AppLovin faces data collection controversy amid market scrutiny

AppLovin Corporation, a mobile advertising technology company that has seen remarkable growth over the past year, now faces significant challenges following multiple short-seller investigations that have uncovered potentially problematic data collection practices. The company, which reported record financial results last month with $4.7 billion in total revenue for 2024, has become the subject of intensifying scrutiny regarding its methods for targeting mobile advertisements.

On March 27, 2025, Muddy Waters Research became the third short-selling firm in a month to publish a critical report on AppLovin's advertising practices, sending the company's shares plunging 20% in a single day. This followed earlier reports from Fuzzy Panda Research and Culper Research on February 26, which had previously caused a 12% drop in the company's stock.

Allegations of unauthorized data collection

The Muddy Waters report alleges that AppLovin systematically collects third-party platform user identifiers without proper authorization. According to the firm's investigation, AppLovin gathers and structures unique identifiers from platforms including Meta (formerly Facebook), Google, Snap, TikTok, Reddit, and others, along with Shopify event data, to create what the report terms "Persistent Identity Graphs" (PIGs).

These practices appear to occur outside the controlled environments where companies like Apple, Google, and Meta enforce detection policies, potentially bypassing their ability to monitor cross-platform tracking, according to Muddy Waters' analysis.

The report states: "Code reveals AppLovin's collection of Facebook, Google, Snap, Reddit, as well as other platforms' IDs. These code IDs can be clearly traced to their platforms. Proof of the collection of these data are clear and reproducible."

A key concern highlighted in the report is that this data collection may violate the Terms of Service (TOS) agreements AppLovin has with major platforms. Specifically, as a Meta Audience Network Partner, AppLovin is subject to restrictions that expressly prohibit "the collecting or storage of any data obtained from any Ad or use of the Audience Network Service."

Similarly, Apple's developer guidelines state: "You may not derive data from a device for the purpose of uniquely identifying it... Apps that are found to be engaging in this practice, or that reference SDKs that are, may be rejected from the App Store."

Impact on advertising performance

The Muddy Waters report challenges AppLovin's claims about its advertising effectiveness, particularly regarding the incrementality of sales generated through its platform. While AppLovin CEO Adam Foroughi has claimed that advertisers were "experiencing nearly 100% incrementality" from its traffic, Muddy Waters estimates that only about 25-35% of purchases attributed to AppLovin are truly incremental.

According to web traffic analysis for 37 million unique users across five advertisers in Q1 2025, the report suggests that approximately 52% of e-commerce sales tracked through AppLovin are actually retargeting of existing potential customers rather than new customer acquisition.

The report further claims that AppLovin is experiencing significant customer churn, with approximately 23% of its e-commerce customers appearing to have removed the AppLovin pixel from their websites in the first quarter of 2025, contradicting CEO claims of almost no churn.

Market reaction and potential consequences

AppLovin's share price has experienced substantial volatility following these reports. After gaining over 700% in 2024 to become one of the tech sector's top performers, the stock has fallen 19% year-to-date in 2025, with the most recent 20% drop representing its steepest single-day decline on record.

Industry analysts note that the consequences for AppLovin could be severe if major platforms take action. Rob Leathern, a product leader with experience in the advertising technology sector, noted on LinkedIn: "People at Meta and Google are now aware of some of these practices. I don't know about Apple. Fair to say that big tech companies somewhat discount short seller research, but they do NOT ignore it."

The history of platform enforcement suggests potential risks for AppLovin. According to Muddy Waters' report, Big Tech companies routinely remove apps that violate their terms of service, with Google preventing 1.3 million apps from getting "excessive, unnecessary access to sensitive user data" in 2024 alone, and Apple terminating over 500,000 developer accounts in 2022 and 2023.

A prominent historical example cited is Cheetah Mobile, which was banned by both Google and Facebook following investigations into improper data collection practices. Cheetah Mobile's share price fell 87% from its peak and never recovered.

AppLovin's response

On February 26, following the publication of the initial short reports, AppLovin CEO Adam Foroughi published a blog post defending the company's practices and criticizing the short sellers.

"It's disappointing that a few nefarious short-sellers are making false and misleading claims aimed at undermining our success, and driving down our stock price for their own financial gain, rather than acknowledging the sophisticated AI models our team has built to enhance advertising for our partners," Foroughi wrote.

In the blog post, Foroughi specifically addressed claims about the company's data practices, stating: "We also do not have any means or desire to look at other company's bid or user data; our models use solely behavioral data, ad engagement data, win/loss notifications from mediation (same data shared to any bidder on our platform), and advertiser data to generate predictions."

However, critics contend that the evidence presented in the short-seller reports directly contradicts these claims, with Muddy Waters noting: "According to the Muddy Waters report: "AppLovin's CEO claims to have neither the means nor desire to look at other companies' user data, but the evidence in its code indicates the opposite – AppLovin has the means and is engaging in collecting 3P platforms data to construct its PIGs."

Industry implications

The controversy surrounding AppLovin highlights broader concerns in the digital advertising industry about data privacy, transparency, and compliance with platform policies. As regulations around user data become increasingly stringent, advertising technology companies face growing pressure to ensure their practices align with both platform requirements and consumer expectations.

Dr. Augustine Fou, an independent marketing analytics consultant who commented on Rob Leathern's LinkedIn post, agreed with the comparison to the Cheetah Mobile case, suggesting that major platforms may have been unaware of potentially problematic practices until third-party research brought them to light.

The situation also illustrates the sometimes complex relationships between advertising technology providers and major platforms like Google, Meta, and Apple, which act as both partners and gatekeepers in the digital advertising ecosystem.

Industry observers are now watching for potential responses from major platforms, which could range from enhanced scrutiny to formal investigation or enforcement actions against AppLovin.

The company faces several possible scenarios: customer abandonment if advertisers become concerned about the true incrementality of their ad spend, imitation by competitors if the practices continue unchallenged, or potential deplatforming if major platforms determine that AppLovin has violated their terms of service.

Given the central role that relationships with major platforms play in AppLovin's business model, any formal action by Google, Meta, or Apple could have significant implications for the company's future prospects and valuation.

Timeline of key events

• Late 2022: AppLovin reportedly launches Array, partnering with carriers and OEMs
• May 2023: AppLovin announces expansion of Array partnership with OPPO
• September 2023: AppLovin expands Samsung partnership to Brazil
• February 12, 2025: AppLovin reports record financial results and announces plans to sell gaming division
• February 26, 2025: Culper Research and Fuzzy Panda Research publish reports alleging improper practices; AppLovin shares fall 12%
• February 26, 2025: AppLovin CEO Adam Foroughi publishes blog post defending company's practices
• March 27, 2025: Muddy Waters Research publishes report; AppLovin shares fall 20%
• March 28, 2025: Market continues to assess implications as various industry experts weigh in on the situation