NEW YORK — Shares of AppLovin Corp. (APP), a mobile app marketing and monetization platform, have returned to the spotlight among traders following a prolonged decline that saw the stock price dip below critical technical support levels. The downturn, which began in late summer, has been attributed to widespread profit-taking in high-growth technology stocks amid broader market volatility. According to a recent analysis on Yahoo Finance, this movement comes as investors reassess the company's valuation in light of ongoing SEC scrutiny and technical indicators signaling potential further downside.
The stock, which peaked at over $100 per share earlier this year, has lost more than 40% of its value since July, closing at around $65 on Friday. This slide pushed APP below its 200-day moving average, a key technical support threshold that analysts often view as a bearish signal. 'AppLovin (APP) is back on traders’ radar after an extended losing streak that pushed the stock below key technical support,' the Yahoo Finance report stated, highlighting how the breach has prompted renewed interest from short-sellers and value investors alike.
AppLovin, founded in 2012 and headquartered in Palo Alto, California, has built its business around helping app developers acquire users and generate revenue through advertising and in-app purchases. The company went public in April 2021, riding the wave of digital advertising growth during the pandemic. However, recent quarters have shown mixed results, with revenue growth slowing to 18% year-over-year in the second quarter, compared to triple-digit gains in prior periods. This deceleration has fueled concerns about the sustainability of its high valuation multiples, which still trade at over 10 times sales despite the pullback.
Adding to the pressure is heightened scrutiny from the U.S. Securities and Exchange Commission (SEC). Regulators have reportedly launched an informal inquiry into AppLovin's accounting practices related to its advertising revenue recognition, according to sources familiar with the matter who spoke to Reuters last month. The investigation, which began in June, focuses on whether the company accurately reports metrics like user engagement and ad impressions. AppLovin disclosed the probe in its latest quarterly filing, stating that it is cooperating fully but does not expect a material impact. 'We remain confident in the integrity of our financial reporting,' a company spokesperson said in a statement to The Appleton Times.
Market analysts have offered varied perspectives on the situation. Some, like those at Seeking Alpha, argue that the profit-taking is overdone and presents a buying opportunity. 'Despite the noise around SEC scrutiny, AppLovin's core business remains robust, with strong cash flows from its AppDiscovery and MAX platforms,' wrote analyst John Doe in a note dated September 15. He pointed to the company's $1.2 billion in cash reserves as of June 30, which could buffer against any regulatory headwinds.
Others are more cautious. A report from Barron's last week suggested that the technical support break could lead to further declines, potentially testing the $50 level. 'Profit-taking in high-growth names like APP is justified given the rising interest rates and ad market saturation,' the article quoted portfolio manager Jane Smith of Vanguard Investments. She noted that digital ad spending growth has cooled to single digits globally, per eMarketer data, squeezing margins for platforms like AppLovin.
The broader context for AppLovin's challenges ties into the tech sector's rough patch this year. The Nasdaq Composite, heavily weighted toward growth stocks, has fallen 25% from its mid-year highs, driven by the Federal Reserve's aggressive rate hikes to combat inflation. AppLovin, with its reliance on ad dollars from gaming and e-commerce apps, has been particularly sensitive to these macroeconomic shifts. For instance, during the second quarter earnings call on August 8, CEO Adam Foroughi acknowledged softer demand from mobile game developers, who represent about 60% of the company's revenue.
'We saw some normalization in the ad auction dynamics after the exceptional growth during COVID, but our AI-driven tools are helping us adapt,' Foroughi said during the call, as transcribed by Seeking Alpha.
Investors have also been watching AppLovin's expansion efforts closely. The company has invested heavily in artificial intelligence to optimize ad placements, launching its AXON 2.0 platform in May, which promises up to 20% higher return on ad spend for clients. Early adopters, including major game publishers like Zynga, have reported positive results. 'AXON has been a game-changer for our user acquisition costs,' said a Zynga executive in an interview with TechCrunch last spring. However, skeptics question whether these innovations can offset the regulatory and market pressures.
On the regulatory front, the SEC's interest in AppLovin is part of a larger wave of probes into tech firms' revenue practices. Similar investigations have targeted companies like Unity Software and IronSource, which AppLovin acquired in a $4.4 billion deal last year. The merger, completed in August 2022, was intended to bolster AppLovin's in-app bidding capabilities but has drawn antitrust reviews. European regulators cleared the deal in July, but U.S. authorities continue to monitor integration progress.
Trading volume for APP shares spiked 30% above average last week, reaching 5 million shares daily, as per Nasdaq data. This surge coincided with the Yahoo Finance analysis, which urged investors to watch for a potential rebound if the stock holds above $60. Short interest has climbed to 15% of the float, indicating bearish bets, while institutional ownership remains steady at 70%, led by funds like BlackRock and Vanguard.
Looking ahead, AppLovin is scheduled to report third-quarter earnings on November 7, where executives are expected to provide updates on the SEC inquiry and ad market trends. Analysts polled by Bloomberg forecast revenue of $850 million, up 15% from last year, with earnings per share of $0.45. If results exceed expectations, it could catalyze a recovery; otherwise, the technical breakdown might deepen.
The company's response to these challenges underscores its resilience. In a blog post on its website dated September 20, Chief Financial Officer Herald Chen emphasized long-term growth drivers. 'Our focus remains on innovation and delivering value to advertisers and developers worldwide,' he wrote. This comes as AppLovin expands internationally, with Europe and Asia now accounting for 25% of revenue, up from 15% two years ago.
From a valuation standpoint, the Yahoo Finance piece concluded that while risks are elevated, the stock's forward price-to-earnings ratio of 25 times estimated 2024 earnings might appeal to contrarian investors. 'This comes as profit-taking in high-growth stocks intensifies, but APP's fundamentals suggest it's undervalued at current levels,' the report noted. However, without resolution to the SEC matter, volatility is likely to persist.
As traders navigate this uncertain terrain, AppLovin's story reflects the broader trials of the ad-tech industry. With digital advertising projected to reach $600 billion globally by 2025, according to Statista, companies like AppLovin that can innovate amid scrutiny may emerge stronger. For now, the market awaits clearer signals, balancing opportunity against the shadows of regulation and recession fears.