Shares of digital advertising up-and-comer Applovin (APP -16.20%) plunged 18.2% in March, according to data from S&P Global Market Intelligence.

Applovin already had a rough February, when it was hit by two short-seller reports. And while the entire technology sector had a rough March as well, Applovin had another especially bad month, as it was hit by -- you guessed it -- a third short-seller report.

Muddy Waters goes after Applovin, following others

On March 27, a short-selling hedge fund manager under the name Muddy Waters published a short report against Applovin.

According to Muddy Waters, Applovin's new digital advertising engine engages in a number of irreputable tactics in order to make its digital advertising revenue look better than it otherwise would be. Muddy Waters concluded Applovin's software essentially scraped user IDs and data from other social media platforms in order to find high-value targets, which Muddy Waters claims is a violation of app store rules. The hedge fund then went on to accuse Applovin of using "retargeting" methods that boost ad sales relative to actual demand.

All in all, Muddy Waters thinks that Applovin's new e-commerce advertisers are only seeing 25% to 35% "incremental" demand to their existing social media advertising, whereas Applovin's management claimed that the incrementality of spending on its mobile games platform was more like 100%.

Muddy Waters' claims mirror those of short-seller firms Fuzzy Panda and Culper Research, which collaborated in a short report against the company in February. And like those short-sellers, Muddy Waters believes Applovin's software should be "deplatformed" from the major app stores, given that these accusations would amount to a violation of the app stores' privacy policy.

In addition, markets were roiled by fears over the tariff policies coming out of the White House. Those fears turned out to be correct, with the Trump administrations' tariff policies unveiled April 2 being significantly worse than was contemplated, even by market skeptics. During the month, the entire technology sector plunged, especially digital advertisers. So, the incremental short-seller report only added to the downbeat mood for Applovin.

Who to believe?

It should be noted that short-sellers have an obvious incentive to "muddy the water" so to speak, to reap fear, uncertainty, and doubt in their target companies. Moreover, stocks that have gone up a lot in a short amount of time may also be especially good targets.

Applovin certainly fits that description, as it had rallied nearly 60% to begin the year. In addition, management came out after the first short report, stridently refuting its claims. After the Muddy Waters report, Applovin CEO Adam Foroughi wrote another blog post once again refuting the report, saying, "It's easy to discredit a short report like this in minutes." Foroughi even pasted a Grok AI query in the blog post regarding Applovin's pixel ad engine, and how it compares with other industry-standard targeting methods.

Applovin also retained law firm Quinn Emanuel Urquhart & Sullivan to thoroughly investigate the short-seller claims, likely with the objective of putting the claims to rest once and for all.

In addition, in more recent days, Applovin has put itself out there as a potential bidder for Tik Tok U.S., which Chinese parent Bytedance may be forced to divest. So, either management is highly confident its AI-powered ad software doesn't "cheat" or run afoul of app store rules, or the executives have an awful lot of lot of chutzpah.

Amid the short-seller claims and the absolute wrecking of the tech sector recently, it may be time for investors to take another look at Applovin.