Why AppLovin Stock Lost 11% in October

AppLovin (NASDAQ: APP) has been one of the more volatile stocks on the market over the last year or two, and that pattern continued in October as the high-flying adtech stock was hit by reports of an SEC probe into its data collection practices.

That news comes after several sellers issued reports against the company earlier in the year, aiming to make the stock price go down.

Despite those concerns, the stock rebounded toward the end of October and recouped some of those gains to finish the month down 11%, according to data from S&P Global Market Intelligence.

As you can see from the chart, the stock fell sharply early in October and was down by nearly 24% before bouncing back.

APP data by YCharts

Is AppLovin in hot water?

On Oct. 6, AppLovin stock plunged, falling 14% after Bloomberg said that the SEC was investigating its data-collection practices in response to allegations that the adtech company had violated platform services agreements to make advertising more targeted.

Short-seller Fuzzy Panda commented on X the following day that it had warned about these issues as early as February.

However, Citigroup said the sell-off was a buying opportunity as AppLovin, calling the pullback "extreme." Oppenheimer also came out in support of AppLovin over the long term and reiterated a price target of $740.

Analysts also observed that AppLovin had not disclosed the probe in a regulatory filing, indicating it is probably not material.

On Oct. 15, Bloomberg said that AppLovin had shut down a product related to the short-seller allegations and complaints about unwanted downloads.

In a statement, AppLovin said the Array product was being tested and was not economically viable. Toward the end of the month, the stock got a strong endorsement from Deutsche Bank, which initiated coverage with a buy rating and noted its "best-in-class" technology and the opportunity it has as it expands into new markets like e-commerce.

That note seemed to drive the recovery over the last 10 days of the month.

Image source: Getty Images.

What's next for AppLovin?

AppLovin is set to report third-quarter earnings after hours on Wednesday, and the stock is likely to swing on the news.

Analysts expect revenue to increase 12%, which doesn't adjust for the sales of its mobile app game business earlier this year, to $1.34 billion, and for adjusted earnings per share to jump from $1.25 to $2.39.

If AppLovin can top those numbers and tamp down concerns related to the probe, it could help push the stock even higher, though there are also reasonable valuation concerns at this point.

Citigroup is an advertising partner of Motley Fool Money. Jeremy Bowman has positions in AppLovin. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.