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(Bloomberg) -- Two short sellers released reports on AppLovin Corp., touching off a record rout of as much as 23% in shares of 2024’s best performing technology stock.
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AppLovin, which provides marketing services to app developers, shed more than $32 billion in value as investors unwound some of the blistering rally that saw shares rise eight fold last year. The stock was briefly halted for a volatility pause before paring some of its losses.
Fuzzy Panda and Culper Research both published short reports against the company, just days after The Bear Cave issued its own cautious report.
AppLovin declined to comment.
The reports effectively allege that AppLovin misrepresents the benefits of its AI advertising platform and instead “force-feeds” app installations onto phones as a way to drive up revenue.
Last year’s rally was concentrated in the fourth quarter, amid excitement over the company’s AI-powered advertising engine. It coincided with a rotation from semiconductor stocks into AI-linked software companies. AppLovin was also added to the Nasdaq 100 Index in November, replacing Dollar Tree Inc. While its valuation jumped by more than $100 billion over that span, its overall size remains small compared to trillion-dollar tech giants like Meta Platforms Inc. and Apple Inc.
The surge continued this year through the company’s mid-February earnings report, which sent shares soaring after the company’s results and outlook beat analyst expectations. Since then, however, its stock price has been pressured by the Bear Cave report and an announcement from Unity Software Inc. that it would launch its new AI-driven ad platform. As of Tuesday’s close — before the two short reports — shares were more than 25% off a record high.
Still, Wall Street has been largely positive on the company, which boasts 21 buy ratings, 6 holds and no sells. The average price target of $542.59 is more than 40% higher than where shares traded ahead of Wednesday’s plunge. In a Feb. 21 note, Benchmark analyst Mike Hickey called the pullback in AppLovin’s shares after Unity’s announcement a buying opportunity.
“While some investors fear competitive pressures on AppLovin’s ad model, we believe this reaction is unwarranted,” Hickey wrote. “Unity’s relaunch is an ambitious, multi-quarter transformation with unproven results, whereas AppLovin’s ad platform is already well established, high-margin, and scaling effectively.”