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Snap False Statements on User Growth Prior to IPO Securities Class Action

Snapchat Logo on Screen

Snap, formerly called Snapchat, has a young and active base of users which is constantly growing, but it may be hard to quantify—or verify. The complaint for this class action alleges that Snap’s Registration Statement for its initial public offering (IPO) contained false and misleading information about user growth, in violation of the Securities Exchange Act of 1934.

The class for this action is all persons who acquired Snap securities (1) pursuant and/or traceable to Snap’s Registration Statement and Prospectus, issued for Snap’s initial public offering on or about March 2, 2017, or (2) on the open market between March 2, 2017 and May 15, 2017.

Snap is a worldwide camera company that provides mobile camera application products and services that let users send photos, drawings, texts, and videos. The company filed a Registration Statement, which was amended several times, and which included a preliminary Prospectus.

On March 3, 2017, the company completed its IPO. The company issued about 200 million shares and raised roughly $3.91 billion.

The Prospectus filed on March 2 calls the number of Daily Active Users “a critical measure of our user engagement.” It said, “If our Daily Active Users growth rate slows, our financial performance will increasingly depend on our ability to elevate user engagement or increase monetization of users.”

The company claimed to “regularly review” Daily Active User figures, it admitted that “these numbers are based on what we believe to be reasonable estimates of our user base for the applicable period of measurement” and that “there are inherent challenges in measuring how our products are used across large populations globally.”

On May 10, 2017, Snap filed a Form 10-Q for the first quarter of 2016 which showed disappointing user growth for the period—166 million daily users, only 44 million more than in the same period the previous year, the slowest year-to-year growth rate in at least two years. At this, the company’s stock price fell by over 21%.

Less than a week later, the complaint says, on May 16, Bloomberg reported that Anthony Pompliano, who had been hired to run Snap’s new user growth and engagement team, had filed a lawsuit against Snap. The article claimed he was fired after a mere three weeks on the job “for raising questions about allegedly false growth metrics [and] seeking whistleblower protection against retaliation by [the] company.” The complaint for that case alleged that Snap had been “falsely representing its key performance metrics—such as user growth and engagement figures” in order to inflate its value prior to the IPO. 

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