AppLovin (APP) stock plunged 20% on March 27, its worst single-day drop, after a third short seller raised concerns about its digital ad practices and alleged App Store policy violations. However, Wells Fargo analyst Alec Brondolo defended the company, arguing that the short report’s findings were based on limited checks and failed to account for common digital advertising practices. Brondolo maintained an Overweight (equivalent to Buy) rating on AppLovin’s stock with a price target of $538, citing strong eCommerce customer growth and skepticism about the alleged policy violations.
AppLovin is a technology company that provides software solutions for mobile app growth and monetization.
Short Seller Allegations Shake Investor Confidence
Muddy Waters’ report alleges that AppLovin misappropriated user data from major platforms such as Meta (META), TikTok, Reddit (RDDT), and Alphabet (GOOGL), potentially violating these platforms’ terms of service. The firm estimates that only 25-35% of AppLovin’s e-commerce conversions are incremental, contrasting with the nearly 100% claimed by AppLovin’s CEO. Additionally, the report highlights a 23% client churn rate among AppLovin’s e-commerce clients in the first quarter, raising concerns about the company’s business practices and future growth prospects.
Brondolo Dismisses Short Seller Claims
Despite these allegations, Brondolo stayed bullish on AppLovin stock. He challenges Muddy Waters’ claims, pointing out that their report is based on feedback from just five customers and may not reflect the broader customer base.
The analyst notes that many e-commerce clients are new to AppLovin, with some estimates showing 55-60% are first-time customers, while others suggest this number could be as high as 85%. This contradicts the short seller’s claim that more than half of AppLovin’s ad spend is just retargeting.
He also explains that since AppLovin only recently entered e-commerce, most advertisers are still testing its platform with small budgets before deciding to spend more, a common approach in digital ads. As for the policy violation concerns, Brondolo questions their validity, noting that many screenshots in the report come from AppLovin’s browser tracking, while the alleged issues relate to mobile apps. This raises doubts about whether App Store rules apply to advertisers’ web activity and if AppLovin’s data collection is any different from other ad platforms.
Is APP Stock a Buy?
AppLovin stock has a consensus Moderate Buy rating among 17 Wall Street analysts. That rating is based on 11 Buy, five Hold, and one Sell recommendations issued in the last three months. The average APP price target of $537.36 implies 105.33% upside from current levels.
