Secondary ticketing marketplace platform StubHub is facing a class action lawsuit that accuses the company of withholding information about cash flow problems from investors who participated in its $758 million initial public offering in September.
The complaint, filed Monday (November 24) in federal court in Manhattan by law firm Glancy Prongay & Murray on behalf of investor Daniel Salabaj, marks one of the first legal challenges after StubHub filed its third-quarter earnings report.
At least eight other firms have announced investigations into StubHub’s financials including Kirby McInerney LLP, Robbins LLP, Pomerantz LLP, the Law Offices of Frank R. Cruz, Faruqi & Faruqi LLP, Schall Law Firm, Rosen Law Firm, and the Law Offices of Howard G. Smith.
Salabaj purchased shares during StubHub’s September 17 offering, when the company sold roughly 34 million shares at $23.50 each, raising $758 million after underwriter fees. The lawsuit alleges that StubHub’s registration statement “failed to disclose material adverse facts about the Company’s business, operations, and prospects.”
“The complaint filed in this class action alleges that Registration Statement was materially false and/or misleading, and failed to disclose material adverse facts about the Company’s business, operations, and prospects.”
Glancy Prongay & Murray
In a press release on Monday, Glancy Prongay & Murray said StubHub failed to warn investors about operational changes that would significantly affect the company’s cash position.
The dispute followed StubHub’s first quarterly earnings report as a public company, published on November 13. The filing showed free cash flow of negative $4.6 million for the third quarter, versus the positive $10.6 million reported in the same period a year earlier. Operating cash flow dropped 69% YoY to $3.8 million from $12.4 million.
In its 10-Q filing, the company attributed the drop in free cash flow to “changes in the timing of cash receipts and payments associated with ticket sales as well as timing of payments to vendors.”
Salabaj’s attorneys at Glancy Prongay & Murray wrote: “The complaint filed in this class action alleges that Registration Statement was materially false and/or misleading, and failed to disclose material adverse facts about the Company’s business, operations, and prospects.”
They alleged that StubHub failed to notify investors that it was experiencing changes in the timing of payments to vendors and that those changes affected free cash flow.
Glancy Prongay & Murray noted that StubHub’s stock price fell 20.9% or $3.95 per share to close at $14.87 on November 14 following the Q3 report. StubHub’s shares declined further, hitting an all-time low of $10.31 on November 20. On Tuesday (November 25), the stock rebounded, closing at $12.73, but still down 46% from its $23.50 IPO price.
Named as defendants in the class action, which you can read here, are StubHub, Chief Executive Officer Eric Baker, and several investment banks that underwrote the offering, including JPMorgan Chase, Goldman Sachs and Bank of America.
The class actions represent the latest challenge for StubHub as it faces ballooning losses. In Q3, the company reported a net loss of $1.3 billion, against a net loss of $33 million in the same period last year. It attributed the wider losses to the company’s IPO.
Revenue, meanwhile, grew 8% YoY to $468 million from $434 million.
During the company’s earnings call earlier ths month, StubHub Chief Financial Officer Connie James said: “We focus relentlessly on cash flow generation. Our business model efficiently converts adjusted EBITDA into free cash flow, providing us the financial flexibility to reinvest in the business and optimize our capital structure.”
Music Business Worldwide
