AppLovin is hitting back hard against a wave of short-seller reports that, according to some adtech experts, are riddled with inaccuracies.
Back in November, we wrote about AppLovin’s meteoric rise in “For AppLovin, as Earnings Soar, Scrutiny Follows.” In that piece, we said, “You either die a hero or live long enough to become the villain. It may not be fair, but hey, that’s adtech.” (Feels like we were right?)
Then, earlier this month, we followed up with “Leave AppLovin Alone,” pointing out that with more growth comes more scrutiny, not just from people who may not be fans of adtech companies, but also from short sellers seeing an opportunity.
Here are some breakdowns explaining why aspects of these recent reports may not hold up:
Moreover, AppLovin’s CEO, Adam Foroughi, is directly pushing back in a message to customers and the market. Here’s his full letter:
To our Shareholders, Partners, and Team,
I’m writing this mid-quarter update to address the recent short reports published about our company. It’s disappointing that a few nefarious short-sellers are making false and misleading claims aimed at undermining our success, and driving down our stock price for their own financial gain, rather than acknowledging the sophisticated AI models our team has built to enhance advertising for our partners.
While the reports are littered with inaccuracies and false assertions, and we won’t comment on every point, it’s important to correct the record around a few foundational issues:
Compliance and Integrity:
Our platform is subject to App Store policies. All of the games we promote are also apps published in the App Store, therefore, they all have to comply with App Store policies. Our business is based on transparency and integrity. Our partners spend billions annually because we drive real, incremental value in the form of revenue directly attributable to advertising dollars spent—proving that our business model is both legitimate and profitable for partners.
Consumer Experience:
We earn revenue based on the value we drive—not on clicks or mere impressions. Our advertisements are designed to generate real engagement and revenue for our advertisers. Every download results from an explicit user choice—whether via the App Store or our Direct Download experience. Our economic model demands that ads lead to genuine, high-intent engagement, ensuring our campaigns deliver meaningful, measurable results. As part of our platform enforcement efforts, we deploy overlapping policy requirements and technical measures to help ensure the quality of the ads served through our platform.
Data Practices:
We do not track children’s data. Our terms and policies explicitly prohibit apps exclusively designed for and/or exclusively directed to children, partners from providing us with children’s data, and partners from initializing our SDK in connection with children’s data. Additionally, we obtain data from our partners solely in the context of providing them with advertising services; we do not work separately with data brokers. Adjust and MAX operations are entirely independent and transparent, with no conflicts or house bias. We run a fair mediation process that can be contractually audited by our partners, ensuring that all data accessed by us is equally available to competing ad networks. We also do not have any means or desire to look at other company’s bid or user data; our models use solely behavioral data, ad engagement data, win/loss notifications from mediation (same data shared to any bidder on our platform), and advertiser data to generate predictions.
Financial Transparency:
The claims of financial and accounting improprieties are factually incorrect and have no basis whatsoever. We do not have any duplication of revenue from related parties, including our international entities or Apps businesses. We are a public company audited by a Big Four accounting firm and have never received a modified opinion in our history. We report net revenue with high margins and efficiently drive cash flow. Our low tax burden is due to stock-based compensation deductions and intelligent tax structuring, similar to many tech companies. Our numerous subsidiaries—mainly from our gaming operations—will be simplified following our recently announced sale of the studios.
E-commerce Pilot:
Our e-commerce pilot is performing exceptionally well. The current requirement for a minimum monthly media spend is designed to justify the resources needed for manual onboarding. We plan to expand our self-service tools and gradually lift these requirements over the year. To highlight our success, in December, we reached a run rate of roughly $1 billion a year of gross advertiser spend in the e-commerce category alone from around 600 customers. The growth potential in the coming years is substantial. Moreover, the speed of this growth clearly demonstrates the legitimacy and effectiveness of our platform.
It’s also noteworthy that the short reports emerged after our earnings report, where we would be in a period of being unable to respond with financial performance. We remain focused on executing our strategy, generating strong cash flow, and conducting share buybacks.
Thank you for your continued trust and support.
Why This Matters:
The scrutiny around AppLovin is the latest—and perhaps biggest—example of a growing trend in adtech where some work to cast doubt on companies for conflicted reasons. These attacks can work because of the complexity in adtech and general market paranoia around the sector, as investors have always struggled to “get” the space.
To that end, we recently pointed out the lack of a strong adtech trade organization to push back against false narratives. The existing infrastructure doesn’t appear to be cutting it as exaggerated claims and falsehoods seem to be spread daily without much of a collective, unified response. A dedicated advocacy group to defend or speak for companies like AppLovin could make sense.
Experts React:
Interesting comment from Adam Jaffe of Mega Studio here:
Also, worth noting, Bloomberg spoke to analysts who sees this short-seller attack as a buying opportunity:
Wall Street, which has long been bullish on shares of AppLovin, has come to the company’s defense, with many analysts recommending buying the stock which currently has 20 buy ratings, seven holds and no sells, according to data compiled by Bloomberg.
“We are buyers of APP following the selloff,” Piper Sandler analysts led by James Callahan wrote in a Feb. 27 note maintaining an overweight rating and $575 price target. 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.”
Our Take:
If there is legitimate bad behavior at AppLovin, it should absolutely be scrutinized. No argument there. But equal scrutiny must be applied to short-seller research, too. Blind acceptance of claims is too often the norm.
To some degree, this also feels like a “quality” vs. “fraud” debate, where concerns about inventory and ad quality are getting blurred with fraud. You can question quality on multiple fronts, but “fraud” is a BIG word, with a lot of ramifications and repercussions.
