AppLovin's Crash: Can Both Sides Profit? What's Your Strategy?

$AppLovin Corporation(APP)$ was impacted by a short-seller report yesterday, falling as much as 22% during the day and closing down 12%.

Combined with insider selling, was the timing of this report just perfect?

The timing of this report is indeed perfect. During earnings season, many growth stocks drop after beating estimates, likely due to a valuation correction.

Additionally, executives have been selling, indicating a lack of short-term confidence.

CEO Foroughi Arash Adam performed an open-market sale (S) of 45,000 shares of AppLovin (APP) on 2/21/25 at an average price of $422.21 per share. This transaction totaled $18,999,624 and reduced direct holdings by 1.5%. Apart from this, AppLovin executives have been consistently selling over the past few months.

The core issues of the short-seller report are yet to be confirmed:

The main issue is that institutions suspect AppLovin’s AI-powered ad system (Axon 2.0) is a fraud, and the high click-through rates (CTR) might not be real.
This suggests that AppLovin’s high growth performance may be fabricated. The click-through rate (CTR) is 30-40%, which is 10x the industry average, something experts call “impossible” and a clear sign of manipulation.
Institutions also believe that AppLovin’s current ad model might face sanctions from Meta, Apple, and Google. If sanctioned, revenue would be severely impacted.

However, whether these claims can be verified remains uncertain.

Is the current drop in AppLovin’s high valuation now reasonable?

AppLovin’s 12-month forward enterprise value to EBITDA has dropped to about 30x, in line with its peer $Unity Software Inc.(U)$ , after reports by three short sellers alleged ad fraud and questioned the effectiveness of its Axon 2.0 advertising-technology engine.

Given such a large drop, both long and short positions could be reasonable!

The stock may continue to experience high volatility in the future. What strategies might work?

1. Go long and Buy stocks

In the short term, AppLovin is oversold. Buying at around $300 would likely see a short-term bounce. However, AppLovin is already rising pre-market today, so caution is needed if you want to go long.

2. Neutral Direction Strategy: Iron Condor

Sell 380 call + 270 put, buy 450 call + buy 220 put.

Expect the stock price to stay within a range and volatility to decrease. Be sure to set stop-loss orders to prevent a breakout from the range.

3. Bearish Strategy: Bear Put Spread

Buy 300 put + sell the 250 put.

This is cheaper than buying a put outright, with limited downside potential and controlled risk

4. Hedge Risk if Holding the Stock

Buy Protective Put: Hold the stock + buy a put to hedge downside risk while retaining upside potential.

Sell Covered Call: Bottom the stock + sell a call option to earn extra premium.

Would you go long or short on AppLovin?

Did you manage to successfully buy the dip yesterday?

Leave your comments and also post to win tiger coins~

Third Short-Selling on AppLovin: Buy the Dip or Go Short?

AppLovin shares plunge 20% after third short-selling firm slams company’s ad technology Muddy Waters alleged that AppLovin’s ad tactics “systematically” violate app stores’ terms of service through “impermissibly extracting” user data. ------------- How do you view the third short selling on AppLovin? After 20% drop, will you buy the dip or go short?

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