Case 4:16-cv-05314-JST Document 1 Filed 09/16/16 Page 1 of 22
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`ROBBINS GELLER RUDMAN
` & DOWD LLP
`SHAWN A. WILLIAMS (213113)
`Post Montgomery Center
`One Montgomery Street, Suite 1800
`San Francisco, CA 94104
`Telephone: 415/288-4545
`415/288-4534 (fax)
`shawnw@rgrdlaw.com
`– and –
`DAVID C. WALTON (167268)
`DANIEL S. DROSMAN (200643)
`655 West Broadway, Suite 1900
`San Diego, CA 92101-8498
`Telephone: 619/231-1058
`619/231-7423 (fax)
`davew@rgrdlaw.com
`dand@rgrdlaw.com
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`Attorneys for Plaintiff
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`[Additional counsel appear on signature page.]
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`UNITED STATES DISTRICT COURT
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`NORTHERN DISTRICT OF CALIFORNIA
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`Case No.
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`CLASS ACTION
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`COMPLAINT FOR VIOLATION OF THE
`FEDERAL SECURITIES LAWS
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`DEMAND FOR JURY TRIAL
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`DORIS SHENWICK, as Trustee for the
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`DORIS SHENWICK TRUST, Individually and
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`on Behalf of All Others Similarly Situated,
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`Plaintiff,
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`vs.
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`TWITTER, INC., RICHARD COSTOLO and
`ANTHONY NOTO,
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`Defendants.
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`Case 4:16-cv-05314-JST Document 1 Filed 09/16/16 Page 2 of 22
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`Plaintiff, individually and on behalf of all others similarly situated, by plaintiff’s undersigned
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`attorneys, for plaintiff’s complaint against defendants, alleges the following based upon personal
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`knowledge as to plaintiff and plaintiff’s own acts, and upon information and belief as to all other
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`matters based on the investigation conducted by and through plaintiff’s attorneys, which included,
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`among other things, a review of Securities and Exchange Commission (“SEC”) filings by Twitter,
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`Inc. (“Twitter” or the “Company”), as well as Company press releases and conference call
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`transcripts and media reports about the Company. Plaintiff believes that substantial additional
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`evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for
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`discovery.
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`INTRODUCTION AND OVERVIEW
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`1.
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`This is a securities class action on behalf of all persons who purchased or otherwise
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`acquired Twitter common stock between February 6, 2015 and July 28, 2015, inclusive (the “Class
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`Period”), against Twitter and certain of its officers and/or directors for violations of the Securities
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`Exchange Act of 1934 (“1934 Act”). These claims are asserted against Twitter and certain of its
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`officers and/or directors who made materially false and misleading statements during the Class
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`Period in press releases and filings with the SEC and in oral statements to the media, securities
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`analysts and investors.
`2.
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`Twitter is a global platform for public self-expression and conversation in real time,
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`where any user can create a Tweet and any user can follow other users. The Company’s main source
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`of revenue is advertising. Because advertising revenue is driven by the total number of users on the
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`platform and, equally as important, the level of engagement of such users, the Company and analysts
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`have focused closely on metrics measuring total users and user engagement. Twitter reported two
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`primary user metrics: Monthly Active Users or “MAUs” (a measure of the total user base) and
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`timeline views (a measure of user engagement).
`3.
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`Prior to the beginning of the Class Period, at an all-day meeting with analysts on
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`November 12, 2014, defendants reported that the number of MAUs was expected to increase
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`significantly “to over 550 million [MAUs] in the intermediate term and . . . over a billion . . .
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`[MAUs] over the longer term.” Defendants announced several new product initiatives designed to
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`Case 4:16-cv-05314-JST Document 1 Filed 09/16/16 Page 3 of 22
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`drive growth in MAUs and user engagement. Defendants also announced that Twitter would
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`discontinue reporting its primary user engagement metric, timeline views, stating the reason for the
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`change was that the metric was an unrepresentative measure of user engagement and no longer
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`reflective of Twitter’s business.
`4.
