AppLovin Analyst Stands Ground As Fresh Short Report Sparks Stock Plunge: Retail Smells Something Fishy
Wells Fargo said its agency checks revealed that the company’s e-commerce customers were 55%-60% net new to the brand.
FollowAppLovin Corp. (APP) shares marked their worst session ever on Thursday after another short seller alleged the company had engaged in questionable practices. However, a sell-side analyst defended the app marketing platform.
Muddy Waters, which disclosed its short position, said its web traffic analysis found that about 52% of AppLovin's e-commerce conversions are retargeting, but in reality, the number is only about 25%-35%.
The research firm said, "Code evidences that APP is collecting and structuring user IDs from its key platform partners, which appears to be a major violation of the platforms' terms of service (TOS)."
Therefore, Muddy Waters believes that Palo Alto, California-based AppLovin could be de-platformed like Cheetah Mobile.
Even if the company skirts a deplatforming, Muddy Waters sees numerous competitors beginning to copy its techniques, as little technology is involved.
According to the short-seller, AppLovin's growth plans will suffer as its advertising clients are likely sensitive to actual incrementality. The firm also observed e-commerce client churn of about 23% in the first quarter.
In mid-February, AppLovin reported forecast-beating fourth-quarter results and issued positive guidance, sending its shares to a record intraday high of $525.15. Since then, the stock has lost over 50% amid mixed views regarding the company's prospects and the broader market weakness.
In late February, Bear Cave substack newsletter author and short-seller Edwin Dorsey alleged that AppLovin's rapid rise was fueled by low-quality revenue growth from "ads that are deceptive, predatory, and at times unreadable or unclickable."
Another short seller, Fuzzy Panda, submitted a report to the S&P 500 Index committee in early March urging it to keep the stock out of the index as the company allegedly used fraudulent tactics to bolster its online ad business.
Reacting to the latest short report, Wells Fargo analyst Alec Bonello said the brokerage's checks showed AppLovin's e-commerce remained incrementally strong, The Fly reported.
The analyst said that contrary to Muddy Waters' claim, Wells Fargo's agency checks revealed that e-commerce customers were 55-60% net new to the brand.
He questioned the reliability of the short sellers' finding, alleging that it relied on checks with just five customers. Bonello said the nascent stage of AppLovin's business explains the higher churn.
Wells Fargo has an 'Overweight' rating on AppLovin stock and a $538 price target.
Oppenheimer analysts said Thursday that overall customer and partner commentary about AppLovin supports their bullish view on its e-commerce growth.
On Stocktwits, retail sentiment toward AppLovin stock turned to 'bearish' (37/100) by late Thursday from the 'Neutral' mood that prevailed a day ago. The message volume perked to 'high' levels.
APP sentiment and message volume March 27, as of 9:49 pm ET | Source: Stocktwits
The stock was the second-most trending ticker on the platform late Thursday.
A bearish user expected the stock to drop to $240 in Friday's session.
Another user said they had predicted AppLovin to be a scam eight weeks earlier.
AppLovin ended Thursday's session 20.12% lower at $261.70 and has lost about 20% this year. According to Koyfin data, it trades at nearly an 85% discount to analysts' average price target
For updates and corrections, email newsroom[at]stocktwits[dot]com.<
Editor’s note: This story has been corrected to reflect that the analyst note on AppLovin was issued by Wells Fargo, not Wedbush.<
subscribe to Asianet Newsable WhatsApp channel by clicking here.
