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Tech stock AppLovin (NASDAQ: APP) hit a 52-week high of $525.15 on Feb. 13. It's staggering just how quickly things have unraveled for this once red-hot growth stock. On Monday, it closed at just $238.08 -- down 55% from that high it reached around a month ago.
The stock market hasn't been doing all that well of late amid growing concerns of trade wars and tariffs, but that's not the only reason AppLovin stock is down. A recent short-seller report questioned the viability of its business model, and its high valuation has also made it vulnerable to a hefty decline.
But with the stock taking a considerable beating over the past few weeks, could now a great time to buy shares of AppLovin, or should investors hold off on buying into this tailspin?
AppLovin's growth has been fantastic -- but could there be trouble ahead?
AppLovin has been a popular stock with growth investors due to its impressive top line. In 2024, it generated $4.7 billion in revenue from its ads and apps revenue, which rose at a rate of 43%. What's encouraging is that the tech company's growth rate has been accelerating, and investors are bullish on its ad business, particularly as it focuses on new opportunities in e-commerce.
The company is looking to focus purely on ads, with plans to sell its apps business for $900 million this year. The danger with focusing on the ad market, however, is that it can depend heavily on the strength of the overall economy. If companies aren't doing well, advertising and marketing budgets can be the easiest ones to cut back on in order to reduce costs. And the ongoing trade wars involving the U.S. and multiple countries could weigh on macroeconomic conditions for the foreseeable future.
And a potentially slowing growth rate ahead isn't the only concern for AppLovin investors. They were also spooked by a recent short-seller report, which made multiple accusations related to the company, including that it was stealing data and tracking children. Short-seller accusations are often skewed and unfounded, but they can have the desired effect: a massive drop in the stock's price, which can enable the short-seller to profit from a short position in the business.
The stock's valuation has come down significantly, but it remains high
AppLovin's business has been growing at an impressive rate, but investors have been paying for a lot of that future growth already. The sell-off has dropped the stock's price-to-earnings (P/E) multiple down to around 50, which is an improvement from the levels it was at before. But that's still arguably a bit rich for the business, especially with expectations elevated now that it's focusing on e-commerce and going all-in on ads.