Snap was hit with a class action lawsuit this week, alleging that management exaggerated the damage Apple’s privacy reforms posed to the company’s revenue stream.
Snap investor Kellie Black filed a lawsuit in the United States District Court for the Northern District of California, alleging that company management made false assertions in regulatory filings and to the media regarding the impact Apple’s privacy reforms will have on Snap’s advertising business.
Snap is accused of failing to disclose or making false claims about the major impact newly released iOS features would have on the company’s bottom line.
Plaintiffs also claim that Snap oversold its commitment to privacy, overestimated its capacity to respond to changes, and underestimated the risks associated with Apple’s operating system modifications.
In April, Apple released App Tracking Transparency, a set of iOS system features that restricts third-party access to Identification for Advertisers (IDFA) tags, limiting ad targeting.
A new rule also requires developers to obtain users’ consent before monitoring them between apps and the web by presenting a prompt during initial app setup, thereby discouraging users from using such services.
The iOS updates were generally expected to make a dent in the digital advertising sector, which primarily relies on IDFA tags, app metrics, and other technologies to measure user engagement.
Snap cautioned investors about the potential consequences of App Tracking Transparency in the months running up to its launch, but insisted that it was ready.
Snap executives reported higher-than-expected ad tracking opt-in rates when the feature launched, as well as potential upsides once it combined with Apple’s replacement to IDFA identifiers.
Snap, on the other hand, posted $1.07 billion in third-quarter sales in October, below Wall Street estimates by by $40 million. Apple’s privacy policies, according to CEO Evan Spiegel, are to blame for the findings.
In after-hours trading, the company’s shares tumbled, pushing down the stock prices of rival social media behemoths Facebook and Twitter, as well as digital advertising providers.
“While we anticipated some degree of business disruption, the new Apple-provided measurement solution did not scale as we had expected, making it more difficult for our advertising partners to measure and manage their ad campaigns for iOS,” Spiegel said in a statement at the time.
Black is suing for damages and court costs after alleging repeated violations of the Securities Exchange Act of 1934.