Investor Lawsuit, DOJ Investigation At Snapchat
Talk about kicking a publisher when it’s down. Yesterday Snapchat confirmed they’re the subject of a Department of Justice investigation, based on an ongoing class action lawsuit by some of its initial shareholders. The DOJ has been busy subpoenaing Snap for records about its audience metrics and what it new about Instagram’s competitive threat just before they went public.
To understand what’s going on here let me lay out the timeline. In February’17 Snap, Inc. executed a successful IPO, raising $3.4B at an initial share price of $17. However, within just a few months of the IPO it appeared that Snapchat’s MAU growth was already decelerating as more users moved over to Instagram. By May’17 a group of investors filed an initial lawsuit, claiming Snap had soft pedaled the Instagram threat before the IPO. Now the DOJ is looking into usage records as far back as the Fall of 2016 to see if Snapchat intentionally withheld information to pull off their IPO.
Obviously this is the last thing Snapchat needs right now. They’re dealing with a flat audience, sustained net losses, a $6 share price, and a string of high profile exec departures. So a DOJ investigation couldn’t have come at a worse time.