Nearly every time a large public company makes a major misstep that hurts it share price badly, ambulance-chasing law firms file class action suits to get the companies to pay out money to compensate shareholders. Twitter Inc. (NYSE: TWTR) is no exception.

Firms Kahn Swick & Foti and Pomerantz set the stage for their actions, which have a modest chance to get a settlement with Twitter.

Kahn Swick & Foti attorneys wrote:

Kahn Swick & Foti, LLC (“KSF”) and KSF partner, the former Attorney General of Louisiana, Charles C. Foti, Jr., remind investors that they have until November 15, 2016 to file lead plaintiff applications in a securities class action lawsuit against Twitter, Inc. (TWTR), if they purchased the Company’s securities between February 6, 2015 and July 28, 2015, inclusive (the “Class Period”).  This action is pending in the United States District Court for the Northern District of California.

Also:

Pomerantz LLP announces that a class action lawsuit has been filed against Twitter, Inc. (“Twitter” or the “Company”) (TWTR) and certain of its officers. The class action, filed in United States District Court, Northern District of California, and docketed under 16-cv-05439, is on behalf of a class consisting of all persons or entities who purchased or otherwise acquired Twitter securities between February 6, 2015 and July 28, 2015 both dates inclusive (the “Class Period”). This class action seeks to recover damages against Defendants for alleged violations of the federal securities laws under the Securities Exchange Act of 1934 (the “Exchange Act”).

The actions have nothing to do with recent potential buyouts by companies such as Saleforce.com. Rather they have to do with recent earnings statements, and Twitter’s earnings forecasts:

On April 28, 2015, Twitter released its first quarter 2015 financial results. The Company reported non-GAAP income of $47 million, or $0.07 non-GAAP EPS, and revenue of $436 million for the first quarter ended March 31, 2015. Additionally, the Company provided its outlook for the second quarter of 2015, projecting second quarter revenue of $470 million to $485 million. Twitter also lowered its full year 2015 revenue forecast to between $2.17 billion and $2.27 billion from prior guidance of $2.30 billion to $2.35 billion. Furthermore, the Company reported that Twitter’s MAUs only increased 5% over the prior quarter.

As a result of this news, the price of Twitter stock dropped $9.39 per share to close at $42.27 per share on April 28, 2015, a decline of 18% on volume of over 77 million shares. On the following day, April 29, 2015, the price of Twitter stock dropped again, falling $3.78 per share to close at $38.49 per share, a one-day decline of nearly 9% on volume of over 120 million shares. However, the stock continued to trade at artificially inflated levels as Defendants assured investors that new initiatives to drive user growth and engagement were still in the early stages.

Then, on July 28, 2015, after the market closed, Twitter issued a press release announcing its second quarter 2015 financial results. The Company reported non-GAAP income of $49 million, or $0.07 non-GAAP EPS, and revenue of $502 million for the second quarter ended June 30, 2015. Additionally, the Company provided its outlook for the third quarter of 2015, projecting third quarter revenue of $545 million to $560 million. Twitter also provided its outlook for the 2015 full year, projecting revenue in the range of $2.20 billion to $2.27 billion.

As a result of this news, the price of Twitter stock plummeted $5.30 per share to close at $31.24 per share on July 29, 2015, a one-day decline of nearly 15% on volume of nearly 93 million shares.

So the share price went down, but it was artificially high? Or something like that. Maybe guidance has become risky.

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