To The Moon

AppLovin ( $AppLovin Corporation(APP)$ ), a leading ad tech company, faced its third short-seller attack of 2025 on March 27, when Muddy Waters Research released a scathing report alleging that the company’s ad tactics “systematically” violate app store terms of service by “impermissibly extracting” user data from platforms like Meta, Reddit, and Alphabet. The report triggered a 20% plunge in AppLovin’s stock price, dropping it from a previous close of $327.620 to a close of $261.700, with a low of $252.510. This marked the steepest one-day decline in the company’s history since its 2021 IPO, wiping out nearly $17 billion in market value. As the dust settles, investors are left with a critical question: Is this a buying opportunity, or should they join the short sellers and bet against AppLovin? This article examines the intentions behind the short-seller reports, the reactions from AppLovin and its competitors, the market’s response, and the broader impact, offering a balanced perspective on whether to buy the dip or go short.

The Third Short-Seller Attack: Intentions and Motives

The Muddy Waters report on March 27, 2025, is the third in a series of short-seller attacks on AppLovin this year, following reports from The Bear Cave on February 21 and Fuzzy Panda and Culper Research on February 26-27. Muddy Waters alleged that AppLovin extracts proprietary user IDs from major platforms to target ads without consent, violating the terms of service of Apple, Google, and Meta and potentially risking de-platforming—a catastrophic outcome for an ad tech company reliant on app store ecosystems.

• Short-Seller Motives: The primary motive behind these reports is financial gain. Short sellers profit by driving down the stock price, and AppLovin’s high valuation—peaking at 38 times sales in February 2025 after a 700% surge in 2024—made it an attractive target. The ad tech industry’s regulatory challenges, including data privacy laws like GDPR and CCPA, and platform policies like Apple’s App Tracking Transparency (ATT), provided a fertile backdrop for misconduct allegations. Muddy Waters, known for high-profile campaigns like its 2020 takedown of Luckin Coffee, likely saw AppLovin as a prime candidate for a correction, especially amid cooling market enthusiasm for AI stocks in early 2025. The coordinated nature of the three attacks within a month suggests a deliberate strategy to create fear, uncertainty, and doubt (FUD), amplifying the psychological impact on investors and maximizing the stock price decline.

• Critical Perspective: While the short sellers raise valid concerns about data privacy—a persistent issue in ad tech—their reports lack concrete evidence. Muddy Waters’ claims of “systematic” violations are serious, but no regulatory actions, lawsuits, or platform penalties have emerged as of March 29, 2025. The sensational tone of the reports, combined with the absence of technical proof (e.g., data logs or legal filings), suggests that the primary goal is to profit from the sell-off rather than protect investors. However, the repeated attacks indicate a broader market scepticism about AppLovin’s practices, which cannot be entirely dismissed given the industry’s history of privacy scandals (e.g., Meta’s €390 million GDPR fine in 2023).

Reactions from AppLovin, Competitors, and the Market

1. AppLovin’s Response: AppLovin’s CEO, Adam Foroughi, has consistently denied the allegations across all three short-seller reports. Following the Muddy Waters report, posts on social media noted that AppLovin was “lawyering up,” signalling a more aggressive legal defence. Foroughi’s earlier response to the Fuzzy Panda and Culper reports on February 26 called the claims “littered with inaccuracies,” emphasizing the integrity of the AXON platform and the company’s compliance with industry standards. AppLovin’s audited financials, showing 44% revenue growth and $2.1 billion in free cash flow in 2024, support its position, as does the lack of regulatory action against the company.

2. Competitors’ Reactions: AppLovin’s competitors—Meta, Google, The Trade Desk, and Unity Software—have largely remained silent, reflecting a cautious approach. Meta, implicated in the allegations of data theft, likely intensified its audits of AppLovin’s technology, as noted by Wells Fargo on March 1, 2025, but has not taken public action. Google, facing similar allegations of policy violations, has not removed AppLovin’s apps from the Play Store, suggesting the claims may be overstated. The Trade Desk and Unity, direct competitors in ad tech and gaming, maybe quietly positioning themselves as more transparent alternatives, with Unity potentially benefiting in gaming ads if AppLovin’s reputation suffers. However, the lack of aggressive moves from competitors indicates they are waiting to see if the allegations lead to tangible consequences for AppLovin.

3. Market Response: The market’s reaction to the third short-seller report was swift, with AppLovin’s stock plunging 20% on March 27, accompanied by a volume spike to 1.939 million shares—well above the average of 657.25K. The daily chart (as of March 28, 2025, not yet closed) shows the stock recovering slightly to $273.501, up 4.56% from the March 27 close, indicating some investor confidence. Wall Street analysts have largely backed AppLovin, with Oppenheimer’s Martin Yang reiterating a Buy rating and a $560 price target on March 27, and Benchmark’s Mike Hickey maintaining a $525 target on March 7. However, retail investors, as noted by The Motley Fool, remain confused by the conflicting narratives, contributing to the stock’s 19% year-to-date decline by March 27.

