Often, when a company’s stock comes under the scrutiny of a vocal short seller, it can lead to a noticeable decline in its share price. This was evident with AppLovin‘s (APP -0.83%) experiencing a 0.7% decrease on Thursday, following the publication of a critical report by a prominent short seller. This decline was more significant than the 0.4% drop observed in the S&P 500 index on the same day, underscoring the potential impact of short-selling activities on market perceptions and investor sentiment.
Unpacking Allegations of Chinese Ties
The short-selling entity responsible for this report is Culper Research, which released a detailed 30-page document on Thursday morning outlining its reasoning for shorting AppLovin’s stock. This report delves into various aspects of the company’s operations and its alleged connections to China, raising questions that could affect investor confidence and market stability.
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Central to these allegations is AppLovin’s claimed objective of acquiring the non-China operations of the highly successful social media platform, TikTok. This goal has raised eyebrows among analysts and investors alike, who question the implications of such a move.
Culper Research highlights concerns regarding significant investments in AppLovin’s equity by a Chinese national, Hao Tang, which they view as problematic. They also express alarm at what they perceive as undisclosed partnerships between AppLovin and two companies based in China, suggesting potential risks related to transparency and corporate governance.
Culper concluded that these alleged covert ties to Chinese ownership and operations not only present serious concerns for shareholders but also pose significant threats to national security and data security—issues that AppLovin aims to address through its acquisition of TikTok’s operations outside of China. Their statement raised alarms about the broader implications of foreign influence on American companies.
Moreover, the short seller described Hao as “a bad actor” with extensive links to Chinese espionage, state-sponsored propaganda, human trafficking, and money laundering schemes, further complicating AppLovin’s position in the eyes of investors and regulators alike.
Market’s Tepid Response to Allegations
The subdued reaction from investors following Culper’s report indicates that a significant number of AppLovin shareholders are not entirely convinced by the firm’s arguments. While the concerns raised by the short seller may have merit, the lack of an official response from AppLovin regarding these allegations leaves many questions unanswered. Observers are keen to see if and when more information regarding these supposed connections to China will emerge, as this could greatly influence the company’s future performance and investor sentiment.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AppLovin. The Motley Fool has a disclosure policy.
