In re Splunk Inc. Securities Litigation
|Court:||United States District Court for the Northern District of California|
|Judge:||Jon S. Tigar|
|Class Period:||08/26/2020 - 12/02/2020|
|Case Contacts:||Jonathan D. Uslaner, Matthew Traylor, Rebecca N. Kim|
Headquartered in San Francisco, California, Defendant Splunk Inc. (“Splunk” or the “Company) is a software company that provides specialized software that ingests, analyzes, and repackages large quantities of machine generated data for its customers. Splunk has grown exponentially in recent years, with annual revenues increasing over 500% from 2015 to 2020. Historically, Splunk sold “on-premise” software that was stored locally on companies’ hardware, and would sell this software by granting licenses for a one-time fee, comparable to how Microsoft traditionally sold Microsoft Windows licenses. However, over the course of the last few years, cloud-based data analytics has come to predominate the data analytics market. Accordingly, Splunk began targeting its customer service and sales efforts to converting pre-existing clients as well as attracting new clients to its cloud-based offering. Key to this transition, however, was the conversion of the above-mentioned licensing pricing model for its on-premise software to a subscription-based pricing model for cloud-based software.
Splunk indicated that while this transition might lower revenue in the short term, it was key to sustaining long-term high levels of growth. Accordingly, and due in large part to the explosive growth in cloud computing in recent years, Splunk incorporated highly aggressive growth targets that fueled substantial market interest and investment in its stock. However, behind the scenes, Splunk’s customer service and sales efforts were failing to secure critical contracts necessary for Splunk to realize its lofty revenue forecasts. Rather than inform investors, Splunk’s CEO and CFO, Defendants Douglas Merrit and Jason Child, sold millions in personally-held stock. Finally, the truth emerged on December 2, 2020, with Splunk announcing quarterly revenues of $559 million, down 11% year-over-year, and an estimate miss of nearly $60 million. The market was in shock, as only 10 days prior Defendants had reaffirmed those same estimates to concerned investors. Defendants attributed the poor performance to a “much lower-than-normal close rate among our largest deals” and acknowledged that at no later than the second quarter of that year did Splunk realize that its largest deals were not closing at the same rate as years past. On this news, shares of Splunk common stock plummeted, closing at just $158.03 per share on December 3, 2020, down over 23% from the December 2, 2020 closing price of $205.91 per share. As a result of Defendants’ wrongful actions and omissions, which caused the precipitous decline in the market value of Splunk’s stock, plaintiffs suffered significant losses and damages.
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