26, Culper Research published a 34-page report with similar allegations. "AppLovin claims AI has fueled its turnaround, but can't explain how," Culper wrote. In a blog post also published on Feb. 26, AppLovin CEO Adam Foroughi said the short reports "are littered with inaccuracies and false assertions" and also said his team has built "sophisticated AI models." While Foroughi didn't touch on every topic raised in the short reports, he did make several comments, which are summed up in the bullets below: Multiple Wall Street analysts also defended the company. Piper Sandler analyst James Callahan issued a research report following the short reports, reiterating his overweight rating on the stock and a $575 price target, which implied over 77% upside from Feb. 28 levels. Callahan wrote that AppLovin's "customers are the most sophisticated in digital advertising and we believe any alleged fraudulent practice would be felt immediately via their own attribution or incrementality testing." Jefferies analyst James Heaney also reiterated a buy rating on AppLovin and a $600 price target. In his report, Heaney said the short-sellers' claims were "in many cases, inaccurate," and said that allegations about illegal clicks and downloads overlook the fact that AppLovin has helped customers produce meaningful revenue. Unfortunately, this situation is going to be very difficult for retail investors to decipher. The truth likely goes beyond any numbers you'll find in any earnings report or filing with the Securities and Exchange Commission. The shorts appear to have put substantial work into their reports, which includes anonymous comments from AppLovin customers, industry experts, and even Meta executives. There are also three reports, although Culper and Fuzzy Panda may have been somewhat coordinated, given that the two acknowledge that they shared some of their work with one another. Meanwhile, you've got a CEO who defended the company on the same day that Culper and Fuzzy Panda released their reports, as well as multiple analysts from top Wall Street firms going to bat for AppLovin. Of course, analysts who have been recommending the stock for some time would likely not want to completely reverse course so soon after allegations. Ultimately, unless they have significant time to do a lot of qualitative research, retail investors are going to be operating largely in the dark. The stock could also be very volatile in the near term on any future news related to this situation. For those reasons, I recommend staying on the sidelines for now, or perhaps taking some chips off the table. The stock has been a multibagger, and the AI trade faces challenges in the near term anyway. Continue to monitor the situation for more clarity. There's no need to do anything rash here.

Is there something fishy behind AppLovin's success?

