On Thursday, AppLovin's share price experienced a significant decline.
App-based advertising middleman AppLovin, seeing a 9% decrease in its shares on Thursday, had investors feeling less than thrilled. This slide came after a blog post on Substack, a platform for digital newsletter publishers, raised doubts about the user-friendliness of AppLovin's in-app ads. The skepticism came from Edwin Dorsey, a short-seller who runs a Substack publication called The Bear Cave.
A mixed bag of criticisms
Dorsey, while pointing out some valid concerns, overplayed his hand a bit. He argued that AppLovin's rapid growth was fueled by advertisements that failed to meet user expectations. Some of these ads are indeed not up to par, creating difficulty for users to return to the original app or leading them to a digital dead-end. This jumpiness in the ad market is an inherent part of the gig when numerous advertisers and app owners rely on a somewhat self-serviced platform like AppLovin to connect with and monetize 1.4 billion daily users.
However, it's also possible that AppLovin's stock slide had other contributing factors. For instance, its staggering rise over the past year – reaching a 780% growth as of Thursday – made it prime for profit-taking. All it took was the right bearish push, which Dorsey's critique provided.
Still standing tall
AppLovin's management must acknowledge that its tech isn't always seamless, but this isn't a sign of a company heading towards doom. While Dorsey's criticisms are valid, it is essential not to make hasty assumptions based on these concerns.
Furthermore, AppLovin's shares are currently trading at valuations above 30 times their trailing revenue and over 100 times their trailing-12-month earnings per share. This exalted pricing magnifies the impact of any bearish sentiment. Given the stock's frothy level, it won't take much for the sell-off to persist once it starts.
This tumultuous phase might continue for a few days, wildly fueled by last week's bullish momentum following the release of AppLovin's fourth-quarter results, which reported a 73% increase in ad revenue for the quarter.
Despite all this, AppLovin still embodies a growth-story stock that is not entirely bound by its rich valuation. Despite Dorsey's legitimate concerns, the broader bullish thesis holds, making AppLovin an intriguing investment option for those with an appetite for risk.
- Dorsey's criticism of AppLovin's in-app ads, as mentioned in his Substack publication, led to investors hating the decrease in its shares, resulting in a 9% decline on Thursday.
- Despite Dorsey's valid concerns about AppLovin's user-friendly ads, the company's rapid growth in finance and investing, coupled with its reliance on advertising revenue, continues to make it an intriguing investment option.
- Dorsey, the short-seller who runs The Bear Cave on Substack, argued that AppLovin's growth was fueled by advertisements that failed to meet user expectations, leading to some ads being less than ideal and contributing to user frustration.
- While Dorsey's critique saw AppLovin's stock slide, its shares are currently trading at exalted valuations, making it vulnerable to sell-offs, especially given the impact of any bearish sentiment in the advertising market if profit-taking ensues.
