A class action lawsuit was filed against Sprout Social, Inc. (NASDAQ:SPT) on May 13, 2024. The plaintiffs (shareholders) alleged that they bought Sprout Social stock at artificially inflated prices between November 2, 2023 and May 2, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought SPT stock during that period can click here to learn about joining the lawsuit.
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Sprout Social is a social media management platform that enables online engagement, publishing, analytics, influencer marketing, employee advocacy, and more. Its solutions are used by small and medium businesses, agencies, professionals, and enterprises.
The plaintiffs maintain that Sprout Social and three of its senior executives (Individual Defendants) deceived investors by lying and withholding vital information about the company’s sales and revenue growth and certain acquisitions from SEC filings and related material. By doing so, the Defendants repeatedly made false and misleading public statements throughout the Class Period.
The information became clear after the markets closed on May 2, when Sprout Social released its Q1 FY24 results. The company missed its Q1 revenue guidance and also lowered its full-year Fiscal 2024 revenue outlook by $20 million. The company reasoned that it had “underestimated the magnitude of enterprise seasonality” and mentioned “self-inducing sales execution headwinds.”
Interestingly, during the Class Period, the Defendants stated that the company was performing well, driven by the changing business mix and strong momentum in the enterprise segment. The company also said that its integration of Tagger Media (acquired in 2023) was outperforming its expectations. Furthermore, during a February 20, 2024 earnings call, Sprout Social spoke about an expanding enterprise renewal base that would make its “cash flow more seasonally weighted towards Q1 over time.”
As per the class action lawsuit, Sprout Social caused its stock to trade at artificially inflated prices by knowingly and recklessly misleading investors about the company’s business practices during the Class Period.
Notably, SPT stock plunged 40.1% on May 3, massively impacting shareholders’ returns.
