On January 5, 2021, Judge Jesse M. Furman of the United States District Court for the Southern District of New York granted in part and denied in part a motion to dismiss a putative securities class action against a data analytics company (the “Company”) for alleged violations of Section 10(b), Rule 10b-5, and Section 20(a) of the Securities Exchange Act of 1934, and Item 303 of Regulation S-K (“Item 303”). In re Nielsen Holdings PLC Securities Litigation, No. 1:18-cv-07143 (S.D.N.Y. Jan. 5, 2021). Plaintiffs alleged the Company made misstatements about the financial performance of some of its business segments and the impact of the enactment of the General Data Protection Regulation (“GDPR”) in the European Union on the Company’s measurement and analytics services. The Court dismissed some of plaintiffs’ claims, pared down others based on the Company’s knowledge at the time of certain alleged misstatements, and granted plaintiffs’ request for leave to amend.
The Company relies on data obtained from third parties such as Facebook and Twitter for many of its products and services. The Company’s business consists of two segments: (i) a “Buy” segment focused on consumer purchasing measurement and analytics related to consumer packaged goods; and (ii) a “Watch” segment, focused on media audience measurement and analytics. The “Buy” segment is further divided into “developed” and “emerging” markets subdivisions. Plaintiffs alleged four general categories of misstatements and omissions: (1) the Company’s failure to disclose in 2016 that its clients’ discretionary spending was trending downward within its Buy segment’s developed markets division; (2) statements made in 2016 and 2017 concerning the value of goodwill of the Company’s Buy segment; (3) statements made in 2017 and 2018 about the anticipated growth of the emerging markets division of the Buy segment; and (4) statements made in 2018 that allegedly downplayed the impact of the GDPR—a data privacy regulation governing the use of personal data—on the Company’s business.
First, the Court dismissed claims relating to statements the Company made in early 2016 about its developed market business, finding actionable only those statements made by the Company in a July 2016 filing. The Court held that plaintiffs sufficiently alleged that the Company knew that their clients’ discretionary spending was trending downward by July 2016 yet did not timely disclose this to the public. With respect to claims that the Company’s revenue forecasts concerning the developed markets business were misleading, the Court dismissed these claims entirely because plaintiffs failed to allege any “specific, contemporaneous reports or statements showing [the Company] did not believe their projections when they were made.”
Second, the Court denied the Company’s motion to dismiss plaintiffs’ claims concerning statements regarding the value of the Buy segment’s goodwill. The Court held that the Company’s “rosy valuation of Buy Segment goodwill was based on baseless cash flow growth rates that they failed to disclose in their 2017 and 2018 Form 10-Ks.” In doing so, the Court relied heavily on plaintiffs’ allegation that, in valuing Buy segment’s goodwill, the Company had assumed 8.2% cash flow growth rates of 8.2% and 19.7%, when revenue for the business segment had been projected to range between a 0.5% increase and a 0.5% decrease. The Court also emphasized that plaintiffs’ allegations regarding the overstated goodwill valuation were reinforced by subsequent events. Specifically, the Court noted that after certain of the company’s executives resigned in 2019, the Company “reduc[ed] the reporting unit’s goodwill by a staggering 54%.”
Finally, with respect to the alleged GDPR-related misstatements, the Court again found that some of plaintiffs’ alleged misstatements were actionable, whereas others were not. Specifically, the Court granted the Company’s motion to dismiss claims based on statements made prior to the enactment of the regulation on May 25, 2018. Lacking any allegations that the Company knew that it would not have access to certain customer data following the implementation of the GDPR, the Court found plaintiffs had alleged “nothing more than fraud by hindsight.” However, the Court found that plaintiffs had sufficiently alleged that, on at least two occasions after the GDPR was enacted, the Company made misleading statements about how the GDPR would impact the Company’s media audience measurement Watch segment. The Court thus sustained plaintiffs’ claims concerning statements about the impact of the GDPR on the Company’s business made after the regulation was in effect, and dismissed all claims based on GDPR-related statements made prior to the regulation’s implementation.
Although the Court expressed scepticism that plaintiffs could cure the identified defects through amendment of their complaint, the Court nonetheless granted leave to amend in “[o]ut of an abundance of caution.”