AppLovin had a black day on the stock market. Two short-sellers released incendiary reports on the group, precipitating a plunge in the share price, which fell by as much as 23% during trading on February 26, 2025. By the end of the day, the loss had been reduced but remained severe, with the share price down 12.22%. Investors abruptly halted the momentum of the mobile advertising specialist, which had seen its share price increase eightfold in the space of a year. In a single day, more than $32 billion in capitalization went up in smoke, sending some of the bullish frenzy back into oblivion. The stock was even briefly suspended for excessive volatility, before limiting the damage at the end of the session. On Wednesday February 26, 2025, the storm broke over AppLovin. Short-sellers Fuzzy Panda and Culper Research unleashed damning reports, on the heels of a more measured note from The Bear Cave a few days earlier. Their accusation? AppLovin's artificial-intelligence-powered advertising platform is far from being what it promises to be. According to them, the company would artificially inflate its revenues by forcing the installation of applications on phones, rather than by actually optimizing advertising performance. Enough to sow doubt among investors. Fuzzy Panda adds that AppLovin's "e-commerce secret lies in copying data from Meta Platforms" and accuses the company of offering sexual advertising to children. Source : Fuzzy Panda on X Culper Research states in its report that AppLovin systematically exploits app permissions to discreetly install apps on users' phones via ads. This practice, known as "backdoor installations", enables AppLovin to generate profits by charging for unsolicited installations. These installations often take place without users' knowledge, thanks to user interface design tricks that encourage involuntary clicks. Secondly, the Culper Research report casts doubt on AppLovin's e-commerce initiative, calling it a "game of smoke and mirrors". AppLovin would require advertisers to first spend significant sums on Meta (formerly Facebook) to be eligible for its platform, allowing AppLovin to unduly take credit for sales generated by Meta ads. This strategy would be facilitated by AppLovin's MAX mediation platform, which would enable it to monitor ads served on Meta. Culper Research also points out that the company's practices could violate Google Play policies, particularly with regard to the installation of applications without users' prior consent. The report mentions Culper's intention to send an open letter to Google Play to express its concerns, which they published on the evening of February 26 (extract below). Source : Culper Research In addition, the report criticizes AppLovin CEO Adam Foroughi, questioning his track record in the AdTech industry and highlighting controversial past practices. Culper Research concludes that AppLovin's shares are overvalued and predicts a decline in value. The CEO responded in a note: "It's disappointing that a few malicious short sellers are making false and misleading statements aimed at undermining our success and driving down our share price for their own financial interests. rather than recognizing the sophisticated AI models our team has built to improve advertising for our partners," Adam Foroughi said in his communication. Source : AppLovin Adam Foroughi assures that the platform is "subject to App Store policies", that their business is "based on transparency and integrity", that the revenues they generate are a function of "the value they create, not based on clicks or simple impressions". He adds that "each download is the result of an explicit choice by the user". Indeed, AppLovin's business model requires that ads drive intentional engagement, guaranteeing measurable results. The CEO assures that they do not track children's data: "Our terms and policies explicitly prohibit apps exclusively designed for and/or intended for children, as well as the transmission of children's data by our partners. Nor can our partners initialize our SDK in connection with children's data." He adds that "we obtain data from our partners only in the course of providing our advertising services; we do not collaborate with data brokers. The operations of Adjust and MAX are totally independent and transparent, with no conflicts of interest or internal bias. We manage a fair mediation process, which can be contractually audited by our partners, ensuring that all data to which we have access is equally accessible to competing advertising networks. We have neither the means nor the interest to examine other companies' auctions or user data; our models use only behavioral data, ad interactions, mediation win/loss notifications (the same data shared to any bidder on our platform) and advertiser data to generate predictions." On accusations of accounting irregularities, the CEO asserts that "allegations of financial and accounting irregularities are factually incorrect and totally unfounded. We do not duplicate any revenue from related parties, including our international entities or our app business." AppLovin is audited by one of the Big Four and they have never received a modified opinion in their history. Moreover, if they have a low tax burden, this is due to deductions linked to share-based compensation and optimized tax structuring, as is the case for many technology companies. Wedbush analysts, led by Michel Pachter, called the short-seeds reports unfounded in a note published Wednesday afternoon. They maintained their Outperform rating and $620 price target on AppLovin shares. Michel Pachter adds that "If AppLovin is indeed committing fraud, we think it highly unlikely that it has yet faced any legal action from former employees, Facebook, advertisers or competitors. We also find it inconceivable that no regulator, attorney general or judicial authority has yet begun an investigation." Last year, the rise was concentrated in the fourth quarter, amid enthusiasm for the company's AI-based ad engine. It coincided with a rotation of shares from semiconductors to AI-related software companies like AppLovin or Palantir, for example. AppLovin was also added to the Nasdaq-100 index in November, replacing Dollar Tree. Although its valuation jumped by over $100 billion during this period, it's still a long way from the size of the Magnificent Seven. The rise continued this year thanks to good quarterly results published after the close on February 12. Fourth-quarter sales came in at 1,373 million (8.78% above consensus expectations), with EPS (earnings per share) of $1.73 (well above consensus at $1.26), which saw the stock gain +24% the following day in trading. "Such positive momentum was created based on the possibility of this stock actually moving," said Brian Mulberry, manager at Zacks Investment. "We don't think this is the time to question their success, but we want to see them confirm it with more concrete results," said Mulberry, adding that the shares are unlikely to repeat their 2024 performance. The share price has since come under pressure from The Bear Cave report and then an announcement from Unity Software that it will launch its new AI-based advertising platform. Despite the share's slight decline, Wall Street was still confident, with the majority of analysts on the case in the buy camp. Analyst Mike Hickey characterized the stock's pullback as a buying opportunity following Unity Software's announcement: "While some investors fear competitive pressures on AppLovin's advertising model, we believe this reaction is unwarranted. Unity's relaunch is an ambitious transformation over several quarters with unproven results, while AppLovin's platform is already well-established, high-margin and growing," wrote Hickey. Interestingly, the management team has sold over $800 million worth of shares since last November, about 42% for tax purposes according to filings. Also, KKR, an early investor, fully exited its stake in AppLovin after the shares rose last year, bringing in over $1.6 billion. Insiders may consider, even if the allegations are unfounded, that the stock is nevertheless sufficiently valued to take some profits. That's my view too: we had the stock in the Momentum Picks selection, which we sold on 12/31/2024 after many months of ownership, pocketing a handsome capital gain. Although there are many inaccuracies in these damning reports, the stock's high valuation calls for caution. For their part, Bank of America and Jefferies reiterated their positive views on the stock, pointing out that "management has clarified the mechanics of mobile adtech, inaccuracies in the reports and provided additional data on the rise of e-commerce". Jefferies analysts claim that much of the information in the short-seller reports is inaccurate, particularly the claims of fraudulent clicks and downloads. Everyone can make up their own mind on the basis of the facts presented here.

