Short Seller Says AppLovin Is 'Desperate And Doomed,' Shares Slide

Culper Research has issued a short report alleging AppLovin poses national security risks due to undisclosed ties to Chinese national Hao Tang, who they claim has links to the CCP, money laundering, and other illicit activities. Culper asserts Tang controlled a significant portion of AppLovin's shares and that the company has covert Chinese operations, raising concerns for shareholders and national security, particularly given AppLovin's pursuit of TikTok's ex-China business; despite these allegations and previous short reports from firms like Muddy Waters and Fuzzy Panda, AppLovin shares are up over 400% in the past year, with strong advertising revenue growth reported in the last quarter.

Analysis

AppLovin Corp (APP) faces renewed scrutiny following a short report from Culper Research alleging significant national security risks due to undisclosed ties to China. The report specifically implicates Chinese national Hao Tang, asserting he controlled up to 28% of AppLovin's Class A shares pre-IPO and currently holds at least 9.8%, while also having purported connections to the CCP, money laundering, and illegal gambling. Culper Research further claims AppLovin has undisclosed agency agreements with Chinese AdTech firms BlueFocus Intelligence and eClickTech to facilitate cross-border e-commerce, and characterizes AppLovin's pursuit of TikTok's ex-China business as a desperate move. These allegations persist despite AppLovin CEO Adam Foroughi's repeated denials of meaningful Chinese ownership or operational ties. This is not the first instance of short-seller targeting; Muddy Waters previously labeled AppLovin a "scammy adtech company," and Fuzzy Panda Research accused it of data theft from Meta Platforms. Notwithstanding these serious accusations, AppLovin's stock has demonstrated remarkable resilience, appreciating over 400% in the past year, supported by strong financial performance, including a first-quarter earnings beat where advertising revenue surged 71% year-over-year, and robust second-quarter advertising revenue guidance of $1.20 billion to $1.22 billion. At the time of publication, AppLovin shares were down 2.04% to $375.61, reflecting immediate market reaction to the report.

Key Decisions for Investors

• Investors should closely monitor AppLovin's official response to Culper Research's allegations and any potential regulatory inquiries, particularly concerning the purported Chinese ties and national security implications.
• It is crucial to weigh the company's strong reported financial growth, including a 71% year-over-year increase in Q1 advertising revenue and positive Q2 guidance, against the significant headline and governance risks presented by these repeated short-seller allegations.
• Consider the potential for heightened stock volatility and the impact on sentiment if these allegations gain further traction or lead to formal investigations, irrespective of the company's underlying operational performance.