Assessing the Impact

1. Financial Impact: The 20% drop on March 27 erased $17 billion in market value, a significant blow to AppLovin’s valuation. The stock’s fall below its 50-day moving average (visible on the daily chart) signals bearish momentum, and the repeated short-seller attacks have made the stock more volatile, with an 8-day losing streak following the February 26-27 reports—the worst since 2022. However, AppLovin’s fundamentals remain strong: Q4 2024 revenue grew 44% to $1.37 billion, and free cash flow hit $2.1 billion for the year, with a 78% ad segment EBITDA margin. The company’s strategic pivot to a pure ad platform, including the planned $900 million sale of its gaming division in Q2 2025, positions it for higher-margin growth, particularly in e-commerce.

2. Regulatory and Competitive Risks: The short-seller allegations highlight real risks in the ad tech industry, where data privacy violations can lead to fines (e.g., Google’s €220 million fine in France in 2021) or de-platforming. If AppLovin is found to violate app store policies, it could face catastrophic consequences, as its business relies on Apple and Google’s ecosystems. However, the absence of regulatory action or platform penalties as of March 29, 2025, suggests the claims may be speculative. Competitively, AppLovin’s rivals could gain market share if advertisers lose confidence, but the lack of aggressive moves from Meta, Google, The Trade Desk, and Unity indicates they are not yet seeing a clear opportunity to capitalize.

3. Market Sentiment: The repeated short-seller attacks have eroded investor confidence, particularly among retail investors, as evidenced by the stock’s year-to-date decline. However, institutional support remains strong, with analysts viewing the sell-off as a buying opportunity. The slight recovery on March 28 (to $273.501) suggests that some investors are betting on AppLovin’s resilience, though the stock remains well below its February peak of $522.486.

Buy the Dip or Go Short?

• Buy the Dip: There are compelling reasons to buy the dip. AppLovin’s fundamentals are robust, with 44% revenue growth, $2.1 billion in free cash flow, and a best-in-class 78% ad segment EBITDA margin in Q4 2024. The lack of regulatory action or platform penalties undermines the short-seller claims, and Wall Street’s support—Oppenheimer’s $560 price target implies over 100% upside—suggests the market overreacted. The daily chart shows the stock stabilizing above the $252.510 low, with a potential support level of around $250. The company’s pivot to e-commerce and its AI-driven AXON platform position it for long-term growth, especially if it can navigate the regulatory landscape.

• Go Short: On the other hand, shorting AppLovin carries merit for risk-tolerant investors. The repeated short-seller attacks, even if unsubstantiated, have created a cloud of uncertainty, and the stock’s volatility (down 19% year-to-date) suggests more downside risk. The ad tech industry’s regulatory headwinds are real—data privacy violations could lead to fines or de-platforming, especially if the allegations of “systematic” violations gain traction. The daily chart shows the stock below its 50-day and 200-day moving averages, a bearish signal, and the high short interest (8.46% float) indicates continued pressure from bearish investors.

• My View: I lean toward buying the dip but with caution. AppLovin’s fundamentals and Wall Street support outweigh the speculative nature of the short-seller reports, which lack concrete evidence of wrongdoing. The absence of regulatory action after three reports suggests the allegations may be more FUD than fact, and the stock’s recovery on March 28 indicates investor resilience. However, the regulatory risks in ad tech are real, and investors should monitor for any signs of investigations or platform penalties, which could materially impact AppLovin’s operations. A prudent approach would be to buy in tranches, starting with a small position around the current level ($273.501) and adding on confirmation of support above $250, while setting a stop-loss below the March 27 low of $252.510 to manage downside risk.

Concluding Thoughts

The third short-seller attack on AppLovin by Muddy Waters is a classic example of a profit-driven campaign exploiting market sentiment and industry risks. While the allegations of data misuse raise valid concerns, their lack of substantiation and the absence of regulatory follow-through suggest an overreaction by the market. AppLovin’s strong fundamentals, strategic pivot to a pure ad platform, and Wall Street backing make it a compelling long-term investment, but the regulatory uncertainty and competitive pressures warrant caution. For investors with higher risk tolerance, the 20% drop presents a buying opportunity, but those considering a short position should be prepared for potential upside volatility if AppLovin continues to refute the claims and deliver on its growth trajectory. As the ad tech industry evolves, AppLovin’s ability to navigate regulatory challenges and maintain investor confidence will be key to its long-term success.

@TigerWire