AppLovin Stock Tumbles as Short Sellers Allege AI-Fueled Growth a 'Smokescreen'

Wednesday's stock plunge marked AppLovin's seventh straight losing session. Shares of AppLovin (APP) tumbled as much as 22% on Wednesday after two short-seller firms published reports on the technology company, alleging a variety of fraudulent and deceptive practices. Shares of the tech company rose more than 700% in 2024, making it the top gainer in the Russell 1000 index last year. Shares surged amid rising revenue and investor enthusiasm that its "AXON 2.0" artificial intelligence model was making its product of matching advertisements to mobile games more efficient. AppLovin declined to comment Wednesday on the short-sellers' reports. AppLovin shares peaked at a record close of $510.13 earlier this month, a gain of more than 57% from the start of the year. That high has been followed by seven straight losing sessions, as enthusiasm for several AI-related stocks has grown shakier in recent weeks. The Culper Research short-seller report alleges that AppLovin's claims of the AI-powered effectiveness of AXON 2.0 are a "smokescreen" to distract from its real growth drivers. "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 Research analysts wrote. AppLovin's software, which Culper's report says can come pre-installed on a variety of Android phones, allows for the direct download of apps without having to go through Alphabet's (GOOGL) Google Play Store. That has allowed AppLovin to create ads, placed in mobile games, that can download other mobile games without a user's consent, making its ads appear more effective and generating more per-install revenue, the short seller alleges. The other AppLovin report, from Fuzzy Panda Research analysts, meanwhile, accuses AppLovin's growing e-commerce advertising business of effectively "stealing data" from Meta Platforms (META). They allege that AppLovin uses data from customers advertising on Meta's platforms like Facebook and Instagram to "reverse engineer" Meta's ad data, again making their ads appear more effective than they would be on their own. They also claim AppLovin's software can track users without their consent, including children. "Even without large fines by the [Federal Trade Commission] or for violating California privacy laws, the power to stop AppLovin's atrocious business practices lies in the hands of three of the largest tech companies -- Apple, Google and Meta," the short seller wrote, saying that it expected all three companies to take action against AppLovin's software. Recently, AppLovin's stock was off nearly 16% at about $318, but that price is nearly five times what the stock was worth a year ago.

