Pinterest, Inc. shareholder Paul Hessong has filed a putative class action against the image sharing and social media service for allegedly misleading investors about its financial prospects in violation of federal securities laws. The case claims that Pinterest and certain officers and directors failed to disclose that its domestic customer base was nearly saturated, resulting in below target revenue and, as investor confidence fell, a 17% share price drop.
According to Monday’s filing, Pinterest is a Delaware-incorporated, San Francisco, Calif.-based company that offers a platform that allows users to pin small images of ideas and items they like, including “recipes, home décor and style inspiration.” Allegedly, Pinterest’s main revenue stream comes from advertisements, particularly those targeted at its primary audience, moms.
From May 16 to Nov. 1, 2019, the plaintiff claims, the defendants “repeatedly assured the market that Pinterest was successfully expanding its domestic user base and that there existed a significant addressable market of U.S. users that served as a catalyst for its online advertising revenue.” The complaint points to various Pinterest public documents, press releases, announcements, conference calls, Securities and Exchange Commission (SEC) filings, and analysts’ reports so indicating. Yet, the filing contends, Pinterest knew and concealed the fact that the domestic market held “little room for future expansion or growth.”
This supposed fact fueled a deceleration in Pinterest’s future ability to capitalize on average revenue per user and endangered the company’s advertising revenue, the plaintiff claims. As a result, the filing contends, the company missed its third quarter of 2019 earnings target. Shortly thereafter, its stock fell 17% to close at $20.86 on atypically high trading volume, the filing states. Thus, the plaintiff argues that the defendants’ public statements were either misleading or omitted facts reasonable investors would have wanted to and were entitled to know by law.
The complainant seeks to certify a class of all persons who purchased or otherwise acquired common shares of Pinterest stock from May 16, 2019 and Nov. 1, 2019, and to recover damages caused by the defendants’ alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.