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`The Class Period starts on February 6, 2015. The previous day, after the market
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`closed, Twitter released its fourth quarter and fiscal year 2014 financial results. The Company
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`reported non-GAAP net income of $79 million, or non-GAAP earnings per share (“EPS”) of $0.12,
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`and revenue of $479 million for the fourth quarter ended December 31, 2014. Additionally, the
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`Company reported non-GAAP net income of $101 million, or non-GAAP EPS of $0.14, and revenue
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`of $1.4 billion for the fiscal year ended December 31, 2014. The Company blamed lower than
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`expected MAU growth on “quarter-specific factors . . . which include seasonality and a couple of
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`issues related to the launch of iOS 8.” Furthermore, the Company reiterated its outlook for strong
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`MAU growth going forward and emphasized the success of the new product initiatives designed to
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`“drive [MAU] growth.” Defendants also reiterated that Twitter would discontinue reporting its
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`primary user engagement metric, timeline views.
`5.
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`Following defendants’ statements on February 5, 2015, Twitter’s stock price
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`increased nearly 17% in one day to close at $48.01 per share on February 6, 2015, on volume of 102
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`million shares.
`6.
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`On April 28, 2015, Twitter released its first quarter 2015 financial results. The
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`Company reported non-GAAP income of $47 million, or $0.07 non-GAAP EPS, and revenue of
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`$436 million for the first quarter ended March 31, 2015. Additionally, the Company provided its
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`outlook for the second quarter of 2015, projecting second quarter revenue of $470 million to $485
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`million. Twitter also lowered its full year 2015 revenue forecast to between $2.17 billion and $2.27
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`billion from prior guidance of $2.30 billion to $2.35 billion. Furthermore, the Company reported
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`that Twitter’s MAUs only increased 5% over the prior quarter.
`7.
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`As a result of this news, the price of Twitter stock dropped $9.39 per share to close at
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`$42.27 per share on April 28, 2015, a decline of 18% on volume of over 77 million shares. On the
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`following day, April 29, 2015, the price of Twitter stock dropped gain, falling $3.78 per share to
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`Case 4:16-cv-05314-JST Document 1 Filed 09/16/16 Page 4 of 22
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`close at $38.49 per share, a one-day decline of nearly 9% on volume of over 120 million shares.
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`However, the stock continued to trade at artificially inflated levels as defendants assured investors
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`that new initiatives to drive user growth and engagement were still in the early stages.
`8.
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`Then, on July 28, 2015, after the market closed, Twitter issued a press release
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`announcing its second quarter 2015 financial results. The Company reported non-GAAP income of
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`$49 million, or $0.07 non-GAAP EPS, and revenue of $502 million for the second quarter ended
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`June 30, 2015. Additionally, the Company provided its outlook for the third quarter of 2015,
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`projecting third quarter revenue of $545 million to $560 million. Twitter also provided its outlook
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`for the 2015 full year, projecting revenue in the range of $2.20 billion to $2.27 billion.
`9.
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`As a result of this news, the price of Twitter stock plummeted $5.30 per share to close
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`at $31.24 per share on July 29, 2015, a one-day decline of nearly 15% on volume of nearly 93
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`million shares. The stock has not recovered and presently trades at less than $20 per share.
`10.
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`As a result of defendants’ false statements, Twitter common stock traded at
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`artificially inflated prices during the Class Period. However, after the above revelations seeped into
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`the market, the Company’s stock was hammered by massive sales, sending Twitter’s stock price
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`down 40% from its Class Period high of $52.87 per share on April 7, 2015, and causing economic
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`harm and damages to plaintiff and members of the Class (as defined below).
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`JURISDICTION AND VENUE
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`11.
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`The claims asserted herein arise under and pursuant to §§10(b) and 20(a) of the 1934
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`Act, 15 U.S.C. §§78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder by the SEC, 17 C.F.R.
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`§240.10b-5.
`12.
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`This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C.
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`§1331 and §27 of the 1934 Act.
`13.
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`Venue is proper in this District pursuant to §27 of the 1934 Act and 28 U.S.C.
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`§1391(b). Twitter maintains its headquarters in this District and many of the acts charged herein,
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`including the preparation and dissemination of materially false and misleading information, occurred
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`in substantial part in this District.
