What Happened?

Shares of mobile app advertising platform AppLovin (NASDAQ: APP) fell 23.4% in the morning session after short sellers Culper Research and Fuzzy Panda Research published reports that raised concerns regarding the authenticity of the company's ad engine (AXON 2.0). 

Culper Research argued that AppLovin's recent stock surge was fueled by hype rather than genuine AI innovation, adding, "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 of which have much to do with AI." 

Similarly, Fuzzy Panda Research accused the company of deceptive business practices, claiming its Axon 2.0 system "is a cover for ad fraud, data theft, and policy violations." Overall, the reports cast doubt on AppLovin's growth story, though the company has yet to respond to the allegations.

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What The Market Is Telling Us

AppLovin’s shares are extremely volatile and have had 38 moves greater than 5% over the last year. But moves this big are rare even for AppLovin and indicate this news significantly impacted the market’s perception of the business. 

The previous big move we wrote about was 13 days ago when the stock gained 34.2% on the news that the company delivered strong fourth quarter 2024 results, exceeding analysts' expectations for revenue, EPS, and EBITDA. Sales surged 44% y/y, driven by a 73% jump in advertising revenue. Profitability improved meaningfully, with adjusted EBITDA soaring 78%. 

Looking ahead, AppLovin provided bullish EBITDA and sales estimates for the next quarter, well above analyst estimates. Overall, this was a standout quarter, driven by strength in advertising and expanding margins, with an optimistic outlook for future growth.

AppLovin is down 5.2% since the beginning of the year, and at $323.87 per share, it is trading 36.5% below its 52-week high of $510.13 from February 2025. Investors who bought $1,000 worth of AppLovin’s shares at the IPO in April 2021 would now be looking at an investment worth $4,967.

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