AppLovin's Strong Sell - Captain's Log

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AppLovin's Strong Sell - Captain's Log

Investing.com -- Captain's Log published a report today criticizing AppLovin (NASDAQ:APP)'s business practices. Here is a summary of the thesis:

AppLovin, known for its mobile gaming features, has shifted its business model in recent years to focus more on an advertising exchange model. This change allows any game associated with AppLovin to optimize its revenue generation.

In the past, AppLovin's income was primarily derived from its own studio games. However, the company has recently transitioned to a "software platform" revenue model largely sourced from its advertising exchange operations.

Over the past few years, AppLovin has made several business moves, including acquiring MoPub from Twitter and Wurl to support its connected TV (CTV) narrative. Despite these acquisitions outside the mobile gaming sector, AppLovin remains predominantly a mobile gaming story.

The company has faced criticism due to its business model. Some observers suggest that the growth story is heavily reliant on related-party transactions and circular revenue generated through a series of game studios based in Belarus and centered in Cyprus. Critics argue that many of the "most popular games" associated with AppLovin are games optimized for click farms to display the maximum amount of ads possible.

Critics also suggest that AppLovin benefits from a model where mobile games promote other mobile games within the same network, with very little advertising traffic actually originating from outside this network. They argue that this model is unsustainable in the long run, likening it to a Ponzi scheme.

AppLovin has not yet responded to these criticisms. The company continues to focus on the advertising exchange model, which allows any game associated with AppLovin to optimize its revenue generation.

Captain's Log is taking a short position on AppLovin.

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