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`Case 4:16-cv-05314-JST Document 1 Filed 09/16/16 Page 5 of 22
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`14.
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`In connection with the acts alleged in this complaint, defendants, directly or
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`indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to,
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`the mails, interstate telephone communications and the facilities of the New York Stock Exchange
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`(“NYSE”).
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`THE PARTIES
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`15.
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`Plaintiff Doris Shenwick, as Trustee for the Doris Shenwick Trust, purchased Twitter
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`common stock during the Class Period as set forth in the attached certification and was damaged
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`thereby.
`16.
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`Defendant Twitter operates as a global platform for public self-expression and
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`conversation in real time. Twitter maintains its headquarters at 1355 Market Street, Suite 900, San
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`Francisco, California. Twitter common stock is traded under the ticker “TWTR” on the NYSE, an
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`efficient market.
`17.
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`Defendant Richard Costolo (“Costolo”) was, until his resignation on July 1, 2015,
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`Chief Executive Officer (“CEO”) and a director of Twitter.
`18.
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`Defendant Anthony Noto (“Noto”) is, and at all relevant times was, Chief Financial
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`Officer (“CFO”) of Twitter.
`19.
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`The defendants referenced above in ¶¶17-18 are collectively referred to herein as the
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`“Individual Defendants.” The Individual Defendants made, or caused to be made, false statements
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`that caused the price of Twitter common stock to be artificially inflated during the Class Period.
`20.
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`The Individual Defendants, because of their positions with the Company, possessed
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`the power and authority to control the contents of Twitter’s quarterly reports, press releases and
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`presentations to securities analysts, money and portfolio managers and institutional investors, i.e.,
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`the market. They were provided with copies of the Company’s reports and press releases alleged
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`herein to be misleading prior to or shortly after their issuance and had the ability and opportunity to
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`prevent their issuance or cause them to be corrected. Because of their positions with the Company,
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`and their access to material non-public information available to them but not to the public, the
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`Individual Defendants knew that the adverse facts specified herein had not been disclosed to and
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`were being concealed from the public and that the positive representations being made were then
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`Case 4:16-cv-05314-JST Document 1 Filed 09/16/16 Page 6 of 22
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`materially false and misleading. The Individual Defendants are liable for the false and misleading
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`statements pleaded herein.
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`FRAUDULENT SCHEME AND COURSE OF BUSINESS
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`21.
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`Defendants are liable for: (i) making false statements; or (ii) failing to disclose
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`adverse facts known to them about Twitter. Defendants’ fraudulent scheme and course of business
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`that operated as a fraud or deceit on purchasers of Twitter common stock was a success, as it: (i)
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`deceived the investing public regarding Twitter’s prospects and business; (ii) artificially inflated the
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`price of Twitter common stock; and (iii) caused plaintiff and other members of the Class to purchase
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`Twitter common stock at artificially inflated prices.
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`SCIENTER ALLEGATIONS
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`22.
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`During the Class Period, the defendants had the motive and opportunity to commit the
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`alleged fraud. Defendants also had actual knowledge of the misleading statements they made and/or
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`acted in reckless disregard of the true information known to them at the time. In doing so, the
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`defendants participated in a scheme to defraud and committed acts, practices and participated in a
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`course of business that operated as a fraud or deceit on purchasers of Twitter common stock during
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`the Class Period.
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`BACKGROUND
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`23.
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`Twitter operates as a global platform for public self-expression and conversation in
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`real time. It offers various products and services that allow users to create, distribute and discover
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`content. The Company also provides promoted products and services – such as promoted tweets,
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`promoted accounts and promoted trends – that enable its advertisers to promote their brands,
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`products and services, and subscription access to its data feed for data partners.
`24.
