Investing.com -- Shares in AppLovin (NASDAQ:APP) tumbled over 15% following Wednesday's market open after Culper Research disclosed a short position in the stock.
The firm alleged that AppLovin’s AI-driven ad platform, AXON 2.0, is largely a “promotional tool” designed to obscure the actual mechanics behind its mobile gaming and e-commerce businesses.
AppLovin shares have jumped more than 500% in the past 12 months, “owing to investor enthusiasm for the Company’s supposed breakthrough “AI” technology, AXON 2.0,” Culper noted.
The short report focused on two main concerns. First, Culper alleged that AppLovin has been exploiting app permissions to enable “silent, backdoor app installations directly onto users’ phones.”
According to the report, AppLovin’s ad-driven installations occur “with just a single click—an event that is often inadvertent thanks to the Company’s notorious UX gimmicks.” Culper claims this process has been a key driver of the company’s reported success in mobile gaming, as AppLovin earns revenue on a per-install basis.
The second major allegation centered on AppLovin’s e-commerce initiative, which Culper described as a “smoke and mirrors game” that relies on controlling advertiser participation.
The firm argued that AppLovin requires advertisers to first prove they spend at least $600,000 per month on Meta (NASDAQ:META) before being allowed onto its platform, which Culper claims enables AppLovin to “see” Meta’s ad traffic and manipulate attribution.
“It makes it easy…to claim credit by stepping in front of what’s already happening. They can see, in general, who’s purchasing and then just serve ads to people they’re highly confident will make a purchase,” a current e-commerce customer reportedly told Culper.
Culper also raised concerns over AppLovin’s history, alleging that CEO Adam Foroughi has a background in controversial ad practices dating back to his time at Gator Corporation, a company known for early spyware applications.
The report further claimed that current and former employees of AppLovin have openly bragged about the scale of its direct-download program, with one referring to it as “the company’s top revenue driver.”
“The games automatically download to the device when the ads are tapped... WITHOUT YOUR CONSENT,” the firm quoted one user.
Culper believes that AppLovin’s business model is unsustainable and that the company is at risk of regulatory scrutiny, particularly from Google (NASDAQ:GOOGL).
“We believe these gimmicks are now unquestionably malicious, and the Company’s backdooring of direct installations into partners’ apps is tantamount to malware and in clear violation of Google Play’s Device and Network Abuse policy, which explicitly forbids ‘apps that install other apps without the user’s prior consent.’”
In turn, the firm said it intends to write an open letter to Google Play and its creators, emphasizing concerns about potential policy violations and risks that could impact up to 1.4 billion daily active users reached by AppLovin’s ads.