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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 company 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 from Culper Research and Fuzzy Panda Research. The analytical firms publish critical reports on companies while betting against their shares.
AppLovin said the reports were “littered with inaccuracies and false assertions”. “The claims of financial and accounting improprieties are factually incorrect and have no basis whatsoever,” chief executive Adam Foroughi said in a blog post on the company’s website.
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 been 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 shares have 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.
Foroughi said: “It’s disappointing that a few nefarious short sellers are making false and misleading claims aimed at undermining our success, and driving down our stock price for their own financial gain, rather than acknowledging the sophisticated AI models our team has built to enhance advertising for our partners.”
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.
“We do not track children’s data,” Foroughi said. “Our partners spend billions annually because we drive real, incremental value in the form of revenue directly attributable to advertising dollars spent — proving that our business model is both legitimate and profitable for partners.”
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, 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 a 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.
