AppLovin (NASDAQ: APP) shares plummeted more than 20% on Thursday following a report from short seller Muddy Waters, led by Carson Block. The firm revealed it had taken a short position in the company, accusing the adtech giant of engaging in “scammy” practices that could lead to its deplatforming from major advertising platforms.
The Muddy Waters analysis specifically questioned AppLovin’s e-commerce conversion strategies, alleging that a significant portion of reported conversions might come from retargeting existing users rather than attracting new customers. The short seller estimated AppLovin’s true incrementality—the measure of new sales generated—at just 25-35%, much lower than the nearly 100% claimed by AppLovin’s CEO.
The report also raised concerns about the methods AppLovin allegedly uses to identify high-value users, suggesting that the company could be extracting proprietary user IDs from platforms such as Meta (NASDAQ: META), Snap, TikTok, Reddit, and Google (NASDAQ: GOOGL), potentially violating their terms of service. Such actions could lead to AppLovin being deplatformed, a fate that has previously befallen companies like Cheetah Mobile (NYSE: CMCM).
In addition to these allegations, the report noted discrepancies between the company’s public claims and its actual performance. For instance, AppLovin’s CEO had previously claimed that its e-commerce customers experienced minimal churn. However, Muddy Waters pointed to a churn rate of approximately 23% among e-commerce beta advertisers in Q1 2025, contradicting the company’s assertions.
The short seller’s report also delved into concerns about AppLovin’s use of persistent identity graphs (PIGs) to target users without their consent. Muddy Waters suggested that this practice could be a modern iteration of fingerprinting schemes, allowing AppLovin to claim revenue from last-click attributions by aggressively targeting and retargeting high-value users. According to Muddy Waters, this method could be seen as a violation of privacy norms and could draw regulatory scrutiny.
Muddy Waters also drew attention to how AppLovin (NASDAQ: APP) manages to compete with tech giants like Meta Platforms (NASDAQ: META) and Google in ad targeting without requiring user email addresses or phone numbers. While companies like Meta and Google rely on first-party data from consenting users, AppLovin’s ability to target ads at scale without this data raises further questions about its methods and the potential risk of non-compliance with industry standards.
These allegations come at a time when the digital advertising industry is already undergoing significant changes, with major players introducing stronger privacy measures. Apple’s App Tracking Transparency (ATT) and Google’s recent privacy updates have limited ad networks’ access to user data, making it more difficult for companies like AppLovin to track and target users in the same way as before.
As of press time, AppLovin (NASDAQ: APP) has not responded publicly to the Muddy Waters report, and the long-term impact of these allegations on the company’s stock and operations remains uncertain.
The Muddy Waters report follows a series of similar claims from other short sellers, including Fuzzy Panda and Culper Research, who have also accused AppLovin of engaging in deceptive business practices.
