This caused the stock to plummet over 100 points in seconds. How does this information align with what the short sellers have been reporting?
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First, this is all my fault. You see I bought enough shares to make this company my largest position about 2 hours prior to the report.
Second, in my view quick read, I do recall that Muddy Waters did say that the company is inappropriately violating terms of service to sell even more targeted ads. Whether muddy is exactly aligned with what is being probed, I have no way of assessing.
Best of luck to the longs, and it looks like tomorrow is going to be a bad day….
Rob
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I read that the SEC may have taken action BASED ON the short reports, “Citing people familiar, Bloomberg says the investigation is in response to a whistleblower complaint as well as reports from short sellers, some of which were published in February.”
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I added on the dip, still have a 10% position. Most ad companies get hit sooner or later and I believe in Adam’s ability and the opportunity long term.
added:
SEC is just doing its job. APP is now trading around 28 X NTM EV/EBITA and will likely grow EBITA 50-60% over the next couple years so its a great day to pick up a few shares in my opinion. Likely will only end up with nothing or a slap on the wrist and unlikely to affect EBITA next year.
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This looks like a new spin on old news. The SEC is reducing activity during the shutdown period. Clever play to recycle old news.
There are no actions available at SEC.gov for APP.
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I’ve saved this x post shared by @FoolishJeff after the March short report. The author seems to be an ad expert and defended AppLovin against the the major attacks from the short report. I personally think the explanation in the post is legit, though I don’t have an expertise in mobile Ad tech.
AppLovin is still my second largest position after the drop. I will probably add some shares tomorrow.
Luffy
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AI summarizing,
The SEC is investigating AppLovin’s data collection and targeted advertising practices, specifically focusing on allegations that the company breached service agreements with platform partners to push more targeted ads to consumers. The investigation was reportedly triggered by a whistleblower complaint earlier this year and was amplified by negative reports from short-sellers, including firms such as Muddy Waters and Fuzzy Panda Research.
This looks like the same slop short reports being recycled and referred to the SEC.
I’m also wondering why the SEC would be interested in their data collection. It sounds like something the AppStore or PlayStore would be handling.
Lastly, something important to understand about AppLovin’s business is that is does not rely on a single technique for getting data. The reality is they are using 20+ standard techniques that other AdTech uses, and having some of those techniques being disallowed isn’t a huge impact. It’s typically the AppStore who is determining what is allowed (Google’s Android is almost always more lenient).
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Based on a few of the things that Adam said in the last conference call, which WRL summarized in his most recent portfolio update, APP is on the verge of doing some serious damage to competitors, most notably META. As Zuckerberg now is BFF with our president, I sure hope that he hasn’t used back channels to try to impede APP from the soon to be launched onslaught of META’s business model.
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Did Adam say they are competitor to Meta? My understanding has always been that they are not direct competitors because their audiences have very small overlaps.
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I asked ChatGPT to dig into the possible outcomes of the SEC probe. Bear in mind there may be errors as I’m not a legal expert, but it gave four outcomes from the investigation that are evidence-backed and ordered by likelihood from greatest to least:
- Closed with no action - common
- Staff inquiry/requests for remediation and nonpublic settlement/small fine - fairly plausible
- Formal enforcement settlement (civil penalties, disgorgement) without admission of guilt - possible if the SEC finds misleading representations or contractual breaches
- Larger enforcement action including individual charges - less likely but happens when internal documents, admissions, or willful misconduct are found.
If either 1 or 2 occur (which are the most likely outcomes), this sell-off will turn out to be an epic overreaction!
AppLovin has always been on top of accusations when they were slung their way and I have little reason to suspect anything nefarious. Earlier this year they retained a firm to investigate the short report activity. This was in March 2025, btw. Adam is no slouch, so I’m sure they were very thorough. He owns several billion dollars of $APP stock and is aligned with ensuring a good outcome.
In addition, the stock just took a major haircut from this news. You can call it de-risking, but largely it is fear-driven without anything substantial reported.
I would love to see Adam and the management team come out with a statement, but I saw it reported that their IR team told TTN:
“Generally, we do not comment on the existence or non-existence of any potential regulatory matters. That said, as a global public company, we regularly engage with regulators and if we get inquiries we address them in the ordinary course. Material developments, if any, would be disclosed through the appropriate public channels.”
I may be totally wrong here, but if this blows over with much ado about nothing and simultaneously their recent (10/1) Axon expansion shows strong growth into Q4 (which I think it will), this may end up being a great buying opportunity.
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The investigation is reportedly in response to a whistle blower complaint as well as the short seller reports filed earlier this year.
I have nk knowledge regarding the whistle blower complaint, so I’ll reserve comment. As for the short seller reports from Fuzzy Panda, Muddy Waters and another I’ve forgotted the name of, IMO all of these reports were unfounded and shown to be without factual basis. But, that’s my opinion based largely on my own analysis as well as that of others who have filed their observations on this board.
Following is the response from Applovin: “We do not comment on the existence or non-existence of any potential regulatory matters. That said, as a global public company, we regularly engage with regulators, and if we get inquiries, we address them in the ordinary course. Material developments, if any, would be disclosed through the appropriate public channels.”
