Is APP Stock Starting the Comeback? SEC’s AppLovin Probe Eclipsed by Fundamentals
After a steep drop the previous day, AppLovin's (NASDAQ: APP) stock saw a strong comeback on Tuesday, rising 8% as investors shifted their..
Quick overview
- AppLovin's shares rebounded 8% after a significant drop due to an SEC investigation into its data collection practices.
- The company's strong Q2 earnings, with a 77% revenue increase and improved profit margins, have bolstered investor confidence.
- Despite the ongoing regulatory scrutiny, AppLovin's strategic shift to a pure-play advertising technology model is seen as a key growth driver.
- Technical analysts are monitoring crucial support levels, with potential for the stock to retest its all-time high if buying momentum continues.
After a steep drop the previous day, AppLovin’s (NASDAQ: APP) stock saw a strong comeback on Tuesday, rising 8% as investors shifted their focus from regulatory concerns to the company’s strong fundamentals and earnings growth.
SEC Probe Shakes Investor Nerves
AppLovin’s recent volatility was triggered by news that the Securities and Exchange Commission (SEC) is investigating whether the company breached service agreements with platform partners through certain data collection practices designed to enhance targeted advertising.
The probe, led by the SEC’s Cyber and Emerging Technologies Enforcement Unit, reportedly began earlier this year following a whistleblower complaint. The spotlight on AppLovin intensified after several high-profile short-seller reports criticized aspects of the company’s operations.
At present, neither AppLovin nor any of its executives face formal charges. However, the investigation has weighed on market sentiment, adding to the already volatile nature of the stock.
Market Turbulence and a Swift Comeback
AppLovin’s share price has been on a rollercoaster ride in 2025. After rallying to a record $747 following its strong Q2 earnings release, the stock endured a heavy correction last week, which accelerated on Monday amid news of the SEC inquiry.
APP shares dropped by 26% from the highs, falling as low as $547, but sentiment improved by Tuesday, sparking an 8% intraday rebound that pushed the stock to close at $631.85—a nearly $100 bounce from the previous session’s low.
Technical Drivers and Support Levels
Traders highlighted that key technical support near the $550 level held firm, fueling speculation that the correction may have been overdone and providing a base for the recovery rally.
Fed Comments Add a Tailwind
Investor confidence received an extra boost from Federal Reserve Chair Jerome Powell’s recent remarks suggesting growing downside risks to the labor market—comments interpreted as dovish by Wall Street. The prospect of a more accommodative Fed policy bolstered equities across the board, particularly benefiting high-growth tech names like AppLovin.
This macroeconomic support helped stabilize sentiment just as the company’s strong second-quarter results continued to attract buyers.
AppLovin’s Business Transformation Pays Off
AppLovin’s second-quarter earnings highlighted the success of its pivot to a pure-play advertising technology model following the sale of its legacy app business.
The company’s revenue surged 77% year-over-year to $1.26 billion, one of the strongest growth rates in the adtech sector. Gross margins improved to 87.7% from 82.9%, driven by operational efficiencies, while operating costs declined 29%, including a substantial 34% reduction in sales and marketing expenses.
This leaner cost structure amplified profitability gains: EPS rose to $2.39 from $0.89 a year ago, and adjusted EBITDA nearly doubled to $1 billion. AppLovin also generated $772 million in operating cash flow and $768 million in free cash flow, demonstrating robust cash generation.
Strengthening the Balance Sheet
The sale of its app portfolio provided liquidity to reduce net debt to $2.3 billion, down from $3.2 billion in Q1, improving leverage and lowering financial risk. This balance sheet cleanup has further reinforced investor confidence in the company’s long-term outlook.
Looking Ahead: Key Levels and Growth Drivers
For now, technical analysts view the $500 level and the prior $525 peak as crucial support thresholds, with the potential for APP shares to retest their all-time high of $747 if buying momentum persists.
While gaming-related advertising remains the company’s primary revenue driver, management has also pointed to promising gains in its e-commerce ad segment. The upcoming launch of its self-serve platform—aimed at enhancing advertiser reach and scalability—could act as the next significant growth catalyst.
Outlook: Balancing Growth with Uncertainty
AppLovin’s sharp rebound highlights how resilient investor sentiment can be when a company’s financial results remain robust. While the SEC investigation adds a layer of uncertainty, the company’s operational strength, improved margins, and strategic shift to a streamlined adtech model continue to provide a compelling narrative for growth-focused investors.
For the near term, traders will be watching regulatory developments closely, but many appear willing to bet that AppLovin’s fundamentals will outweigh the ongoing probe.
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