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`Following its November 2013 initial public offering (“IPO”), Twitter’s stock price
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`increased significantly to as high as $70 per share in late 2013. A key to the Company’s successful
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`IPO was substantial growth in its two primary user metrics: MAUs (a measure of the total user base)
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`and timeline views (a measure of user engagement). For example, the Company had doubled its
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`MAUs in the 24 months preceding the IPO to 232 million and the trajectory was expected to
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`continue. As noted by one analyst, “‘[t]he company has kind of pitched itself as a billion-user
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`Case 4:16-cv-05314-JST Document 1 Filed 09/16/16 Page 7 of 22
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`business long term.’” User metrics, including user engagement, were highlighted over fifty times in
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`Twitter’s S-1 Registration Statement filed in connection with its IPO, including:
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`
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`
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`
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`“Growth in our user base and user engagement is a fundamental driver to the growth
`of our business.”
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`“User growth trends reflected in the number of MAUs, user engagement trends
`reflected in timeline views and timeline views per MAU . . . are key factors that
`affect our revenue.”
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`“The size of our user base and our users’ level of engagement are critical to our
`success.”
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`25.
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`User engagement metrics were particularly important to analysts and investors
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`because more engaged users would lead to higher MAU growth and higher advertising revenues.
`Twitter’s primary user engagement metrics were timeline views and timeline views per MAU.1 As
`the Company itself indicated prior to the Class Period, “[t]imeline views are kind of proxy for the
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`amount of content our users consume.” Defendants closely tracked user engagement metrics,
`including timeline views.2 User engagement became even more important to analysts and investors
`starting in the second half of 2014 when Twitter’s MAU growth began to decelerate. As the
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`Company has acknowledged, “as your MAU growth slows, engagement becomes a much bigger
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`factor.” (See also, e.g., “To the extent our user growth rate slows, our success will become
`increasingly dependent on our ability to increase levels of user engagement . . . .”).3
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`1 Twitter S-1 Registration Statement:
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`
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`“We broadly measure user engagement on our platform through timeline views and
`the number of timeline views per MAU.”
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`
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`“We believe that timeline views and timeline views per MAU are measures of user
`engagement.”
`2 Twitter Form 10-K for the year ended December 31, 2014:
`NOTE REGARDING KEY METRICS
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`We review a number of metrics, including monthly active users, or MAUs,
`timeline views, timeline views per MAU and advertising revenue per timeline view,
`to evaluate our business, measure our performance, identify trends affecting our
`business, formulate business plans and make strategic decisions.
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`(Here as elsewhere, emphasis has been added unless otherwise noted.)
`3 Twitter S-1 Registration Statement.
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`Case 4:16-cv-05314-JST Document 1 Filed 09/16/16 Page 8 of 22
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`26.
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`On November 12, 2014, Twitter held an all-day meeting with analysts (“Analyst
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`Day”). Twitter executives emphasized new initiatives to drive user engagement and reinvigorate
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`MAU growth. Twitter also abruptly announced that it would cease reporting its sole user
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`engagement metric, timeline views, going forward. Twitter reassured investors that the recent trend
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`of declining timeline views was not indicative of an actual declining trend in user engagement.
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`Twitter did not provide any alternative user engagement metrics to investors despite
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`acknowledgment that such alternative metrics were tracked internally by management. For example:
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`[Analyst:] So, Bob Pecks, SunTrust. . . . And then as analyst at Wall Street,
`how should [we] gauge your progress, what metrics should we be looking at and
`once we see those metrics pop up so we can see that you’re actually getting traction
`with the products? Thanks.
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`*
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`*
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`*
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`[Trevor O’Brien, Twitter Director of Product Management:] And then the
`last part of your question Bob, on how do you measure us in metrics, I mean
`ultimately, we want to drive shareholder value that’s going to be tied to our
`financials. We’re not naive to think that you’re not going to focus on the leading
`indicators of financials, long-term growth potential. And so there are going to be
`non-financial metrics to look at. . . .
`. . . We constantly evaluate a number of different metrics and [debate] what
`we should be disclosing, what we’re not disclosing.
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`*
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`*
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`*
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`[Noto:] I’ll tell you, we struggle with the measure [of] engagement not because
`we’re not smart, but because there’s a lot of measurements of engagement . . . .
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`The Analyst Day comments also included a discussion of new product initiatives that
`27.