Shares in mobile ad platform AppLovin dive on short seller reports

Shares in AppLovin, one of Wall Street's best-performing tech stocks, plunged as much as 23 per cent after a pair of short sellers accused the Silicon Valley ad group of exaggerating its artificial intelligence capability. More than $20bn was erased from AppLovin's market value on Wednesday after the group, whose shares surged almost 800 per cent in 2024, was hit by separate reports published by Culper Research and Fuzzy Panda Research, analytical firms that publish critical reports on companies while betting against their shares. Both Culper and Fuzzy Panda have short positions on AppLovin's stock, which recovered slightly in late-morning trading in New York. Short sellers profit by selling borrowed shares and buying them back at a cheaper price after they fall, pocketing the difference. AppLovin has emerged as one of Wall Street's most in-demand tech stocks in recent months, riding a wave of investor enthusiasm for all things AI as revenue in its advertising segment -- which allows clients to buy and sell ads in smartphone apps -- surged. Twenty-one of the 26 banks covering AppLovin recommend buying the company's shares, according to Bloomberg data. But the stock has come under heavy selling pressure in recent weeks following the publication of several negative investor reports. Culper and Fuzzy Panda on Wednesday accused AppLovin of exaggerating the capabilities of its AI-powered ad targeting system and engaging in surreptitious activity to inflate the value and scale of its network. The short sellers have also accused AppLovin of targeting inappropriate ads to minors and of installing apps on users' devices without consent, for which it was able to charge a commission. AppLovin did not respond to repeated requests for comment. Financial results published earlier in February showed fourth-quarter ad revenue jumped 73 per cent year on year to just under $1bn. In an accompanying letter to shareholders, chief executive Adam Foroughi said AppLovin had "built an advertising model as powerful as any advertising AI model in the world". "We operate a platform that reaches over 1bn people in mobile games daily, with their engagement times comparable to social networks," Foroughi said as it reported its latest earnings. "Where we once focused on gaming, we're now positioning ourselves to serve the entire global advertising economy." AppLovin was co-founded in 2011 by Foroughi and is based in Palo Alto, California. After private equity group KKR took a $400mn stake in 2018, it went public in 2021 at an initial price of $80 per share. The stock price struggled in its early years as a public company but after dipping below $10 in early 2023 it hit an all-time high of $510 in the middle of this month. Shares were trading at about $327 in early afternoon after recovering steep losses earlier in the day.

AppLovin tumbles 15% after Culper Research discloses short position By Investing.com

Investing.com -- Shares in AppLovin (NASDAQ:APP) tumbled over 15% following Wednesday's market open after Culper Research disclosed a short position in the stock. The firm alleged that AppLovin's AI-driven ad platform, AXON 2.0, is largely a "promotional tool" designed to obscure the actual mechanics behind its mobile gaming and e-commerce businesses. AppLovin shares have jumped more than 500% in the past 12 months, "owing to investor enthusiasm for the Company's supposed breakthrough "AI" technology, AXON 2.0," Culper noted. The short report focused on two main concerns. First, Culper alleged that AppLovin has been exploiting app permissions to enable "silent, backdoor app installations directly onto users' phones." According to the report, AppLovin's ad-driven installations occur "with just a single click -- an event that is often inadvertent thanks to the Company's notorious UX gimmicks." Culper claims this process has been a key driver of the company's reported success in mobile gaming, as AppLovin earns revenue on a per-install basis. The second major allegation centered on AppLovin's e-commerce initiative, which Culper described as a "smoke and mirrors game" that relies on controlling advertiser participation. The firm argued that AppLovin requires advertisers to first prove they spend at least $600,000 per month on Meta (NASDAQ:META) before being allowed onto its platform, which Culper claims enables AppLovin to "see" Meta's ad traffic and manipulate attribution. "It makes it easy...to claim credit by stepping in front of what's already happening. They can see, in general, who's purchasing and then just serve ads to people they're highly confident will make a purchase," a current e-commerce customer reportedly told Culper. Culper also raised concerns over AppLovin's history, alleging that CEO Adam Foroughi has a background in controversial ad practices dating back to his time at Gator Corporation, a company known for early spyware applications. The report further claimed that current and former employees of AppLovin have openly bragged about the scale of its direct-download program, with one referring to it as "the company's top revenue driver." "The games automatically download to the device when the ads are tapped... WITHOUT YOUR CONSENT," the firm quoted one user. Culper believes that AppLovin's business model is unsustainable and that the company is at risk of regulatory scrutiny, particularly from Google (NASDAQ:GOOGL). "We believe these gimmicks are now unquestionably malicious, and the Company's backdooring of direct installations into partners' apps is tantamount to malware and in clear violation of Google Play's Device and Network (LON:NETW) Abuse policy, which explicitly forbids 'apps that install other apps without the user's prior consent.'" In turn, the firm said it intends to write an open letter to Google Play and its creators, emphasizing concerns about potential policy violations and risks that could impact up to 1.4 billion daily active users reached by AppLovin's ads.