[ediit]
As an after thought, Applovin has had an astonishing runup of their stock price based on outstanding financial performance which they have repeatedly claimed is derived from their superior AI technology rather than illegal, or even unethical practices. They have asserted that all the data they gather in the course of business is legitimately acquired and predominantly public (I believe that their MAX product could possibly produce proprietary data which would not be generally available to competitors - but I am uncertain about this).
If I am correct and this investigation will prove to be nothing other than a bump in the road, this may be an outstanding buying opportunity.
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The SEC doesn’t care that APP violated those terms, just if APP potentially lied to its investors when they said they did not violate those terms.
Drew
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As for me, I followed my own suggestion and added to my APP position a few minutes ago.
I remembered that after the short reports essentially amounted to nothing, I was made aware of numerous legal firms opening class action suits against AppLovin based on the short reports which had already been shown to be without merit. So far as I know of these attempted class action suits ever consolidated to a single suit. They all fizzled, presumebly due to lack of merit.
I could yet be proven wrong, and possibly my action to increase my APP position may prove unwise, but I am reasonably confident that this was a rare opportunity to improve my investment returns.
BTW, in that I had no extra cash sitting on the sidelines, I trimmed my DAVE position in order to get the funds needed to increase my APP position.
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With the advent of its new web portal and AI-driven ad platform AXON 2 is expanding well beyond the gaming space. With this in mind, I asked Perplexity.AI this question:
APP’s advertising model operates primarily in the gaming space. What the advent of it’s new web portal, will this allow APP to operate outside of the gaming space and directly compete with META for ad spend?
Here is Perplexity’s answer:
APP (AppLovin) historically operated primarily in the mobile gaming advertising space, but with the launch of its new web portal and AI-driven ad platform AXON 2, it is now expanding well beyond gaming. This evolution allows APP to diversify its advertiser base and enter new verticals like e-commerce, retail, connected TV, and lifestyle apps, broadening its revenue streams and reducing reliance on gaming. The company’s strategic divestment of its gaming studios has solidified its focus as a pure ad-tech platform aiming to capture a larger share of global ad spend across various digital sectors.
This expansion positions APP to compete more directly with META, especially in the market for performance advertising spend where APP’s real-time bidding and event-level feedback AI engine AXON 2 offers precision targeting. Unlike META’s Advantage+ platform, which optimizes based on broad social data, APP’s AI focuses on granular mobile user behaviors, appealing strongly to advertisers prioritizing return on ad spend (ROAS) and efficiency in dynamic app environments.
While META retains dominance due to its vast scale, user data, and social reach, APP’s lean, AI-native, and nimble platform enables it to carve out a growing niche. APP is gaining traction with first-time advertisers and expanding internationally, indicating it is no longer just a mobile gaming advertiser but a broader player competing for ad budgets from META across multiple digital ad categories.
In summary, APP’s new web portal and strategic focus on its AI-powered ad platform do allow it to operate beyond gaming and directly compete with META for ad spend, especially in precision performance marketing and emerging digital sectors outside traditional social media advertising.
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A couple of things - First, regarding the buying opportunity based on yesterday’s big hit (BTW, it’s evaporating pretty fast). There’s this bit of reporting from Sherwood News (I have no idea who they are):
In a nutshell, the observation is that Apple and Google monitor their app store members so it’s unlikely that there’s any there there. Which is precisely what was the outcome of the earlier short reports.
Next, @twillo and @monkeydluffy AppLovin and Meta do not exactly compete because their target markets are not the same, though there is undoubtedly some overlap.
Meta is a “closed garden.” The advertising that takes place on their platforms (FB, Insta, etc.) does not extend beyond the users of their platforms. Yeah, that’s billions of users (at least in theory), but insofar as the entirety of the ecommerce space goes, Meta’s reach is constrained by their platforms.
AppLovin does not directly place adds on Meta’s platforms. There’s a whole lot of ecommerce that takes place separate from Meta. There’s possibly millions of companies that have their own websites and exist and do business entirely independent of Meta. This is why Adam Foroughi (AppLovin CEO) has asserted that he does not see them competing in a direct way with Meta. He has asserted that AppLovin and Meta will coexist with AppLovin expanding the reach of advertisers rather than leaving Meta in favor of AppLovin.
While I understand his thinking, I don’t entirely agree with him. Businesses advertise where they receive the greatest ROAS (return on advertising spend). All businesses have limited resources and can devote only so much of their budget to advertising. I’m quite sure if a business consistently gets better ROAS from advertising with AppLovin, they will migrate more of their advertising budget to that service. So, as I see it, AppLovin does compete with Meta, though it’s not exactly head-to-head.
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Even if APP continued to only operate in the mobile gaming space, that is also a big vertical for Meta. So yes, they are competitors especially in the short-term ROAS driven (Direct Response) advertising space.
