Class Action Claims ON24 Failed to Disclose It Knew Users Would Not Re-Up Post Pandemic

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A proposed class action alleges a registration statement and prospectus filed with the Securities and Exchange Commission upon ON24’s initial public offering contained materially incorrect or misleading statements, or left out certain information the cloud-based webinar and virtual event platform’s execs and directors were required by law to disclose. 

The 22-page lawsuit claims that ON24, its top brass and a number of major underwriters, unbeknownst to investors, materially misrepresented or incompletely disclosed that a surge in COVID-19 customers the company observed in the lead-up to its February 2021 IPO consisted of a significant number that “did not fit ON24’s traditional customer profile” of enterprise users and, as a result, were far less likely to renew their contracts. 

As these facts came to light, ON24’s share prices “fell sharply” to trade as low as $18.66 per share as of the case’s filing, representing a nearly 63 percent drop from the company’s offering price, the lawsuit says. 

“The Offering Documents were negligently prepared and, as a result, contained untrue statements of material facts or omitted to state other facts necessary to make the statements made not misleading, and was not prepared in accordance with the rules and regulations governing its preparation,” the lawsuit says of ON24’s IPO paperwork. 

According to the complaint, ON24’s platform powered from January 1 through September 30, 2020 more than 159,000 interactive, live digital experiences, engaging an average of four million prospective customers and business professionals monthly. Per the case, these numbers represented a year-over-year increase of 174 percent, and facilitated a monthly average of 12 million prospective customer interactions in the same time period, or 2.45 billion annual engagement minutes. 

As of September 30, 2020, ON24 had more than 1,900 customers in more than 40 countries, including “three of the five largest global technology companies, four of the five largest U.S. banks, three of the five largest global healthcare companies, and three of the five largest global industrial and manufacturing companies” by 2019 revenue, the lawsuit says. When ON24 conducted its IPO on February 3, 2021, shares were available at a public price of $50 each, with the company expected to pull in more than $428 million in proceeds, according to the case. 

The lawsuit alleges that ON24, at the time of its IPO, knew or, in the exercise of reasonable care, should have known that the surge in COVID-19 customers in the lead-up to the offering consisted of a significant number that did not fit the company’s conventional customer profile, i.e. enterprises. Per the suit, the defendants thus should have known that non-enterprise customers, given the fact that ON24’s platform is better suited, and priced for, enterprise users, were less likely to renew their contracts. 

“These undisclosed and negative events and trends were likely to (and in fact, did) materially and adversely affect ON24’s financial state and rendered the disclosed results and trends in the Offering Documents misleading and not indicative of the Company’s future operating results,” the lawsuit alleges. 

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