Twitter Sued Over Stock Drop Linked to ‘Weaker-Than-Expected’ Advertising Revenue

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A proposed class action claims Twitter investors were injured financially after the social media giant and its CEO and CFO failed to disclose that an apparent “fix” to the platform’s targeted advertising practices negatively impacted ad revenue.

The lawsuit states that Twitter tweeted on August 24, 2019 that it had “fixed” problems with “the way we deliver personalized ads” to users. According to the complaint, the tweet included a link to Twitter’s help center, where the company further explained that certain personalized user settings concerning targeted advertising “may not have worked as intended” and allowed Twitter to collect and share data for advertising purposes without users’ permission.

What the defendants failed to disclose to investors, the case alleges, was that the changes Twitter implemented to “fix” these issues negatively impacted Twitter’s ability to target advertisements and consequently sparked a “material decline” in advertising revenue. According to the case, after the personalized ad “bug” was fixed, Twitter’s targeted advertisements were not as “relevant” in that the company had “one less input” that could be used to determine which ads to show users based on their interests and lifestyles.

The effects of Twitter’s ad changes were not revealed to investors until October 24, 2019, when the company released its third-quarter financial results, the suit says. Before the market opened, the defendants disclosed that Twitter’s revenue was five percent lower than analysts had estimated due in large part to “[w]eaker-than-expected advertising revenues,” the lawsuit states.

Upon this news, Twitter’s stock prices allegedly dropped over 20 percent on “heavier than average” trading volume, injuring investors who the case says paid artificially inflated prices for stocks purchased during the class period. The lawsuit claims the defendants knew or “at least deliberately recklessly disregarded” that the statements they made to the investing public were misleading and would cause stockholders to lose the value of their shares.

The suit seeks to cover anyone who purchased Twitter securities between August 6, 2019 and October 23, 2019.