According to the Los Angeles Times, citing court proceedings late last week, investors contend that ahead of the IPO, Snap didn’t disclose how much competition from Instagram, the photo sharing social media network, was impeding its ability to grow in the last six months of 2016. Snap has been seeking to dismiss the lawsuit, but those efforts were ultimately unsuccessful.
The investors also contend that Snap didn’t disclose a whistleblower lawsuit by an ex-employee who claimed there were inaccuracies in how Snap calculated and reported daily active users. They also claim that the company misrepresented its use of so-called growth hacking, in which Snap sends push notifications to its users to improve the daily numbers. Snap declined to comment on the ruling.
The shareholders’ next move would be to pursue class-action status, which the report noted would put it in a better position to negotiate with the company.
The lawsuit comes as a report surfaced that the company is in need of a cash infusion. According to a recent report in The Information, Snap torched through $1.1 billion in five quarters, not counting acquisitions. That means the company will need some dollars at some point within the next year and a half — and it seems to have snuck out of a securities filing in early May, which strongly indicates it is trying to raise some funds by a sale of shares or debt. In and of itself, it is a standard and unremarkable filing, but it does serve as a stark reminder that Snap needs cash.