Apple’s changes in privacy settings results in Snap shareholder class action

The question

How did Apple’s new privacy settings lead to Snap facing a class action from its more recent shareholders?

The key takeaway

Remember that events in the real world – here Apple’s recent privacy updates – impact on shareholder value, and in turn can result in class actions from alleged misrepresentations.

The background

Earlier this year, Apple released a software update that gave iOS users the option to prevent tracking from any or all apps and websites. This update gave users the option to opt out of being tracked by simply tapping a button. Apple CEO Tim Cook stated that the move was intended to “put power with the user”.

The early data suggests that over 60% of users have opted out of tracking. This has impacted on social media platforms and other companies that depend on user tracking for a lot of their value. While Meta and Alphabet have seen some impact, Snap’s share price plunged by 25% in a single day. This came after the company’s CEO, Evan Spiegel, admitted that the Apple update had a negative impact on Snap’s ability to target and track its advertising effectively.

The development

Unsurprisingly, Snap shareholders did not take kindly to news of the huge 25% slump in October. As a result, investor Kellie Black has instigated a class action on behalf of all investors who acquired Snap shares between June 2020 and October 2021. The claim centres around alleged misrepresentations made to shareholders. The class action complaint states that Snap:

• failed to disclose the impact the Apple update would have on Snap’s profits
• overplayed its preparation for the changes
• downplayed the risks associated with the changes, and
• overstated its own commitment to users’ privacy.

It seems likely that further investors will join the class action in the coming months.

Why is this important?

The talk around the iOS updates that were rolled out in April has so far focussed on immediate business impact. However, the class action against Snap shows that there are several possible second-degree effects for social media platforms from the software update. It shows how companies are being held to account from multiple angles – by their users, who are demanding greater privacy standards, and by their shareholders, who do not expect their investment to crash by 25% in a single day. 

Any practical tips?

The landscape is shifting with regards to users’ privacy. The surge in popularity of encrypted apps as well as the uptake of opting out of tracking shows this. Social media platforms will need to deftly balance the increasing demands of their users without compromising their own growth and profitability.
Winter 2021