Shares of Applovin (NASDAQ: APP), a rising player in the digital advertising sphere, experienced a significant decline of 18.2% in March, according to detailed findings from S&P Global Market Intelligence. This dramatic drop comes on the heels of an already challenging February, during which the company faced scrutiny from two different short-seller reports that raised serious concerns about their business practices.

The broader technology sector also struggled during March, but Applovin found itself under intensified scrutiny after yet another damaging short-seller report surfaced. This time, it was a report from the controversial hedge fund Muddy Waters, which was published on March 27. Known for their high-profile short-selling strategies, Muddy Waters has a reputation for targeting companies they believe are overvalued or engaging in questionable practices.

In their report, Muddy Waters accused Applovin of employing a variety of disreputable tactics designed to artificially inflate the perceived success of its digital advertising revenue streams. They claimed that Applovin's new advertising engine engages in practices such as scraping user IDs and data from competing social media platforms to identify high-value targets. This method, according to Muddy Waters, potentially violates app store regulations regarding user privacy and data security.

Furthermore, the hedge fund raised concerns about the effectiveness of Applovin's advertising methods, particularly regarding its new e-commerce advertisers. They estimated that these advertisers were only experiencing an incremental demand of 25% to 35% when compared to their existing social media advertising. This sharply contradicted Applovin's management claims, which suggested that the incrementality of spending on their mobile games platform was closer to 100%.

The allegations made by Muddy Waters echo similar concerns previously raised by other short-seller firms, including Fuzzy Panda and Culper Research, which had collaborated on a short report against Applovin earlier in February. Like Muddy Waters, these firms argued that Applovin’s practices warranted their removal from major app stores, citing substantial violations of the privacy policies that govern such platforms.

Adding to the turmoil, the markets faced additional pressure from uncertainties surrounding tariff policies originating from the White House. On April 2, the Trump administration revealed new tariff policies that were even more severe than anticipated, exacerbating fears among investors. This broader unease within the technology sector negatively impacted multiple digital advertising companies, and the ongoing controversy surrounding Applovin only heightened the pessimism surrounding its stock.

As questions arise regarding the validity of the claims made by short-sellers, it's essential to consider the potential motivations behind such reports. Short-sellers often have a vested interest in creating fear, uncertainty, and doubt—commonly referred to as FUD—to drive down a company's stock price and profit from their short positions. Consequently, stocks that have experienced significant price increases in a short period may be perceived as particularly appealing targets for such tactics.