It will be interesting to see how APP’s go-to-market strategy evolves now that they are launching Axon as an open ad platform. They do not go after ad agencies, and from what I understand, they rely primarily on word of mouth to bring in new advertisers. META has enormous awareness and credibility as a SMB advertising platform. Will APP launch any efforts (marketing) to increase their own awareness with SMBs? To me this would be a positive and a bullish indicator, but I work in marketing, after all. I get nervous and frankly disappointed by companies that refuse to advertise despite an enormous opportunity (see: Roku).
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In the September interview at the Goldman Sachs Cornucopia Technology Conference (recording available on APP IR website, transcript available on Koyfin) Adam made an important point about APP, that they only do performance based advertising. If a customer asks them to do a brand campaign, the answer would be a simple “no” because they don’t do that. In the Q2 conference call Adam points out that one of it’s competitive advantages vis-a-vis META is that “ the vast majority of all the transactions we drive happen within an hour or 2, and the vast majority of the transactions Meta drive, they take attribution for a much longer time frame.” This speaks to the ability of AXON 2 to determine “attribution” very quickly. Attribution is the link between cause and effect, in this case, between an ad impression and the response (the receipient responds by purchasing a product, entering an email address, or other performance based outcome stipulated by the advertiser). APP only gets paid when they deliver the stipulated outcome. Advertisers love this, being able to establish and then measure the peformance of their ad spend. This is an enormous competitive advantage, and some advertisers are likely to divert at least a portion of their ad spend to APP to take advantage of it. At least this is how I understand it.
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This is only true when the multiple ad channels are overlapping. AppLovin’s ads inventory is in the gaming apps which install their SDK, while Meta’s ads inventory are on their own apps. And I remember seeing research saying that AppLovin’s users have few overlap with Meta, which means that AppLovin’s ad platform drives incremental reach for advertisers. So advertisers will typically allocate new budget in this case, rather than shift budget from Meta.
All businesses have limited resources and can devote only so much of their budget to advertising
While it’s right all businesses have limited resources, we should understand that the ad budget is to generate more profits for the business. If $1 ads spending can only generate $0.5 profit, no one would advertise. But if $1 ads spending can always generate $5 profit (only an assumption in a perfect world) , then the advertisers will keep increasing budget forever. So, in the real world, advertisers will keep allocating budgets until the incremental ROI is too low to make profit.
In summary, AppLovin is not direct competor to Meta, because it neither competes with Meta’s ads inventory nor overlaps much with Meta’s audience. Unity is a more direct competitor, because if Unity’s ads have higher CPM than AppLovin, game developers will work with Unity SDK instead of AppLovin’s. Similarly, Google’s AdMob and Meta Audience Network are also competitors as they provide app SDK alternatives, though they are less direct a competitor than Unity because the do not typically work well in gaming apps.
Luffy
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I don’t agree about META and APP not being competitors. Yes, Facebook and gaming platforms are separate pools, but those who swim in those pools aren’t incarcerated. An advertiser will go where it feels their return on ad spend makes the most sense. Let’s take a hypothetical. Say you are interested in getting someone to open an account with your financial institution. The same people who frequent FaceBook are also gamers and also web browsers in general and account holders in financial institutions. You can fish for the same person in multiple ponds because people aren’t limited to a single pond. Now, you might say, advertisers prefer Facebook because META knows a heck of a lot about its members so ads can be targeted more precisely. But the point Adam makes at the Goldman Sachs conference is that their AXON 2 technology is “insanely powerful,” and extremely good at attribution and thus insanely good at learning things about people based on their browsing habits. Over time, says Adam, AXON 2 is going to do extremely well placing ads where they are mostly likely to produce a stipulated outcome. And remember, they only get paid if they produce the outcome advertisers are paying them for … so APP and their advertisers both are on the same page. I believe that this argues that APP and META are targeting the same swimmers, and the one who has the best value proposition for ad spenders is going to have an advantage.
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Did you realize that you are making an assumption here that the rest of your thesis is based on? Do you have the data or research to prove that those converted people who are playing games are the same as those who scroll on Instagram or Facebook?
If you have proof that this overlap is large, then I’ll agree with you that Facebook competes with AppLovin.
I may be wrong, but I’ve read some research data showing that the people who purchase through AppLovin ads are typically elder people, who are not the major users of social network apps. For example, according to this report, the analyst surveyed millions of people with purchase and found that, among the few thousand users who are converted via AppLovin ads, the majority of them are 45+ years old.
The interesting thing about the nearly 5,500 customers that have said that they purchased from a Mobile Game Ad (AppLovin) is that over 96% of them are ages 45+.
Lastly, let’s think about this question: Assume an advertiser currently has a 8:1 ROAS from ad channel A. The advertiser discovered a new ad channel B, whose ROAS is 5:1. The advertiser finds that channel B has a unique group of users that channel A can not reach. Do you think the advertiser should allocate additional budget on channel B or not? Will they skip the new channel just because the ROAS is smaller than their existing channel?
I’d vote for allocating new budget, because 5:1 is still a good ROAS, and the ability to reach to the exclusive group of new users means that the new spending is driving incremental value rather than cannibalize the existing.
Luffy
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