Judge tosses investor class action against Twitter over ‘puffery’

A federal judge dismissed a proposed shareholder class action by investors against Twitter on Thursday that claimed the company downplayed the impact a software fix to protect user privacy would have on its stock.

U.S. District Judge Yvonne Gonzalez Rogers found that Twitter executives made "vaguely optimistic statements" that should have been "understood by reasonable investors as puffery," as opposed to misleading statements and omissions.

While she was skeptical plaintiffs could properly amend their complaint, the judge allowed them leave to do so "out of an abundance of caution."

A Twitter spokesman said the company is pleased with the ruling.

The case concerns one of Twitter's core advertising products, Mobile Applications Promotion, which prompts users to install an advertiser's applications or re-engage with those they have already downloaded. The company tracks the product's metrics to evaluate performance.

At the start of the class period in July 2019, Twitter represented that improvements to Mobile Applications Promotion would have a positive impact on revenue. It announced two months later, however, that it had discovered and fixed issues over the product improperly sharing user data.

Company shares dropped by more than 20% following the news.

Plaintiffs alleged in a proposed class action that Twitter misled investors about Mobile Applications Promotion's progress and how the privacy defect's announcement would affect revenue. In re Twitter, Inc. Securities Litigation, 19-cv-07149 (N.D. Cal., filed Oct. 29, 2019).

"We're still in the middle of that work and as we move forward with it, there may be a point where you can see the benefit from it ramp quickly as you described because it's a direct response related product," the lawsuit quoted from a letter to shareholders. "But we're still at the stage where we believe that you would expect its impact to be gradual in nature."

Granting Twitter's motion to dismiss, Rogers ruled that the investors have not pointed to any misleading statements or omissions.

Responding to allegations that Twitter knew about the software bugs and their revenue impact by the start of the class period, Rogers found there's no evidence supporting claims that the undiscovered bugs had already impacted advertiser spending.

"Given the chronology, plaintiffs cannot plausibly allege that, at the time the risk disclosure was made on July 31, 2019, defendants' decision to stop sharing user data six days later on Aug. 5, 2019 was already affecting Twitter's revenue," she wrote. "The shutdown of data sharing would not have caused demand for MAP advertising to decline until August 5."

Twitter, the judge said, also admitted that its work with the Mobile Applications Promotion service was ongoing. While the company might have lacked a reasonable basis to state that revenue would increase, she said it never assured that it would.

"Regardless of any specific technological issues that may have existed at the time, it is entirely possible that Twitter was making progress toward improving its MAP product and would generate revenue therefrom at some point," she said.