AppLovin is a Strong Sell - The Captain's Log

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

AppLovin, a company known for its mobile gaming properties, has shifted its business model in recent years to focus more on an advertising exchange model. This change allows any game partnered with AppLovin to be monetized optimally.

In the past, AppLovin's revenue was primarily derived from its own studio games. More recently, however, the company has pivoted to a "software platform" revenue model, which is primarily derived from their ad exchange business.

Over the past few years, AppLovin has made several business moves, including the acquisition of MoPub from Twitter and Wurl, to promote a connected TV (CTV) story. Despite these acquisitions outside of the mobile games space, AppLovin remains primarily a mobile games story.

The company has been criticized for its business model, with some observers suggesting that its growth story is largely due to related party transactions and circular revenue run through a series of Cyprus-based, Belarusian-owned games studios. Critics argue that many of the "most popular games" partnered with AppLovin are merely games optimized for click farms to promote the most ads possible.

Critics also suggest that AppLovin is benefitting from a model where mobile games are marketing other mobile games within the same network, with very little ad traffic actually leaving this network. They argue that this model is unsustainable in the long-term and liken it to a Ponzi scheme.

AppLovin has not yet responded to these criticisms. The company remains focused on its ad exchange model, which allows for optimal monetization of any game partnered with AppLovin.

The Captain's Log is short AppLovin.

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Source: Investing.com