Why AppLovin Stock Slumped in June

A hoped-for graduation to a top stock index was one of the non-occurrences, while a short-seller felt compelled to write a scathing report on the company

Coming up short The index let-down, such as it was, occurred near the top of the month

Every quarter, S&P Dow Jones Indices, the operator of the closely ed S&P 500 index (among many others), s to "rebalance" the index, replacing component stocks deemed no longer suitable with new ones

Image source: Getty Images

Several days ahead of the current rebalancing, speculation grew which companies would land on the hallowed index

AppLovin was mentioned as one of those candidates, at least by a team of analysts at heavyweight lender Bank of America

The leading spect, in their take, was online securities brokerage Robinhood, but it also mentioned six other spects

Among these was AppLovin

The market can usually shrug off a non-event this, disappointing as it may be initially

It's tougher to ignore a highly critical and detailed analysis of a stock, such as the ones typically published by institutional short-sellers

Unfortunately for AppLovin, that's exactly what happened when such a firm trained its sights on the company

In mid-June, the firm, Culper Re, unveiled a rather sprawling 30-page screed criticizing AppLovin's practices

Many of its accusations pertained to AppLovin's goal of acquiring the non-Chinese operations of controversial social media app TikTok, a service that has fallen afoul of the U

In the report, Culper intimated that a significant AppLovin holder, Hao Tang, is an individual with a shady past and "extensive direct and indirect ties" to certain dark corners of the Chinese government

It decried this "covert Chinese ownership," and warned of the danger posed to U

Radio silence AppLovin hasn't made any official statement on the Culper Re allegations

Perhaps, management feels they'll blow over with investors before long

Personally, I'd view that as a mistake since troubling allegations the ones the short-seller raises have a way of lingering and, in turn, negatively affecting investor morale

We'll see whether the company can der news encouraging enough to dislodge the numerous accusations from the collective investor memory

Bank of America is an advertising partner of Motley Fool Money

Eric Volkman has no position in any of the stocks mentioned

The Motley Fool has positions in and recommends AppLovin and Bank of America

The Motley Fool has a disclosure policy.