SEC Investigates AppLovin Data Practices, Shares Plummet 15%

The market reaction to AppLovin’s data practices has been swift and severe, with shares plummeting over 15% in extended trading. This significant downturn follows reports that the U.S. Securities and Exchange Commission (SEC) has initiated an investigation into the company’s methods of user data collection. The probe, reportedly handled by the SEC’s emerging technologies and cybersecurity division, centers on allegations that AppLovin may have circumvented service agreements with major platform partners like Apple and Google to facilitate more targeted advertising through unauthorized tracking techniques.

This regulatory scrutiny emerged in the wake of an informant’s complaint filed earlier this year, coupled with critical reports from short-sellers. While the SEC has not yet leveled formal accusations against AppLovin or its executives, the mere disclosure of the investigation has triggered an immediate market reprisal. AppLovin has publicly stated its regular engagement with regulatory bodies and committed to disclosing any material developments through appropriate public channels. The SEC, adhering to standard practice during government closures, declined to comment on the matter.

The impact of this investigation is particularly noteworthy given AppLovin’s substantial market performance throughout the year, where its market capitalization had nearly doubled, surpassing $230 billion, largely attributed to the surging demand for AI-driven advertising tools. The company’s recent inclusion in the S&P 500 index had further elevated its profile among institutional investors, making the current investigation a significant challenge to its ascendant trajectory.

Allegations of Covert Tracking Techniques

Prominent short-seller funds, including Fuzzy Panda and Muddy Waters, have been particularly vocal critics, asserting that AppLovin employed prohibited tracking methodologies, such as device fingerprinting, to identify users across various applications and websites. Such practices, if confirmed, would directly contravene the privacy policies of platforms like Apple and Google. Muddy Waters had previously characterized AppLovin as “another deceptive ad tech company.” In response, AppLovin CEO Adam Foroughi has vehemently denied these claims, labeling the reports as inaccurate and asserting that the company has not developed persistent alternative identifiers.

In an effort to address these allegations, AppLovin engaged prominent attorney Alex Spiro, a partner at Quinn Emanuel, in March to oversee an independent inquiry into the origin of the critical reports. Spiro’s involvement, representing high-profile figures such as Elon Musk, highlights the significant defensive measures the company is undertaking.

Partnerships and Regulatory Climate

AppLovin maintains commercial relationships with major technology firms including Meta, Amazon, and Google. However, it remains unclear whether these partnerships are central to the ongoing SEC investigation, nor is there any indication that the SEC is scrutinizing the conduct of these partner companies. The pressure on AppLovin is multifaceted, extending beyond regulatory concerns to include intensified attacks from short-sellers, with the market value already reflecting the accumulating reputational risk. The legal proceedings are progressing without formal charges, but under an increasingly intense spotlight.

While AppLovin maintains that the legal efforts led by Spiro are ongoing and aim to refute what they describe as “demonstrably false reports,” the current environment of heightened scrutiny regarding data privacy and tracking means that any confirmed malfeasance could have profound implications for both the company’s stock performance and institutional confidence.