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Twitter Can't Shake Securities Suit Over Daily User Metrics

SAN FRANCISCO—Twitter Inc. has missed on an early attempt to knock out claims that it misled investors about the growth of its daily user base during a period when the company’s stock price slid 40 percent in 2015.

In a 42-page decision issued Monday, U.S. District Judge Jon Tigar of the Northern District of California allowed investors to proceed with claims company executives omitted key metrics about daily active users—the type of users who actually drive advertising revenues for the company.

Tigar wrote it was “unhelpful at best and misleading at worst” that Twitter pointed to the positive signs about its monthly user base while withholding the number of daily active users, or DAUs.

“In the absence of DAU data, investors interpreted defendants‘ statements as reassurances that the Company had experienced and would continue to experience positive growth and engagement trends,” Tigar wrote. “It was misleading for defendants to rely on favorable ad engagement trends to describe or predict user engagement when DAU, Twitter‘s primary metric, was flat or declining.” 

A Twitter spokesperson said Tuesday the company does not comment on pending litigation.

Toward the end of 2014, Twitter executives estimated the company’s average monthly active users would grow to more than half a billion in the intermediate term and more than 1 billion long term. But when the market was made aware that user growth was on a much slower track, the stock slumped. Investors began suing last year seeking to certify a class of investors who bought Twitter’s stock between Feb. 6, 2015, and July 28, 2015, a period during which the price per share dropped from $52.87 to $31.24.

Although Tigar, for the most part, allowed the suit to move forward to discovery, he did grant a request from Twitter’s lawyers at Simpson Thacher & Bartlett to toss the plaintiffs claims related to positive statements about trends in Twitter’s monthly active user numbers. Tigar pointed out that the company reported the actual monthly numbers publicly. Twitter, the judge ruled, also was open that some of the growth was due to low-quality accounts such bots and automated accounts which wouldn’t contribute to the company’s bottom line.

Plaintiffs lead counsel, Gregg Levin of Motley Rice, and liaison counsel, Lesley Weaver of Bleichmar Fonti & Auld, didn’t immediately respond to request for comment.

Ross Todd is bureau chief of The Recorder in San Francisco. He writes about litigation in the Bay Area and around California. Contact Ross at rtodd@alm.com. On Twitter: @Ross_Todd.

Contributing Author

Ross Todd

Ross Todd is bureau chief of The Recorder in San Francisco. He writes about litigation in the Bay Area and around California. Contact Ross at...

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