AppLovin (APP -3.10%) has come under a lot of scrutiny this year. It's been the target of not just one short-seller report but three. However, the bulls won the latest round when the company once again reported strong results in the first quarter, and the stock shot higher. It's up nearly 288% over the past year, as of this writing.

The three reports are from the colorfully named Fuzzy Panda Research, Muddy Waters, and Culper Research. The reports all try to cast doubt on the legitimacy and effectiveness of AppLovin's artificial intelligence (AI) adtech platform, Axon 2.0. Some of their claims include that AppLovin's software violates user privacy and installs apps on users' devices without their consent. This could lead to its software services being banned from app stores due to policy violations.

AppLovin CEO Adam Foroughi has denied the allegations, saying that Axon 2.0's complexity lets short sellers "stir fear and doubt." He told investors to "dip deeper," while noting AI chatbots could easily disprove the short-seller claims.

No growth slowdown

The short reports did little to slow down AppLovin's growth in Q1. Its advertising (previously called software platform) segment revenue soared 73% to $1.16 billion, while overall revenue climbed 40% to $1.48 billion, topping the $1.38 billion consensus as compiled by LSEG.

Its Apps portfolio revenue, meanwhile, fell 14% year over year to $325 million, although segment-adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed 9% to $62 million. The company also announced an agreement to sell its mobile gaming business to Tripledot Studio. It will receive $150 million in cash, a $250 million secured promissory note, and an approximately 20% stake in Tripledot Studios as part of the deal.

The company also continues to see strong gross margin improvement, jumping to 81.7% from 72.2% a year ago. It has also been able to greatly reduce its sales and marketing spending, lowering it by 19% year over year. This is leading to its profitability metrics growing even faster than revenue. It's pretty rare to see a combination of soaring revenue and lower expenses.

Earnings per share (EPS) jumped from $0.67 a year ago to $1.67, topping the $1.45 consensus. This came despite the company taking a $189 million non-cash, goodwill impairment charge related to the sale of its Apps portfolio.

EBITDA, meanwhile, soared 82% year over year to $1 billion. Advertising-adjusted EBITDA surged 92% to $943 million.

AppLovin generated $832 million in operating cash flow and $826 million in free cash flow. It ended the quarter with $3.2 billion in net debt.

Looking ahead, AppLovin forecasts Q2 advertising revenue to be between $1.195 billion and $1.215 billion, representing growth of between 68% and 71%. It guided for Q2 advertising-segment adjusted EBITDA to range between $970 million and $990 million, up from $520 million a year ago.

AppLovin said that its foray into web-based advertising is going well, while noting that its pilot currently reaches less than 0.1% of the potential market of total advertisers. It said it will take a few quarters to refine its tools before it is ready for a broader release. Its current focus is on mid-market web advertisers.

The company will launch a self-service dashboard for select customers this quarter to help automate processes. It said once this service is fully rolled out, new advertisers will be able to set objectives, budgets, and upload ads, and then let its system deliver results. It is also working to improve its integrations with third-party platforms and attribution vendors to give advertisers a better measurement experience.

It continues to think that web-based advertising can account for 10% of its advertising net revenue this year.

Image source: Getty Images.

Is it too late to buy the stock?

Even after a nearly 288% annual gain, AppLovin stock is still attractively valued. While it has a forward price-to-earnings (P/E) ratio of about 41 times 2025 analyst estimates, its price/earnings-to-growth (PEG) ratio is only 0.5. PEGs below 1 typically indicate a stock is undervalued.

The company continues to grow both its revenue and earnings quickly. It has also been generating very strong cash-flow growth. If it can successfully expand into e-commerce advertising, more robust growth could be ahead.

As for the short reports, there is not much concrete evidence that the company is doing something wrong. Apple and Alphabet are huge companies, and Apple, in particular, is very strict with privacy rules when it comes to its app store. If Axon 2 has been violating app store policies, Apple likely would have cracked down on it by now.

That said, I think three short reports from separate companies are enough to call for caution, but they wouldn't completely turn me off to the name. The valuation and growth are attractive enough for me to have a small, speculative position.