AppLovin Corporation (APP) Faces Investor Scrutiny After Losing Over $13.7 Billion Of Shareholder Value After Fuzzy Panda Research and Culper Research Take Aim - Hagens Berman - AppLovin (NASDAQ:APP)

SAN FRANCISCO, Feb. 27, 2025 (GLOBE NEWSWIRE) -- On February 26, 2025, the price of AppLovin Corporation APP, a prominent software-based platform company for advertisers to enhance marketing and monetization of their content, shares tumbled $46.06 (-12%) as a result of two short seller research firms' accusations about the company's AI ad technology, AXON 2.0 -- the source of the company's considerable boost in ad performance and dramatic increase in the number of installs. Hagens Berman is investigating the possible misconduct and urges investors who purchased AppLovin shares and suffered substantial losses to submit your losses now. Visit: www.hbsslaw.com/investor-fraud/app Contact the Firm Now: APP@hbsslaw.com 844-916-0895 AppLovin Corporation (APP) Investigation: AppLovin has repeatedly touted AXON 2.0 as "the best and fastest-growing product we've ever released." The investigation is focused on whether the company may have improperly withheld crucial information from investors about what AXON 2.0 actually does and the manner in which it has driven revenue growth. By February 26, 2025, AppLovin's claims about the sources of its growth came under investor scrutiny after Fuzzy Panda Research and Culper Research published adverse research reports about the company, both raising serious concerns about whether AppLovin has been misrepresenting investors about Axon 2.0. More specifically, Fuzzy Panda's report, titled "AppLovin (APP) - Formers Allege Ad Fraud; Is DTC Hype Actually 'Stealing' Meta's Data; Illegal Trafficking of Children & Serving Sex Ads to Kids," which predicts Apple and Google will kick AppLovin out of their app stores and Meta will act quickly to shut it down. Among other things, Fuzzy Panda found: "Axon 2.0 is the nexus of a House of Cards built upon tactics that formers and experts refer to as 'Ad Fraud[;]'""We believe AppLovin has pulled every trick in the book[;]""We've been told they are stealing data from Meta in their e-commerce push[;]""We also discovered AppLovin exploiting consumers and their data in ways which are clear violations of Google and Apple's app store policies[;]" and"Our tests on Children's Devices Uncovered AppLovin Serving Sex Ads to 7- & 12-year-old girls." Culper Research's report, titled "AppLovin Corporation APP: Force Feeding Users with Silent Backdoor Installs and Copying Meta's Homework. Straight to the Principal's Office, Please," concludes that "AppLovin has employed AXON 2.0 largely as a promotional tool - a smokescreen to hide the true drivers of its mobile gaming and e-commerce initiatives, neither have much to do with AI." Culper further found, in part: "[W]e believe AppLovin's recent success in mobile gaming stems from the systematic exploitation of app permissions that enable advertisements themselves to force-feed silent, backdoor app installations onto users' phones, with just a single click - an event that is often inadvertent thanks to the Company's notorious UX gimmicks.""As AppLovin is paid largely on a per-install basis, each illicit install translates directly to profit." These events wiped out over $13.7 billion of shareholder value on February 26, 2025. "We are concerned that AppLovin may have misled investors about whether the source of its revenues and growth may be attributable to nefarious conduct," said Reed Kathrein, the Hagens Berman Partner leading the firm's probe. If you invested in AppLovin and have substantial losses, or have knowledge that may assist the firm's investigation, submit your losses now " If you'd like more information and answers to frequently asked questions about the AppLovin investigation, read more " Whistleblowers: Persons with non-public information regarding AppLovin should consider their options to help in the investigation or take advantage of the SEC Whistleblower program. Under the new program, whistleblowers who provide original information may receive rewards totaling up to 30 percent of any successful recovery made by the SEC. For more information, call Reed Kathrein at 844-916-0895 or email APP@hbsslaw.com. About Hagens Berman Hagens Berman is a global plaintiffs' rights complex litigation firm focusing on corporate accountability. The firm is home to a robust practice and represents investors as well as whistleblowers, workers, consumers and others in cases achieving real results for those harmed by corporate negligence and other wrongdoings. Hagens Berman's team has secured more than $2.9 billion in this area of law. More about the firm and its successes can be found at hbsslaw.com. Follow the firm for updates and news at @ClassActionLaw. Reed Kathrein, 844-916-0895 APPAppLovin Corp$319.99-3.33%OverviewMarket News and Data brought to you by Benzinga APIs