Twitter seeks $809 million settlement with angry investors

Twitter on Monday said it is proposing an $809.5 million settlement for a 2016 securities class action lawsuit alleging that the company misled investors about its user engagement figures. According to a news release, the complaint alleges violations of the Securities Exchange Act of 1934. Twitter said it expects to use the cash to pay a potential settlement amount in its fourth quarter.

The lawsuit alleges that Twitter provided investors with misleading information about growth metrics to make the company appear financially sound. The complaint points to a 2014 incident that Twitter conducted with financial analysts, where the company provided "unrealistic" growth estimates, which pegged its monthly active users (MAUs) as "over 550 million users". See twice. and to increase revenue to $4.6 billion by 2018."

The complaint alleges that Twitter started a "shell game" where it tried to hide its user engagement from investors; As user engagement was considered a major driver of MAU's growth. "[H]he advertising defendants provided investors with complete and accurate information about user engagement, investors would have been aware that Twitter's MAU growth—and with it, the company's ability to grow revenue—had stalled." "

In 2014, Twitter stopped reporting its primary user engagement metric—timeline views, according to the suit, a practice that made it harder for analysts and investors to track the company's growth. Timeline views are counted every time a user visits Twitter and refreshes their timeline to see or discover more tweets. Twitter said at the time that the metric had become irrelevant.

Instead, it includes "low-quality growth" metrics, including sending automated messages to encourage inactive users to log in so that Twitter can include them as "active" users. . The practice was outlined by reporter Nick Bilton in a 2016 Vanity Fair article, where he said that Twitter did what many startups did when they needed to "goose" numbers: "They faked it."

It also attracted the attention of the Securities and Exchange Commission, which asked Twitter in April 2015 - after the company filed its annual securities filing - if it planned to provide "alternative metrics" to enhance user engagement and advertising services. Trying to explain the trends.

According to a Wall Street Journal report at the time, Twitter told the SEC that it had begun disclosing how often users took action in response to an ad and how much its advertisers paid for that information. Following this response, the SEC dropped its investigation, the Journal reported.

Under the terms of Monday's proposed settlement, Twitter denies any wrongdoing or other unfair action. Final settlement is subject to court approval.