Morningstar

AppLovin: SEC Probe Into Data Collection Practices Lends Some Legitimacy to Short Reports

We have always considered TOS violations with major advertising companies to be the most credible accusations against AppLovin.

The AppLovin company logo is seen displayed on a smartphone screen.
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Securities in This Article
AppLovin Corp Ordinary Shares - Class A
(APP)

Key Morningstar Metrics for AppLovin

AppLovin APP‘s stock price fell 14% after Bloomberg reported that the Securities and Exchange Commission is investigating the company’s data collection practices. Previous short reports accused AppLovin of violating partner platforms’ terms of service.

Why it matters: While regulatory probes don’t always lead to penalties, this investigation underscores the increased risk involved in investing in the firm and the lack of transparency surrounding its new black-box advertising optimization engine, Axon 2.

  • We have previously written about multiple short-seller reports targeting AppLovin, but we have always considered TOS violations with major advertising companies such as Meta, Google, and Apple to be the most credible and consequential of the accusations, given potential retaliation.
  • The SEC probe into a whistleblower complaint and short-seller accusations opens the door for potential fines should the agency determine that AppLovin truly violated other platforms’ TOS.

The bottom line: We maintain our narrow moat rating and $360 fair value estimate, while emphasizing our Very High Uncertainty Rating and acknowledging that several regulatory and retaliatory risks could still emerge in the near term on an adverse SEC conclusion.

  • We believe the most consequential risk would be retaliation from Meta or Google rather than the fine itself. The larger platforms could restrict advertisers from using AppLovin tracking pixels on their websites as a condition for retaining access to Meta’s or Google’s ad inventory.
  • AppLovin, Meta, and Google all cater to small- to mid-size advertisers. If those clients had to choose between AppLovin’s open internet tools and access to Meta’s or Google’s ad inventory, most would opt for the latter, which would hinder AppLovin’s non-gaming ad expansion goals.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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