AppLovin’s Rally Hits a Rough Patch

After an extraordinary run that sent shares soaring nearly 300% over the past year, AppLovin suddenly lost momentum in early October. The sell-off came as a shock to investors who had watched the ad-tech company become one of Wall Street’s brightest stars.

The trigger was a Bloomberg report revealing that the SEC had opened an investigation into AppLovin’s data-collection practices.

Regulators are said to be reviewing whether the company used personal information to target ads in ways that may violate service agreements with key partners. The timing of the report, right as the stock was approaching new highs, was enough to spark a swift, double-digit decline.

Key Points

• AppLovin’s sell-off followed an SEC probe into its data practices, casting doubt on a company already trading at extreme valuation levels.

• The AI-powered ad platform keeps delivering—revenue up 77%, net income up 164%, and margins among the best in ad tech.

• With fundamentals strong but risks rising, AppLovin looks better as a hold than a fresh buy until valuations cool.

The Source of the Scrutiny

The SEC’s interest isn’t entirely out of the blue. AppLovin has faced periodic criticism from short sellers who claim the company’s software collects data without proper user consent or violates app-store terms of service.

Adding fuel to the fire, a handful of state attorneys general are reportedly conducting their own inquiries. These whispers, even if unsubstantiated, were enough to make traders uneasy. After all, when a stock has run up almost 300% in twelve months, it doesn’t take much uncertainty to rattle confidence.

This isn’t the first time AppLovin has been in the crosshairs. Back in March, short-selling firm Muddy Waters published a report alleging that AppLovin’s techniques could be easily replicated by rivals and that its data practices skirted platform rules. Shares plunged nearly 20% before recovering weeks later.

Management’s response this time was swift. Executives denied wrongdoing, emphasizing that AppLovin operates fully within industry norms and that the reports are designed to manipulate the share price.

Valuation Remains Sky-High

Despite October’s stumble, AppLovin’s valuation still stretches belief. The stock trades at nearly 100x earnings.

But analysts remain overwhelmingly positive with sixteen rating the stock a buy and only one says sell. Those lofty multiples are at least partially justified by the company’s equally lofty profitability.

The Profit Machine Keeps Running

Operationally, AppLovin is firing on all cylinders. It has now posted four straight quarters of revenue growth and ten consecutive quarters of rising earnings.

In its most recent quarter, revenue jumped 77% year over year to $1.26 billion, while net income surged 164% to $820 million.

Unlike most high-growth companies that pour every dollar into expansion, AppLovin has begun returning capital to shareholders. In Q2 alone, it repurchased roughly over $340 million of its own shares.

Looking ahead, management expects Q3 revenue to reach between $1.3 billion and $1.34 billion.

Analysts see earnings growing more than 50% annually over the next three to five years. Whether that pace is sustainable is debatable, but few can deny that the company has been executing exceptionally well.

October Sell-Off

AppLovin’s October sell-off has exposed just how fragile investor confidence can be when valuations are stretched and regulatory questions loom. Yet it’s also highlighted the company’s resilience: even after the SEC investigation became public, the stock rebounded swiftly as investors refocused on its stellar financials.

If the company can navigate its current challenges without lasting damage, it could continue its impressive run. But at today’s prices, the margin for error is thin. For investors willing to stomach volatility, AppLovin remains one of the most fascinating, and polarizing, AI-driven stories in the market.