One of the benefits to being a private company is that you aren’t required to report things such as revenue, profit, or the extent of your customer base to the public.
Snap Inc., parent company of the popular photo messaging app Snapchat, is keenly aware of that, having kept a tight lid on its key metrics even as the company rounded up billions of dollars in venture capital to fuel growth.
Now, as it readies for an initial public offering that could come as soon as this quarter, a former employee is prying open the lid – ever so slightly.
In a heavily redacted complaint filed in Los Angeles Superior Court on Jan. 4, the former head of Snap’s user growth, Anthony Pompliano, claims executives of the company misrepresented its growth metrics during his recruitment from Facebook Inc. in 2015.
“Driven by its fierce rivalry with Facebook – a spurned suitor turned keen competitor – Snapchat fraudulently induced Mr. Pompliano away from Facebook to run Snapchat’s new user-growth and engagement team by falsely representing to him, among other things, the company’s growth,” the complaint reads.
Hired to lead a new user-growth team, Pompliano alleges in his complaint that he quickly discovered the discrepancies and raised them with at least three executives at the Venice-based startup: Drew Boller, vice president of finace; Jill Hazelbaker, vice president of communications; and Brian Theisen, then-director of business operations. Pompliano said that instead of being rewarded for catching the mistake, he was promptly fired in September 2015, just three weeks after joining the company.
The suit claims that Snap, led by Chief Executive Evan Spiegel, cut ties with Pompliano because executives were worried about the company’s planned initial public offering, which could value Snap at as much as $25 billion.
“Snapchat’s leadership saw Mr. Pompliano as an impediment to their planned IPO because he refused to turn a blind eye to their misrepresentations,” the complaint reads.
Snap spokeswoman Mary Ritti said in a statement that Pompliano’s lawsuit is baseless.
“We’ve reviewed the complaint. It has no merit. It is totally made up by a disgruntled former employee,” said Ritti.
While the merits of the lawsuit will be assessed in court, the timing of the allegations could be harmful for the ephemeral messaging app’s IPO plans, particularly because Snapchat’s growth metrics are one of the key factors in how investors evaluate companies such as Snap. The company has said publicly that it has more than 150 million daily users and analysts estimate the company generated more than $350 million in ad revenue last year and could triple that in 2017. Bloomberg Intelligence estimated in an October report that the app has between 220 million and 250 million monthly active users worldwide.
“Snapchat’s U.S. audience has expanded almost 76 percent compounded annually since August 2013, expanding to 80 million monthly active users, underscoring the strength of the platform,” according to the report.
Pompliano’s suit claims that he was not the only person shown the inflated figures and that investors – including Chinese e-commerce giant Alibaba Group Holding Ltd. – were given access to the growth numbers.
While the basics of the dispute are laid out in the complaint, the details about which metrics Pompliano claims were ginned up are redacted – including a seven-page stretch that is entirely blacked out. Pompliano’s lawyer, David Michaels of Hancock Park’s Kilometer Partners, said the complaint was redacted because his client could still be subject to a confidentiality clause.
“Our client is arguably subject to a confidentiality agreement, so we filed a redacted complaint out of an abundance of caution,” Michaels said, adding that he would ultimately seek to have an unredacted complaint filed.
Michaels said Pompliano brought the action because Snap had worked to discredit him with other companies since he was fired and that his client has been unable to find employment for more than a year.
