Forbes·2025-10-13 12:14Core Insights - AppLovin Corporation has experienced a nearly 20% decline in market value, erasing over $40 billion in market capitalization within ten days, raising questions about whether this is a correction or a deeper issue for the company [1] - The decline was triggered by an SEC investigation into AppLovin's data collection methods, focusing on potential breaches of privacy and platform regulations [1][3] - Despite the recent downturn, AppLovin's fundamentals remain strong, with over $3.5 billion in free cash flow generated in the past twelve months and gross margins exceeding 70% [5] Financial Performance - AppLovin's revenue surged by 54% year-on-year to $1.65 billion, with adjusted EBITDA rising to $910 million, driven by demand for its MAX ad platform and AXON 2 machine-learning engine [2] - Prior to the decline, AppLovin's market capitalization reached $240 billion, trading at over 50 times forward earnings, reflecting high valuation due to its growth and improving margins [2] Regulatory Risks - The SEC investigation has raised concerns about AppLovin's compliance with stricter privacy regulations enforced by mobile platforms like Apple and Google [3] - Potential fines or restrictions from the investigation could impact AppLovin's ad-targeting operations, leading to reduced advertiser spending on its network [3] Market Dynamics - The decline in AppLovin's stock occurred shortly after its addition to the S&P 500, which had led to increased index fund purchases, suggesting a speculative peak [4] - The company's ability to resolve regulatory issues and rebuild partner confidence will be crucial for its stock recovery [7] Long-term Outlook - For long-term investors, the recent decline may present an opportunity, provided that regulatory concerns do not persist [5] - The future trajectory of AppLovin's stock will depend on the resolution of the SEC investigation and the restoration of investor trust [8]