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Investing.com -- AppLovin (NASDAQ:APP) Corp. plummeted more than 20% on Thursday after a short report by Muddy Waters accused the company of fraudulent conversions, violating iOS and Android terms of service (TOS), and lacking a technological moat.
The stock closed at $261.70, the lowest level in more than two weeks.
However, the stock recovered some ground in Friday’s premarket trading, rising over 9% after the company said it has retained Quinn Emanuel Urquhart & Sullivan law firm to carry out an independent review and investigation into recent short report activity.
Analysts at Loop Capital said the allegations by Muddy Waters of faulty conversions and fraud “are easily disproved.”
“We have been very active on this front and are confident the platform is delivering excellent performance and driving meaningful revenue momentum,” said Rob Sanderson, managing director at Loop Capital.
Sanderson recommends “aggressive” buying on the stock’s weakness ahead of a "major expansion cycle."
Customer testimony remains a “true north” indicator, he added, with many early adopters allocating over 15% of their total spending to the AppLovin platform this year.
Regarding claims of a limited technology moat, Sanderson said they are “short-sighted,” stressing that AppLovin’s AI models have been actively learning for over five years, giving them a competitive advantage.
“Even if a competitor were to replicate AppLovin’s engineering and data resources tomorrow, model training would already be 5-years behind,” the report highlighted. Furthermore, the company’s massive scale in mobile gaming allows it to collect unique behavioral data, enhancing the performance of its AI models over time.
The short report also alleged violations of platform TOS, but Loop Capital views this as unlikely.
“We think the notion that AppLovin is somehow flying beneath the radar of Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOGL) does not hold water,” Sanderson said, emphasizing the rigorous review process AppLovin’s SDK undergoes.
Loop Capital reiterated AppLovin stock as its top pick for the year, maintaining a Buy rating and the price target of $650.