By Angela Palumbo

AppLovin stock dropped sharply Wednesday following two negative reports published by short sellers.

Shares of AppLovin were down 17% to $314.30. The stock, which has gained nearly 500% over the past 12 months, was the worst performer in the Nasdaq 100 on Wednesday. It was the No. 1 gainer in the Nasdaq 100 in 2024.

The reports from short sellers Fuzzy Panda Research and Culper Research allege that AppLovin, which helps mobile game developers advertise their apps, is replicating Meta Platforms' ad targeting strategy and that the ads it creates violate the terms of Google and Apple's app stores, among other claims.

AppLovin declined to comment for this article.

The short sellers' claims couldn't be verified by Barron's. Meta, Alphabet, and Apple didn't respond to requests for comment.

Both Fuzzy Panda and Culper are short AppLovin stock, which means that they have essentially bet the price of shares will fall. The firms can make money from the stock drop.

Both reports mentioned Axon 2.0, AppLovin's ad tech software that the company says is powered by artificial intelligence. Culper called Axon 2.0 "a promotional tool -- a smokescreen to hide the true drivers of its mobile gaming and e-commerce initiatives, neither of which have much to do with AI."

AppLovin stock has benefited from the AI trade and has demonstrated its ability to boost revenue. In 2024, the company increased revenue by 43% to $4.71 billion from the previous year and 69% from 2021, the year AppLovin went public. It reported earnings of $4.53 a share in 2024, up from 98 cents a share in 2023.

AppLovin, in its latest earnings report published mid-February, said it expects first-quarter 2025 revenue to be between $1.36 billion and $1.39 billion, above Wall Street's expectations of $1.32 billion in the quarter.

In a letter to shareholders published in tandem with results, Chief Executive Officer Adam Foroughi expressed confidence in the company's growth.

"We are still in the early stages of improving our advertising AI models. The roadmap ahead is filled with opportunities for iteration, and as we execute, we believe we can continue to drive value creation for our shareholders," Foroughi wrote.

Write to Angela Palumbo at angela.palumbo@dowjones.com

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February 26, 2025 14:34 ET (19:34 GMT)

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