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Short-Seller Scrutiny Intensifies for AppLovin Amid S&P Index Speculation
The scrutiny surrounding AppLovin is intensifying as short-seller Fuzzy Panda Research amplifies its allegations against the company. Following a report that raised serious concerns about AppLovin’s ad-tech operations and compliance with app store regulations from Google and Apple, Fuzzy Panda is petitioning the S&P Index Committee to exclude AppLovin from the S&P 500.
In a letter dated March 4, Fuzzy Panda characterized the company’s ad technology as foundational to a precarious business model, urging a thorough examination ahead of potential inclusion in the prestigious index. CNBC confirmed the existence of this letter, although neither AppLovin nor the S&P has commented publicly on the matter.
Fuzzy Panda’s allegations come on the heels of a staggering rise in AppLovin’s share price, which increased by over 700% in 2024, consequently pushing its market capitalization beyond $110 billion. This meteoric rise positioned AppLovin as a candidate for inclusion in the S&P 500, where the average market cap is approximately $36 billion. However, the company’s stock saw a dramatic decline of 15% following its exclusion from the index in December, a decision that favored the addition of Workday, a competitor with a significantly lower valuation.
In stock market dynamics, shares of companies included in major indices often experience price surges, as fund managers are obliged to adjust their portfolios to align with index changes. The next rebalancing of the S&P 500 is scheduled for later in March, heightening the stakes for AppLovin.
Fuzzy Panda’s position is compounded by its view that AppLovin fails to meet the S&P 500’s standards, particularly following its critical assessment of the company’s AXON software. This software is pivotal to AppLovin’s revenue generation and has been linked to the recent surge in its stock price. Consequent to the critical reports from Fuzzy Panda and another short-seller, Culper Research, AppLovin’s share price took a notable hit, dropping 12% on February 26.
Despite these allegations, some Wall Street analysts have come to AppLovin’s defense. BTIG analysts stated they found little merit in the accusations and maintained a buy rating, while Piper Sandler analysts echoed this sentiment, recommending their clients acquire shares following the recent sell-off. They emphasized that the sophisticated nature of AppLovin’s clients would immediately detect any fraudulent practices.
In the face of these allegations, AppLovin’s CEO, Adam Foroughi, responded in a blog post, denouncing the claims as riddled with inaccuracies. Foroughi criticized the actions of short-sellers as harmful and misleading, designed to undermine AppLovin’s market position and financial performance during a period that limited the company’s ability to respond to the criticisms.
AppLovin recently reported an earnings beat in February, which briefly pushed its shares past the $500 mark, but since then, the stock has plummeted nearly 50%, exacerbated by an 18% drop on one occasion.
Notably, Fuzzy Panda’s allegations include serious claims regarding data acquisition practices and potential violations of privacy laws, particularly concerning children, as the firm contests that AppLovin’s growth has been contingent upon questionable business ethics. Their research reportedly involved interviews with former employees and industry insiders to substantiate their claims.
Fuzzy Panda has previously targeted various companies through similar short-sell strategies, achieving notable success, including a significant decline in the shares of Globe Life, which crashed following a report highlighting alleged fraud. Responding to similar criticisms, Globe Life labeled the allegations as misleading and profit-driven.
As the landscape evolves, industries, particularly in tech and advertising, face increasing scrutiny regarding practices and compliance with regulatory standards. The ongoing discourse surrounding AppLovin serves as a potent reminder of the volatility and complexities within these markets.
WATCH: AppLovin soars almost 30% on earnings, guidance beat
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