Artificial intelligence-powered ad-tech company AppLovin (APP -1.46%) had a dream year in 2024. Its stock exploded roughly 713%, which was exceptional performance even for a stock in the popular AI trade.
However, 2025 has been a different story. The stock is down about 6% year to date, and it plunged in mid-February after several short reports came out. (Keep in mind that if someone is short a stock, they make money when it falls.) These reports launched various allegations against AppLovin, from ad fraud to “notorious spyware.” Management and several Wall Street analysts have rebutted the reports, setting the stage for a battle between the short-sellers and Wall Street. Is AppLovin a buy, sell, or hold after these recent events?
The short thesis
Three different short reports emerged within a week. The first came from a popular newsletter called The Bear Cave, which publishes monthly investigations into publicly traded companies it believes are engaging in questionable practices, or into whether a stock is simply undeserving of its valuation.
In its report, The Bear Cave alleged that AppLovin has “low-quality” revenue fueled by advertising that is “deceptive, predatory, and at times unreadable or unclickable.” As such, it claimed that the stock did not deserve to be trading at 35 times revenue at the time of the report.
Another entity that publishes under the name Fuzzy Panda Research issued a lengthy, fiery short report on Feb. 26.
Also on Feb. 26, Culper Research published a 34-page report with similar allegations. “AppLovin claims AI has fueled its turnaround, but can’t explain how,” Culper wrote.
Management and Wall Street push back
In a blog post also published on Feb. 26, AppLovin CEO Adam Foroughi said the short reports “are littered with inaccuracies and false assertions” and also said his team has built “sophisticated AI models.” While Foroughi didn’t touch on every topic raised in the short reports, he did make several comments, which are summed up in the bullets below:
- All the company’s games are apps on the App Store and therefore must comply with its policies.
- Revenue is not driven by clicks or impressions.
- The company does not track children’s data.
- There is no basis behind claims of “financial and accounting improprieties” and revenue is not being inflated.
- The company is audited by a Big Four accounting firm, and AppLovin has never received a “modified opinion.”
Multiple Wall Street analysts also defended the company. Piper Sandler analyst James Callahan issued a research report following the short reports, reiterating his overweight rating on the stock and a $575 price target, which implied over 77% upside from Feb. 28 levels. Callahan wrote that AppLovin’s “customers are the most sophisticated in digital advertising and we believe any alleged fraudulent practice would be felt immediately via their own attribution or incrementality testing.”
Jefferies analyst James Heaney also reiterated a buy rating on AppLovin and a $600 price target. In his report, Heaney said the short-sellers’ claims were “in many cases, inaccurate,” and said that allegations about illegal clicks and downloads overlook the fact that AppLovin has helped customers produce meaningful revenue.
Buy, sell, or hold?
Unfortunately, this situation is going to be very difficult for retail investors to decipher. The truth likely goes beyond any numbers you’ll find in any earnings report or filing with the Securities and Exchange Commission. The shorts appear to have put substantial work into their reports, which includes anonymous comments from AppLovin customers, industry experts, and even Meta executives. There are also three reports, although Culper and Fuzzy Panda may have been somewhat coordinated, given that the two acknowledge that they shared some of their work with one another.
Meanwhile, you’ve got a CEO who defended the company on the same day that Culper and Fuzzy Panda released their reports, as well as multiple analysts from top Wall Street firms going to bat for AppLovin. Of course, analysts who have been recommending the stock for some time would likely not want to completely reverse course so soon after allegations.
Ultimately, unless they have significant time to do a lot of qualitative research, retail investors are going to be operating largely in the dark. The stock could also be very volatile in the near term on any future news related to this situation.
For those reasons, I recommend staying on the sidelines for now, or perhaps taking some chips off the table. The stock has been a multibagger, and the AI trade faces challenges in the near term anyway. Continue to monitor the situation for more clarity. There’s no need to do anything rash here.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, AppLovin, Apple, Jefferies Financial Group, and Meta Platforms. The Motley Fool has a disclosure policy.
