Last year's biggest dark horse in the US stock market, AppLovin, faced another short selling, accused of data abuse and violating platform terms, plunging 20% on Thursday

Media reports indicate that the short-selling firm Muddy Waters previously released a short report on AppLovin, causing the company's stock price to plummet 20% on Thursday, marking the largest single-day decline for the stock.

According to Bloomberg News, this is the third short report on AppLovin in about a month. In February, Fuzzy Panda and Culper Research also released short reports, putting pressure on the company's stock price. These two reports were issued just days after The Bear Cave published cautious comments on AppLovin's stock.

AppLovin was one of the best-performing tech stocks in 2024, driven by the AI boom, with the stock soaring over 700% throughout the year. In November last year, the company was included in the Nasdaq 100 Index, further boosting its stock price, and by the end of the year, its market capitalization exceeded $110 billion.

On Thursday, AppLovin's stock closed down 20.12% at $261.70. As of Thursday's close, the company's stock price has fallen 19% year-to-date.

Accused of Data Abuse and Violating Platform Service Terms

Muddy Waters' report accuses AppLovin of data abuse and violating platform service terms. The report states that AppLovin's advertising strategy "systematically" violates the service terms of app stores by "improperly extracting proprietary IDs from companies such as Meta, Snap, TikTok, Reddit, and Google." Muddy Waters claims that AppLovin pushes targeted ads to users without their consent based on this data.

"If AppLovin is not removed from the platform, then logically, many competitors will start to imitate AppLovin's practices, as there is not much of a technical barrier involved."

Earlier reports from Fuzzy Panda, Culper, and Bear Cave claimed that AppLovin exaggerated the benefits of its AI platform and inflated revenue through forced app installations. On February 26, after these short reports were released, AppLovin's stock price fell 12%. Just earlier in February, the company had announced better-than-expected revenue and profits.

The company responded to these February reports, stating that they were filled with "false and misleading statements." AppLovin CEO Adam Foroughi wrote in a blog post on February 26:

"It is disappointing that some self-serving short-sellers are spreading false and misleading statements aimed at undermining our success and driving down our stock price for their own financial gain, rather than acknowledging that the advanced AI models our team has built are significantly enhancing advertising services for our partners. Notably, these short reports appeared after our financial results were released, during which time we could not respond to external doubts through our financial performance."Earlier this month, Fuzzy Panda also submitted a letter to the S&P 500 Index Inclusion Committee, reiterating its allegations of advertising fraud against AppLovin and claiming that the company does not meet the "gold standard" of the index. The agency called for the committee to exclude AppLovin from the S&P 500 Index.

Fuzzy Panda wrote in the letter:

"AppLovin's recent revenue growth is built on data theft, revenue fraud, and the abuse of child protection laws."

Are E-commerce Advertisers Churning?

Media reports indicate that Muddy Waters, founded by Carson Block, is one of Wall Street's most respected short-selling firms. Block also stated that despite the recent decline in Tesla's stock price, he would not short the company because Musk "always manages to work magic."

One of Muddy Waters' core allegations is that e-commerce advertisers are churning away from AppLovin. The agency stated that they analyzed 776 advertisers active at the beginning of the first quarter and noted a customer churn rate of approximately 23%, while Foroughi "allegedly claimed there was no customer churn," which is one of the statements in the report.

Muddy Waters claimed that its customer churn rate analysis was derived from observing e-commerce websites still using AppLovin's AXON pixel code as of January 3, 2025. The agency re-examined these websites from March 24 to 26 and found that 21 of them had "broken links," while another 171 websites no longer contained the AXON pixel code.

The report stated:

"This 23% churn rate is based solely on those customers who removed the AXON pixel code."

However, despite multiple short-selling reports, Wall Street remains generally optimistic about AppLovin. According to data compiled by Bloomberg, the company has 21 "buy" ratings, 6 "hold," and only 1 "sell." Several analysis firms, including Wedbush, Benchmark, Citi Research, Bank of America, and William Blair, defended AppLovin after the short-selling attack in February, even stating that the decline in its stock price presents a buying opportunity