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Former Snapchat Employee Alleges Company Inflated Growth Metrics

Forbes logo Forbes 5/01/2017 Kathleen Chaykowski, Forbes Staff

Getty Images© A former Snapchat employee sued the company, alleging it inflated key growth metrics. (Getty Images) Getty Images

Snapchat has been sought after by venture capitalists and fund managers as a highly attractive investment opportunity. However, a lawsuit filed by an ex-Snapchat employee alleges the company misled him and some investors along the way.

In a lawsuit filed in the Los Angeles County Superior Court on Wednesday, Anthony Pompliano, who joined Snapchat’s business operations team in August 2015, said the company inflated key growth metrics as it was recruiting him from Facebook. Pompliano also said Snapchat, officially named Snap Inc., shared the inflated metrics with some investors, such as China-based Alibaba Group, in an effort to bolster its standing ahead of a planned initial public offering, which could occur as early as March. Snapchat fired Pompliano three weeks into his employment after he raised concerns about the metrics with executives internally and urged the company to correct its errors, according to the court document, which redacts details about the disputed metrics.

Snapchat said the lawsuit has no merit. “We’ve reviewed the complaint,” Snapchat spokeswoman Mary Ritti said in an email on Thursday. “It is totally made up by a disgruntled former employee.”

The complaint said Snapchat didn’t meaningfully invest in measuring growth until mid-2015, in preparation for an IPO, because CEO Evan Spiegel “simply did not care about user engagement metrics.”  Snapchat’s vice president of finance Drew Boiler, the company’s then-vice president of communications Jill Hazelbaker and its then-director of business operations Brian Theisen were some of the Snapchat managers Pompliano alerted about the false metrics, according to the filing.

Before joining Snapchat, Pompliano worked at Facebook, which he joined in February 2014 to lead growth and engagement initiatives for Pages. Pompliano said Snapchat tried to pressure him to share proprietary information about Facebook, which would have broken his confidentiality agreement with his prior employer. He alleged that Snapchat sabotaged his ability to find a new job by lying about the reason for his termination and attributing it to incompetence. Pompliano is seeking damages for lost wages and harm to his professional reputation, as well as punitive damages. Pompliano now works at an early stage venture capital fund he founded in North Carolina called Full Tilt Capital, according to a blog post published in August.

Snapchat could raise as much as $4 billion in its upcoming IPO, which could value the company at more than $25 billion, according to published reports. Snapchat has said it has 150 million daily active users. Forecasting firm eMarketer estimates the company generated $366.7 million in revenue in 2016, and could generate nearly $1 billion in sales this year. Snapchat competes fiercely with Facebook and its popular photo-and-video app Instagram for users’ mobile screen time. Instagram, which has 600 million monthly users, recently cloned Snapchat’s core “Stories” feature. In 2013, Snapchat turned down a $3 billion acquisition offer from Facebook.

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