Advertising technology company AppLovin, trading under the symbol APP, experienced a significant surge in its stock over the past year, with shares increasing nearly 300% over the last 12 months. However, following a peak in February when it reached a 52-week high of $525.15, the stock has been declining. The recent emergence of short-seller reports criticizing the company, including the latest from March 27, has contributed to a nearly 16% decrease in share value in 2025 as of the current writing.
The inquiry into whether the stock price drop presents a buying opportunity or if it is advisable to heed the warnings from short-sellers requires a closer examination of the company’s performance.
AppLovin experienced a substantial increase in its share price due to its exceptional performance in the previous year. In 2024, the company’s sales reached $4.7 billion, marking a 43% rise from 2023. The net income saw significant growth, increasing by 343% to $1.6 billion, supported by a strong gross margin of 75%. Additionally, AppLovin generated impressive free cash flow of $2.1 billion, providing capital for business investments, share repurchases, and debt reduction.
The company primarily earns revenue from digital advertising within mobile gaming apps but has also seen considerable income from e-commerce advertisers. These advertising sales are promising as management aims to grow revenue outside the gaming industry.
Despite these achievements, short-sellers have raised concerns about AppLovin, alleging questionable business practices. Muddy Waters Research, in a report dated March 27, accused the company of misusing consumer data and exaggerating its e-commerce success. Previous reports have accused the company of advertising fraud, although none of these claims have been substantiated at this time.
Whether AppLovin’s e-commerce sales represent a sustainable growth trajectory or a temporary boost from holiday shopping will remain unclear until the first-quarter results are released later this year. Investors are advised to cautiously interpret triumphs in areas outside gaming.
Moreover, AppLovin is working to overcome challenges in expanding beyond the gaming market, such as the absence of online self-service tools crucial for scalability. The company is focusing on developing these capabilities this year, but the impact on revenue growth remains uncertain. Additionally, AppLovin’s debt level increased to $3.5 billion at the end of 2024, compared to $3.1 billion at the end of 2023, presenting a concerning trend.
The decision to invest in AppLovin, despite the short-seller allegations, should primarily rely on its business performance. Historically, AppLovin has demonstrated strong performance, suggesting potential as an investment. However, whether the current decrease in share price represents a buying opportunity requires further analysis.
Comparing AppLovin’s stock valuation to competitors within the digital advertising industry, its forward price-to-earnings ratio is similar to its peers, given market volatility and short-seller reports that have influenced its stock value. This implies that the shares are fairly valued at present.
Nevertheless, AppLovin’s long-term sales growth hinges on securing advertising revenue beyond the gaming sector, an area that remains uncertain. Prospective investors might consider awaiting the release of first-quarter results to evaluate this segment’s performance before deciding to purchase shares.
