AppLovin Stock Plummets Amid SEC Probe into Data Collection

Shares of AppLovin, the mobile advertising and app monetization company (NASDAQ: APP), experienced a sharp sell-off on Monday following a Bloomberg report detailing a Securities and Exchange Commission (SEC) probe into the firm’s data collection methodologies. The news sent ripples through the ad-tech sector, raising questions about the future of targeted advertising and data privacy.

According to the Bloomberg report, the SEC investigation centers around potential violations of agreements related to the delivery of targeted advertisements. The agency is reportedly acting on a whistleblower complaint filed earlier this year, coupled with concerns raised in several short-seller reports. While no formal accusations of wrongdoing have been leveled against AppLovin or its executives, the inquiry has nonetheless unsettled investors.

A representative for AppLovin maintained a standard protocol, stating that the company generally refrains from commenting on the “existence or non-existence” of regulatory matters. “That said, as a global public company, we regularly engage with regulators and if we get inquiries we address them in the ordinary course,” the spokesperson elaborated. “Material developments, if any, would be disclosed through the appropriate public channels.”

The market reacted swiftly to the news. AppLovin’s stock price plummeted 14% during regular trading hours, with an additional 5% decline in after-hours trading, reflecting investor anxiety over the potential implications of the SEC probe. This contrasts sharply with the company’s recent performance, having enjoyed a remarkable year-to-date surge of approximately 80%, building on an exceptional 2024 where share prices rocketed over 700%.

This dramatic growth has been largely attributed to AppLovin’s advancements in artificial intelligence (AI), enabling the company to offer enhanced ad targeting capabilities to brands. AppLovin’s AXON engine, which uses machine learning to predict which ads will resonate with users, has been a key driver of this success. The technology has allowed the company to not only increase ad revenue but also improve user engagement and retention for its app developer partners.

Last month, AppLovin achieved a significant milestone with its inclusion in the S&P 500 index, replacing MarketAxess Holdings. Online brokerage Robinhood also joined the S&P 500.

However, AppLovin’s ascent has not been without its detractors. The company has faced scrutiny from several short-selling firms, raising concerns about its data privacy practices and aggressive ad targeting strategies.

In March, Fuzzy Panda Research urged the S&P 500 committee to exclude AppLovin from the index. This followed a similar incident in December when AppLovin shares dropped 15% after Workday was chosen to join the S&P 500 instead.

Muddy Waters Research also entered the fray, alleging that AppLovin’s ad tactics systematically violate the terms of service of major app stores by “impermissibly extracting proprietary IDs” from platforms like Meta, Snap, TikTok, Reddit, and Google. According to Muddy Waters, this allows AppLovin to deliver targeted ads to users without obtaining proper consent, representing a potential breach of user privacy and data security regulations.

Prior to Muddy Waters’ report, Fuzzy Panda and Culper Research released their own assessments, targeting AppLovin’s AXON software, which they argued was the primary driver of the company’s earnings growth and subsequent stock surge. These reports led to a 12% drop in AppLovin’s share price on February 26.

In response to earlier criticisms, AppLovin CEO Adam Foroughi published a blog post defending the company’s technologies and practices, while simultaneously criticizing the motives of the short-sellers seeking to profit from a decline in AppLovin’s stock price. Foroughi emphasized the company’s commitment to data privacy and adherence to regulatory guidelines, but this has done little to assuage investor concerns. Further scrutiny of the AI-driven ad targeting practices and the methods of data collection by AppLovin is anticipated by industry analysts in the coming period.