`defendants represented would grow the user base and improve user engagement.4 Defendant Noto
`described the impact of the new initiatives on user growth as follows:
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`We think we have a significant product roadmap, much of which hasn’t been
`launched yet that [we] believe positions us to grow our monthly active users by 2x to
`over 550 million in the intermediate term and 3-4x to over a billion core users,
`monthly active users over the longer term.
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`4 For example: “Today, you will hear about a number of initiatives we have underway to grow our
`core of monthly active users . . . .”; “[W]e’ve launched things in the past year, or recently that have
`demonstrated key results, where we have tested the work, they’re also showing positive results.”;
`“[W]e’ve been testing this for a while and [have] seen very positive results.”
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`COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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`Case 4:16-cv-05314-JST Document 1 Filed 09/16/16 Page 9 of 22
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`28.
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`The accompanying slide described the expected MAU growth:
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`DEFENDANTS’ MATERIALLY FALSE AND MISLEADING STATEMENTS
`ISSUED DURING THE CLASS PERIOD
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`Fourth Quarter 2014 Earnings: February 5, 2015
`29.
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`On February 5, 2015, after the market closed, Twitter issued a press release
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`announcing its fourth quarter and fiscal year 2014 financial results. The Company reported non-
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`GAAP net income of $79 million, or non-GAAP EPS of $0.12, and revenue of $479 million for the
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`fourth quarter ended December 31, 2014. Additionally, the Company reported non-GAAP net
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`income of $101 million, or non-GAAP EPS of $0.14, and revenue of $1.4 billion for the fiscal year
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`ended December 31, 2014. Twitter’s revenue was higher than projected, but MAU growth was less
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`than expected and the timeline views metric (the last time Twitter would report it) was flat. In the
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`conference call later that day, the low MAU growth was blamed on “quarter-specific factors that
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`impacted our net adds in Q4, which include seasonality and a couple of issues related to the launch
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`of iOS 8.” Furthermore, the release provided the Company’s outlook for strong MAU growth in the
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`first quarter of 2015, stating in part:
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`“We closed out the year with our business advancing at a great pace. Revenue
`growth accelerated again for the full year, and we had record quarterly profits on an
`adjusted EBITDA basis,” said Dick Costolo, CEO of Twitter. “In addition, the trend
`thus far in Q1 leads us to believe that the absolute number of net users added in Q1
`will be similar to what we saw during the first three quarters of 2014.”
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`COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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`Case 4:16-cv-05314-JST Document 1 Filed 09/16/16 Page 10 of 22
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`30.
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`After releasing its fourth quarter and fiscal year 2014 financial results, on February 5,
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`2015, Twitter held a conference call for analysts, media representatives and investors during which
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`defendant Noto represented the following:
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`In terms of engagement metrics, as I mentioned, we’re no longer going to provide the
`metric of timeline view. And the reason for that is it’s really a measurement that
`doesn’t reflect the initiatives that we’re doing. In fact, if anything, we’re taking
`specific initiatives and product changes that will hurt timeline view. . . .
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`And so that’s why we decided to eliminate the timeline view metric, given
`that we have specific product changes that will hurt that metric. More broadly, as we
`think about engagement, there are a number of different ways that we measure
`engagement – there’s no one perfect way. When it comes to advertising, it’s going to
`be click-through rate. And it’s actually different by each format. A mobile app
`download click-through rate is very different than a regular Promoted Tweet that
`could be either re-tweeted or favorited as a measurement of payment.
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`*
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`*
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`*
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`And so as we get to a point where we have a metric that’s going to really
`reflect what we’re trying to do, we’ll share that with you. But, at this point, there’s a
`number of them that we look at, and no one metric to share.
`31.
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`Defendants also emphasized the success of the new product initiatives that the
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`Company had previously introduced at its Analyst Day. For example:
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`[Analyst:] On the MAU number . . . I’m curious as to the acceleration [in MAU
`growth] there, if that’s seasonality or something else?
`
`*
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`*
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`*
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`[Costolo:] Sure. Thanks, Paul, this is Dick. In Q1, I would say it’s a
`combination of seasonality, a return to organic growth, and the set of product
`initiatives we’ve created to drive growth. Again, at a high level, I’d like to say that
`I’m thinking about growth and our product as, these changes we’re making now as
`helping us grow across logged-in, logged-out, and our syndicated audience across the
`web and third-party mobile apps.
