How to view AppLovin's short report? UBS: Doubts are exaggerated, the key is whether it can help advertisers make money
Analysts believe that the report exaggerates the importance of click-through rates and installation numbers, while advertisers are more concerned about return on ad spend (ROAS) rather than the click-through rates and installation numbers themselves. In other words, game and e-commerce advertisers are willing to invest more in clicks and installations because of the subsequent spending capacity of these users. However, before AppLovin responds to the allegations, its stock price will still be affected
In response to the short-selling report that triggered a sharp decline in the popular AI application company AppLovin, UBS published a rebuttal article stating that the report exaggerated the importance of clicks and installs, while advertisers are more concerned about return on ad spend (ROAS) rather than clicks and installs themselves. However, AppLovin's stock price will still be affected before the company addresses the allegations.
Market Reaction is Overdone
On Wednesday local time, the popular AI application company AppLovin faced skepticism from multiple short-selling firms. These reports essentially accused AppLovin of exaggerating the effectiveness of its AI advertising platform, claiming that the company was actually increasing revenue by "forcing" app installations onto users' phones rather than relying on genuinely effective AI technology advantages.
As a result of this news, AppLovin's stock plummeted over 23% on Wednesday, reaching its lowest level since November last year and marking the largest single-day drop since 2022. AppLovin triggered a trading halt due to excessive volatility, falling 17% before the temporary suspension.
In response to the accusations from short-selling firms, UBS analysts stated in a report on February 26 that these short-selling reports exaggerated the importance of clicks/installs compared to advertisers' return on ad spend (ROAS).
Specifically, advertisers can see the revenue generated by ads placed by APP compared to their own advertising expenditures. In other words, what drives game/e-commerce advertisers to invest more in installs/clicks is not the installs/clicks themselves, but the spending that these installs/clicks bring from end users.
UBS analysts noted that while the market's reaction to this report was somewhat overblown, considering that investors need feedback on the examination of return on investment/quality of returns, AppLovin's stock price will still be affected until the company addresses these issues directly.
Data Collection is Still Within Reasonable Limits
In response to the accusations of excessive data collection in the short-selling report, UBS stated that AppLovin's data collection policies are open and transparent. While the scope of data collection is indeed broad, this is not uncommon in the mobile advertising industry. The key is how this data is used.
Currently, the market is overly focused on click metrics while neglecting more important advertising effectiveness measures—return on ad spend (ROAS). As long as it can provide good returns for advertisers, data collection itself is not an issue.
However, in light of privacy concerns that have raised market worries, AppLovin needs to provide a clearer response to these allegations. This will be a key factor in whether the stock price can recover
