AppLovin Stock Tumbles As Short Seller Takes Closer Look At What's Driving Enormous Gains

AppLovin Corp APP shares are under pressure on Thursday after being targeted by a short report from The Bear Cave. Here’s a look at what you need to know.

What Happened: Short seller The Bear Cave released a new research report on Thursday alleging ad fraud at AppLovin.

“The Bear Cave believes AppLovin's rapid rise — up ~750% over the last year to around 35x revenue — is fueled by low-quality revenue growth from ads that are deceptive, predatory, and at times unreadable or unclickable,” the short seller said.

Benzinga has reached out to Applovin for comment on the short report.

The Bear Cave said it spent “dozens of hours” playing mobile games within the AppLovin ecosystem and found numerous ads for obscure real money gambling apps with “questionable representations.” The Bear Cave believes much of AppLovin’s revenue growth is being driven by ads for these gambling apps.

The short seller also suggested that AppLovin is spamming its ads on players. After playing 40 seconds of one of the company’s games in its ad universe, The Bear Cave said it was force-fed a total of 11 ads.

“The ads were often difficult to read and constantly updated within gameplay,” the short seller said.

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The Bear Cave also raised a red flag around ad fraud allegations, which have “multiplied” in recent months, according to the short seller. The Bear Cave went on to highlight multiple posts from different internet forums showing dissatisfaction with AppLovin’s ad services, including multiple instances of former AppLovin customers alleging fraud.

AppLovin reported strong quarterly results last week showing revenue growth of 44% on a year-over-year basis. The stock popped 20% on the report as the company highlighted the strength of its AI advertising model.

"Early adopters in gaming and direct-to-consumer commerce have already seen the impact of our technology, and our mission is clear: to onboard every business that wants to drive measurable growth,” the company said in a letter to shareholders.

APP Price Action: AppLovin shares are up approximately 655% over a one-year period. The stock was down 10.4% at $442.78 at the time of publication Thursday, per Benzinga Pro.

Photo: Shutterstock.