`The user numbers we saw on January, again, indicate that our MAU trend
`has already turned around, and that Q1 trend is likely to be back in the range of
`absolute net ads that we saw during the first three quarters of 2014. So we’re in a
`great place there. And, again, I would stress that it’s seasonality, a return to organic
`growth, and product initiatives, all taken together.
`32.
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`Following defendants’ statements on February 5, 2015, Twitter’s stock price
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`increased nearly 17% in one day to close at $48.01 per share on February 6, 2015, on volume of 102
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`million shares. Analysts viewed these results favorably. For example, J.P. Morgan raised its price
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`target to $67.00 per share, stating:
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`COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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`Case 4:16-cv-05314-JST Document 1 Filed 09/16/16 Page 11 of 22
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`
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`Twitter reported strong 4Q results as both revenue and EBITDA came in well
`above our and Street estimates despite MAU net adds of 4M Q/Q that came in 3M
`light vs. the Street and below our 6M due to a 4M negative impact related to the iOS
`8 update. More importantly, the company believes it is on track to return to 13-
`16M Q/Q MAU net adds in 1Q15 and we think the strong cadence of product
`launches/enhancements should drive improving MAU growth through 2015. Ad
`revenue of $432M increased 97% Y/Y, well above our $411.1M driven by
`revenue/1,000 TLVs which increased 49% Y/Y as TWTR continues to show strength
`in monetization. We note that Twitter’s ad load remains well below industry peers
`such as Facebook. EBITDA of $142M was well above our $110M, with margins
`increasing more than 11% points Y/Y to nearly 29.5% in 4Q. We believe the 1Q and
`2015 guide could be conservative, despite tougher Y/Y comps due to the Olympics,
`FIFA World Cup and FX headwinds, as we expect ad demand to continue increasing.
`We believe the pace and quality of execution at the company continues to improve
`and that onboarding improvements, rich content (i.e. video), & better timeline
`organization can drive user growth going forward.
`
`(Emphasis in original.)
`33.
`
`Defendants’ February 5, 2015 statements were materially false and misleading.
`
`Defendants concealed adverse facts they knew or deliberately disregarded, including the following:
`(a)
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`By early 2015, daily active users (“DAUs”) had replaced the timeline views
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`metric as the primary user engagement metric tracked internally by Twitter management.
`(b)
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`By early 2015, the trend in user engagement growth (i.e., DAUs) was flat or
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`declining.
`
`(c)
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`New product initiatives were not having a meaningful impact on MAUs or
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`user engagement.
`(d)
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`The “acceleration [in MAU growth]” was the result of low-quality MAU
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`growth (in which new users were not as engaged as existing users).
`(e)
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`Defendants lacked a basis for their previously issued projections of
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`approximately 20% MAU growth and 550 million MAUs in the immediate term.
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`Fiscal Year 2014 Form 10-K: March 2, 2015
`34.
`
`On March 2, 2015, Twitter filed its Form 10-K for the year ended December 31,
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`2014, which incorporated the financial statements previously reported. The Form 10-K also
`
`discussed timeline views:
`
`We present and discuss timeline views in this Annual Report on Form
`10-K. . . . Additionally, the ongoing optimization of our products has reduced the
`number of times a user needs to request a timeline view. As a result, our
`management team believes timeline views have become an unrepresentative measure
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`COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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`Case 4:16-cv-05314-JST Document 1 Filed 09/16/16 Page 12 of 22
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`
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`of, and will not use them internally to measure for, user engagement on our platform.
`As we announced on November 12, 2014, we do not intend to disclose timeline
`views for any future period. They are presented here only for historical purposes.
`35.
`
`The disclosures in the Form 10-K about the elimination of the timeline view metric
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`would later lead to an April 13, 2015 inquiry from the SEC requesting alternative metrics to explain
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`trends in user engagement. The SEC letter stated:
`
`We note your disclosures relating to Timeline Views, Timeline Views per Monthly
`Active User (MAU), and Advertising Revenue Per Timeline. We also note on page
`46 that going forward you intend to cease presenting timeline views in future filings.
