Problems at AppLovin (APP)

AppLovin (NASDAQ: APP — $166 billion) is an advertising network that helps large mobile games acquire new users and monetize their existing ones. Every day, over one billion players interact with AppLovin by viewing ads in mobile games, often ads encouraging users to download other mobile games. Investors believe AppLovin’s ad network business is a beautiful one, as it has extremely high margins, low marginal costs, becomes more effective as it grows, and can one day serve as a growing royalty on the mobile gaming ecosystem. The Bear Cave sees things differently.

The Bear Cave believes AppLovin’s rapid rise — up ~750% over the last year to around 35x revenue — is fueled by low-quality revenue growth from ads that are deceptive, predatory, and at times unreadable or unclickable. Today’s investigation also explores allegations of potential ad fraud within AppLovin.

Founded in 2012, Palo Alto-based AppLovin is led by its 44-year-old founder, CEO, and Chairman, Adam Foroughi. The company is sometimes described as opaque and difficult to understand. To get a better sense of AppLovin’s value proposition, The Bear Cave spent dozens of hours playing mobile games in the AppLovin ecosystem.

The results were surprising.