By Jakub Porzycki,Peter Cohan,Senior Contributor
Copyright forbes
Binary code displayed on a laptop screen displayed on a laptop screen and AppLovin logo displayed on a phone screen are seen in this illustration photo taken in Krakow, Poland on August 8, 2025. (Photo by Jakub Porzycki/NurPhoto via Getty Images)
NurPhoto via Getty Images
AppLovin stock is up 85% in 2025. However, the stock fell 14% on Monday and shares fell 3% in premarket trading on Tuesday before reversing course – ending the day up 7.6%.
The recovery – 6.6% of ApplLovin’s stock is sold short – may have been due to reports from Citigroup and Oppenheimer which reiterated their buy recommendations and suggested the market overreacted to the investigation, noted MarketBeat.
But short sellers have issued reports raising questions about how the mobile advertising company delivers its services. Those reports may have prompted a Securities and Exchange Commission investigation of AppLovin’s data-collection practices, according to Bloomberg.
The company’s rapid and highly profitable growth make a compelling case for AppLovin bulls. However, if the SEC investigation results in changes to the company’s business model, the company’s growth could slow – rewarding the short sellers with a drop in the company’s stock.
AppLovin denies short sellers’ claims. “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,” AppLovin CEO Adam Foroughi wrote in February blog post.
AppLovin did not comment on the report of an SEC investigation. “We regularly engage with regulators and if we get inquiries we address them in the ordinary course,” the company said in an email to Bloomberg. “Material developments, if any, would be disclosed through the appropriate public channels.”
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Neither did the SEC. “During the shutdown, the SEC’s public affairs office is not able to respond to many inquiries from the press,” the agency said by email to Bloomberg.
I think AppLovin’s positives outweigh the negatives. Moreover, selling a stock short – borrowing shares from a broker, selling them, and hoping to repay the loan at a profit by buying back the shares at a lower price – is extremely risky.
If AppLovin was poised to go out of business, that might be a risk worth considering. But that does not appear imminent. Indeed, analysts estimate the stock could rise 5% to meet their price target.
Traders who see more downside in the company’s stock might buy puts – which provide the option, but not the obligation – to sell the stock at a specific price the trader hopes will be higher than the market price.
I have requested comment from AppLovin and will update this post if I receive a reply.
Report Of SEC Investigation Into AppLovin
The SEC is reportedly looking into the company’s data collection practices.
More specifically, the agency has assigned cyber and emerging technologies officials to investigate “allegations that AppLovin violated platform partners’ service agreements to push more targeted advertising to consumers,” according to anonymous sources featured in a Bloomberg report.
A whistleblower complaint and several short-seller reports published in the last several months have prompted the SEC investigation. AppLovin has not been charged and such probes may result in fines for companies or corporate officials, reported Bloomberg.
Reasons To Buy AppLovin Stock
AppLovin stock has been rising rapidly – with the company’s market capitalization soaring 700% in 2024 and its market capitalization nearly doubling this year to $230 billion as of last week, according to CNBC.
The company helps mobile app developers find users and sell advertising in their apps. In September, AppLovin was added to the S&P 500 – rising on a “wave of interest in artificial intelligence tools and ad placement,” noted Bloomberg.
Strong financial performance
Rapid growth and high profitability. AppLovin revenue increased 77% to $1.26 billion while net income grew 164% to $189.5 million in the June 2025-ending quarter – yielding a net profit margin of 65%, according to a company release.
Expansion from mobile games to e-commerce. The company – which gains much of its revenue by providing its advertising technology to the gaming industry – is offering that service to the broader e-commerce market – estimated to be significantly larger, according to Evolve Business Intelligence. However, in e-commerce advertising AppLovin faces competitors such as Meta and Google.
AI-powered platform delivers high return on advertising. AppLovin’s AXON 2.0 advertising optimization service is contributing to the company’s rapid growth. AXON 2.0 enables developers to lower the cost and boost the profitability of acquiring new users, according to Klover.ai.
Reasons Not To Buy AppLovin Stock
A big reason to avoid the stock is the risk of regulatory sanctions if the SEC finds valid the short seller and whistleblower allegations against the company.
Short seller reports allege AppLovin has violated data collection rules. For example, Fuzzy Panda and Muddy Waters accused AppLovin of fingerprinting – unauthorized harvesting of proprietary identifiers from other platforms “to track users across different websites and apps and retarget them with advertising,” noted Bloomberg.
Apple’s App Store prohibits fingerprinting as did Google until a February policy change, added Bloomberg.
AppLovin challenged the short seller reports saying they were “littered with inaccuracies” and denied creating “alternative accurate and persistent identifiers, typically called device fingerprints,” noted Foroughi’s blog post.
AppLovin hired also Alex Spiro – whose clients include Elon Musk, according to Business Insider. Spiro is conducting an “independent review and investigation into recent short report activity,” reported Bloomberg, and continues to investigate the source of the reports which he dubbed “clearly false.”
Here are other reasons to avoid the stock:
High valuation. AppLovin trades at a significantly higher valuation than the S&P 500 based on metrics like price-to-sales (43.8), price-to-free cash flow (67.8), and price-to-earnings (83.6), according to Morningstar, which notes the comparable metrics for the S&P 500 are 3.3, 22.9, and 15.3.
Significant volatility. The stock has a high beta of 2.53, according to CNBC, indicating the stock is significantly more volatile than the overall market. The stock’s 14% drop Monday on news of a regulatory investigation is an example of such volatility.
High debt-to-equity ratio. AppLovin’s debt-to-equity ratio of 301%, according to Stock Analysis, is high, though its debt is well-covered by its earnings before interest and taxes to interest expense ratio of 10.7.
Insider selling. Corporate insiders have sold shares worth over $514 million in the past three months, including transactions by the CEO, noted GuruFocus. This insider selling without buying may signal a lack of confidence among company leadership.
Wall Street views AppLovin shares as slightly undervalued. Based on 18 analysts offering 12 month price targets for AppLovin, the stock would need to rise 5% to reach their average price target is $664.41, according to TipRanks.
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