Twitter to pay $810m to aggrieved shareholders for lying

Back in 2016 some Twitter shareholders filed a lawsuit against the company for misleading user engagement information. They alleged that the company painted a picture that was much brighter than what was on the ground.

What happened was that earlier in 2014, Twitter had stopped releasing timeline views figures. The company kept track of daily active users but did not disclose those figures to shareholders. What they did disclose were monthly active users. Why? The daily active user figures showed flatlining or declining user engagement.

In November of 2014 Twitter’s management went further as to promise unattainable targets. 550 million monthly active users in the intermediate term and over a billion in the longer term. They fell woefully short in reaching those targets.

Twitter stopped disclosing monthly active users in 2019. Instead, they now focus on monetizable daily active users. However, we note that the last figure for monthly active users released in Q1 2019 was 330 million. So, after over four years, they still had not reached the ‘intermediate’ goal of 550 million.

The shareholders who filed the class action lawsuit alleged that the company knew that those projections were not realistic. There was absolutely no basis for the 550 million and 1 billion figures and the company concealed this fact. Instead, making it appear as if the user engagement figures warranted the projections.

Further some of the company’s leadership allegedly disposed of some of their own shareholding during this period. Making millions as the share price was inflated thanks to the misleading projection figures. Only for the share price to fall by about 20% when it was discovered the figures were bogus.

Twitter: We’re innocent but we’ll pay

Twitter denies these allegations. Yet now, with the case about to go to trial they decide to settle. The company disclosed a legally binding agreement to pay $809.5 million to settle the class action lawsuit.

The pressure to grow

Ultimately, a company and its shareholders’ interests differ slightly. The shareholders are mostly interested in the growth of company value through share price increases. A company seeks sustainable growth and the outlook is usually long term.

The pressure to please shareholders and maintain a steady growth of share prices leads many an executive to creatively report the company’s position.

We will be seeing how this pressure has affected our very own EcoSure tomorrow.