`Please address the following:
`
`
`
`Please describe the alternative metric(s) you anticipate presenting in future
`filings to explain trends in user engagement and advertising services
`revenue. Also, please describe your reasons for choosing such metric(s).
`
`*
`
`*
`
`*
`
`We refer you to Section III.B of SEC Release 33-8350.
`
`36.
`
`Twitter’s response to the SEC included alternative user engagement metrics that were
`
`purportedly used internally by defendants:
`
`The Company respectfully advises the Staff that it has included two metrics,
`changes in ad engagements and changes in cost per ad engagement, on page 25 in the
`Key Metrics section of its Quarterly Report on Form 10-Q for the quarter ended
`March 31, 2015, filed on May 11, 2015 (the “Form 10-Q”). These metrics are
`intended to serve as a measure of user engagement and demand, respectively, on the
`Company’s platform. . . . [C]hanges in ad engagements indicate trends in user
`engagement and, in particular, user engagement with ads, which affects revenue. . . .
`
`The Company’s management internally tracks changes in ad engagements . . .
`on the Twitter platform to monitor trends in user engagement . . . and believes th[is]
`metric[] [is] helpful to investors to understand the same.
`37.
`
`Defendants’ March 2, 2015 statements were materially false and misleading.
`
`Defendants concealed adverse facts they knew or deliberately disregarded, including the following:
`(a)
`
`DAUs had become the primary user engagement metric tracked internally by
`
`Twitter management. The trend in user engagement growth (i.e., DAU growth) was flat or
`
`declining. As noted by the SEC, MD&A disclosure rules required the disclosure of key internal
`metrics used by management.5
`
`
`5
`In particular, SEC Release 33-8350 states that “one of the principal objectives of MD&A is to
`give readers a view of the company through the eyes of management . . . . [C]ompanies should
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`COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS
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`Case 4:16-cv-05314-JST Document 1 Filed 09/16/16 Page 13 of 22
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`
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`(b)
`The ad engagement metric, which defendants intended to be “helpful to
`investors to understand” and “monitor trends in user engagement,” was a monetization metric rather
`
`than a user engagement metric. The trend in “ad engagements” was not indicative of trends in user
`
`engagement. In fact, the trend in “ad engagements” was moving in the opposite direction (i.e.,
`
`increasing) from the trend in user engagement.
`
`First Quarter 2015 Earnings: April 28, 2015
`38.
`On April 28, 2015, Twitter issued a press release announcing its first quarter 2015
`financial results.6 The Company reported non-GAAP income of $47 million, or $0.07 non-GAAP
`EPS, and revenue of $436 million for the first quarter ended March 31, 2015. Additionally, the
`
`Company provided its outlook for the second quarter of 2015, projecting second quarter revenue of
`
`$470 million to $485 million. Twitter also lowered its full year 2015 revenue forecast to between
`
`$2.17 billion and $2.27 billion, from prior guidance of $2.30 billion to $2.35 billion. Furthermore,
`
`the Company reported that Twitter’s MAUs only increased 5% over the prior quarter, including 3%
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`growth in U.S. MAUs.
`39.
`
`After releasing its first quarter 2015 financial results on April 28, 2015, Twitter held a
`
`conference call for analysts, media representatives and investors during which defendant Noto
`
`stated:
`
`[W]e expect the factors which led to our marginally slower growth in Q1 to
`continue for the full year of 2015.
`
`*
`
`*
`
`*
`
`In Q2 . . . there’s also some headwinds. . . .
`
`We’re off to a slow start in April and . . . the trend is not similar to Q1 . . . .
`
`
`‘identify and address those key variables and other qualitative and quantitative factors which are
`peculiar to and necessary for an understanding and evaluation of the individual company.’”
`Commission Guidance Regarding Management’s Discussion and Analysis of Financial Condition
`and Results of Operations, Release Nos. 33-8350, 34-48960, 2003 SEC LEXIS 3034,