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Investing.com -- Shares of AppLovin (NASDAQ:APP) Corporation (NASDAQ: APP) fell sharply by 9% after a critical report by Muddy Waters Research accused the company of engaging in practices that could lead to deplatforming. The short seller’s analysis suggested that a significant portion of AppLovin’s e-commerce conversions might be retargeting rather than new sales, with an estimated incrementality of only 25%-35%.
The report raised concerns about the methods AppLovin allegedly uses to identify high-value users, suggesting that the company might be extracting proprietary IDs from major platforms such as Meta (NASDAQ:META), Snap, TikTok, Reddit, and Google (NASDAQ:GOOGL). According to Muddy Waters, this could be a major violation of these platforms’ terms of service and could result in AppLovin being deplatformed, similar to what happened with Cheetah Mobile (NYSE:CMCM).
The short seller also highlighted a discrepancy between the company’s claims and its observed performance. AppLovin’s CEO previously claimed nearly 100% incrementality for e-commerce customers, which contrasts with the Muddy Waters estimate. Additionally, the report indicated a churn rate of about 23% among e-commerce beta advertisers in the first quarter of 2025, contradicting the CEO’s statement of minimal churn.
Muddy Waters’ concerns extend to the potential misuse of persistent identity graphs (PIGs) for ad targeting without user consent, a practice that might be considered an iteration of old-school fingerprinting schemes. This approach, according to the report, allows AppLovin to claim revenue from last-click attributions by aggressively targeting and retargeting high-value users.
The short seller’s report also questions how AppLovin, without requiring user email addresses or phone numbers for its games, can precisely target ads in a manner that competes with or even outperforms the ad targeting of tech giants like Meta and Google. The report points out that these companies use first-party data from consenting users, while AppLovin’s strategy appears to rely on adapting existing tools to avoid detection by third-party platforms.
The allegations come at a time when the digital advertising industry is already adapting to increased privacy measures, such as Apple (NASDAQ:AAPL)’s App Tracking Transparency (ATT) and Google’s privacy updates, which have impacted data access for ad networks.
AppLovin has not yet responded publicly to the Muddy Waters report, and the long-term impact of these allegations on the company’s stock and operations remains to be seen.
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