“You’re free.” -The SEC

“Free-falling.” -shortsellers

Over the last 10 months, AppLovin shareholders had someone else to blame whenever the stock got crushed.

It wasn’t the business slowing down or the valuation getting out of hand. And it definitely wasn’t the company’s precious AI advertising engine losing steam.

The real problem, they insisted, was short sellers, professional haters and the SEC sticking its nose into AXON’s data practices. 

Well, the SEC has officially closed its investigation without recommending enforcement action. Case closed. Hand CEO Adam Foroughi his apology bouquet and release the ceremonial doves.

That should’ve been a pretty good day for shareholders. Instead, AppLovin posted 53% revenue growth and STILL got drop-kicked into the shadow realm.

The stock lost nearly one-fifth of its value and $27 billion in market cap on the same day regulators cleared away its largest legal cloud. 

Apparently, AppLovin escaped the SEC investigation only to get convicted by its own earnings call.

Looking past the mostly uneventful numbers, investors latched onto one troubling phrase: “lighter-than-normal model performance improvements.” Meaning the AI engine that makes every ad more effective wasn’t getting smarter fast enough.

Obviously AppLovin says the slowdown was temporary, with its next model upgrade arriving shortly after quarter-end and advertiser demand still going strong. 

But investors didn’t get much time to debate it, because 24 hours later, The Trade Desk crashed through the wall like the Kool-Aid man of terrible ad-tech news.

The independent advertising platform reported $715 million in quarterly revenue, up just 3% from last year and well below the $753 million expectations. That alone would’ve been ugly, considering revenue grew 19% during the same period last year.

Then came the guidance.

The Trade Desk expects at least $650 million in third-quarter revenue versus the $807 million analysts had penciled in. That would represent an outright decline from last year, which is not exactly what shareholders want to hear from a company still wearing an AI-growth nametag.

The company has also spent the past couple of months replacing or installing a new CFO, CMO, commercial chief and other senior leaders… which is like your favorite NFL team benching the star qb and firing half the coaching staff while insisting everything is under control.

Shares plunged 25%, adding another basement beneath a stock already buried 80% below its peak.

Now, two companies getting throat-punched in the same 24-hour window doesn’t automatically mean the entire AI-advertising industry is broken.

Especially when you consider AppLovin is still growing more than 50%, generating wheelbarrows of cash and buying back stock. 

The Trade Desk has plenty of problems of its own, from sloppy execution and unhappy customers to competing with the advertising machines at Meta, Alphabet and Amazon.

Still, the sequence is hard to ignore.

AppLovin cleared away the regulatory boogeyman, delivered another quarter of explosive growth and still got punished because its AI models weren’t improving quickly enough.

Then one day later, The Trade Desk revealed its growth had nearly stopped, guided toward a revenue decline and continued rebuilding the executive team responsible for fixing it.

That makes the “buy the blood” crowd’s argument slightly more complicated than pointing at a YUGE drawdown and yelling, “Cheap!”

An 80% drawdown doesn’t prove the market has finally puked out every seller. It might simply mean investors are still working through all the bullsh*t baked into the original forecast. 

The insider activity doesn’t exactly calm the nerves, either. AppLovin CEO Adam Foroughi sold $26 million worth of stock near $500 in June. Coincidentally, shares now trade more than 30% below that neighborhood.

So personally, I’d let someone else earn the hero badge for calling the exact bottom. Until AppLovin’s model improvements pick back up and The Trade Desk proves it can grow again, “down a lot” isn’t enough of an investment thesis for me.

At the time of publishing this article, Stocks.News holds positions in Meta, Alphabet, and Amazon as mentioned in the article.