Case 4:20-cv-08600-JST Document 1 Filed 12/04/20 Page 1 of 17
`
`Whitney E. Street (CA Bar No. 223870)
`BLOCK & LEVITON LLP
`100 Pine Street, Suite 1250
`San Francisco, CA 94111
`Tel.: (415) 968-1852
`Fax: (617) 507-6020
`whitney@blockleviton.com
`
`Jacob A. Walker (CA Bar No. 271217)
`BLOCK & LEVITON LLP
`260 Franklin St., Suite 1860
`Boston, MA 02110
`Tel.: (617) 398-5600
`Fax: (617) 507-6020
`jake@blockleviton.com
`
`Attorneys for Plaintiff
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`
`TATIANA PAVLOVA-COLEMAN,
`individually and on behalf of all others
`similarly situated,
`
`Plaintiff,
`
`v.
`
`Case No. _____________________
`
`CLASS ACTION COMPLAINT FOR
`VIOLATIONS OF THE FEDERAL
`SECURITIES LAWS
`
`SPLUNK INC., DOUGLAS MERRITT, and
`JASON CHILD,
`
`JURY TRIAL DEMANDED
`
`Defendants.
`
`Plaintiff, Tatiana Pavlova-Coleman, (“Plaintiff”), by and through her attorneys, alleges
`
`upon personal knowledge as to her own acts, and upon information and belief as to all other
`
`matters, based upon the investigation conducted by and through her attorneys, which included,
`
`among other things, a review of documents filed by Defendants (as defined below) with the
`
`United States Securities and Exchange Commission (the “SEC”), news reports, press releases
`
`issued by Defendants, and other publicly available documents, as follows:
`CLASS ACTION COMPLAINT – CASE NO.
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`

`

`Case 4:20-cv-08600-JST Document 1 Filed 12/04/20 Page 2 of 17
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`NATURE AND SUMMARY OF THE ACTION
`
`1.
`
`This is a federal securities class action on behalf of all investors who purchased or
`
`otherwise acquired Splunk Inc. (“Splunk” or the “Company”) common stock between October
`
`21, 2020 and December 2, 2020, inclusive (the “Class Period”), seeking to recover damages
`
`caused by Defendants’ violations of the federal securities laws and to pursue remedies under
`
`§§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5
`
`promulgated thereunder by the SEC, 17 C.F.R. § 240.10b-5.
`
`2.
`
`According to its most recent Annual Report filed on Form 10-K with the U.S.
`
`Securities and Exchange Commission (the “SEC”), Splunk “provides innovative software
`
`solutions that ingest data from different sources including systems, devices and interactions, and
`
`turn that data into meaningful business insights across the organization.” Splunk states that its
`
`“Data-to-Everything platform enables users to investigate, monitor, analyze and act on data
`
`regardless of format or source.” Splunk common stock trades on the NASDAQ stock exchange
`
`under the ticker symbol “SPLK.” The Company is headquartered in San Francisco, CA.
`
`3.
`
`On October 21, 2020, just ten days before the close of Splunk’s 2021 third fiscal
`
`quarter, Splunk held a call with several analysts at the Virtual Analyst & Investor Session at
`
`.conf.20. On this call, and as detailed more completely herein, Splunk assured investors that
`
`everything was on track for its third quarter 2021 financial results.
`
`4.
`
`Throughout the Class Period and in violation of the Exchange Act, Defendants
`
`made materially false and/or misleading statements, as well as failed to disclose material adverse
`
`24
`
`facts to investors. Specifically, Defendants misrepresented and/or failed to disclose to investors
`
`that: (1) Splunk was not closing deals with its largest customers in the third fiscal quarter of
`
`2021; (2) Splunk was not hitting the financial targets it had previously announced; and (3) as a
`
`result of the foregoing, Defendants’ public statements were materially false and misleading at all
`
`25
`
`26
`
`27
`
`28
`
`relevant times.
`
`
`
`2
`
`

`

`Case 4:20-cv-08600-JST Document 1 Filed 12/04/20 Page 3 of 17
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`5.
`
`After the markets closed on December 2, 2020, Splunk announced its financial
`
`results for its third fiscal quarter for 2021, ended October 31, 2020. 1 In this announcement,
`
`Splunk reported total revenues of $559 million, down 11% year-over-year and which missed
`
`estimates by nearly $60 million. Furthermore, Splunk announced quarterly non-GAAP earnings
`
`per share of -$0.07, missing estimates by 15 cents, as well as GAAP earnings per share of -$1.26,
`
`missing by 24 cents per share. Splunk also announced guidance for the fourth quarter of 2021
`
`(ending January 31, 2021) of total revenues between $650 and $700 million, and non-GAAP
`
`operating margins of between negative 4% and positive 3%.
`
`6.
`
`The Company also held an earnings call with analysts on December 2, 2020. On
`
`that call, Defendant Merritt admitted that despite the Company having reiterated their 2021 third
`
`quarter guidance just ten days before the close of the quarter, that these results fell “certainly
`
`short of both our expectations and our communication of those expectations.”
`
`7.
`
`This development stunned the market, leading analyst JPMorgan to write that it
`
`was “blindsided by the magnitude of too many large deals slipping in the final days of October.”
`
`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.
`
`8.
`
`As a result of Defendants’ wrongful acts and omissions, and the precipitous
`
`decline in the market value of the Company’s securities, Plaintiff and other Class members have
`
`suffered significant losses and damages.
`
`JURISDICTION AND VENUE
`
`9.
`
`The federal law claims asserted herein arise under and pursuant to §§ 10(b) and
`
`20(a) of the Exchange Act, 15 U.S.C. § 78(b) and 78t(a), and Rule 10b-5 promulgated thereunder
`
`by the SEC, 17 C.F.R. § 240.10b-5.
`
`1 https://www.sec.gov/Archives/edgar/data/1353283/000135328320000035/a10312020ex-991.htm.
`3
`
`

`

`Case 4:20-cv-08600-JST Document 1 Filed 12/04/20 Page 4 of 17
`
`
`
`10.
`
`This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C.
`
`§1331, § 27 of the Exchange Act, 15 U.S.C. § 78aa.
`
`11.
`
`This Court has jurisdiction over each Defendant named herein because each
`
`Defendant is an individual or corporation who has sufficient minimum contacts with this District
`
`as to render the exercise of jurisdiction by the District Court permissible under traditional notions
`
`of fair play and substantial justice.
`
`12.
`
`Venue is proper in this District pursuant to § 27 of the Exchange Act, 15 U.S.C.
`
`§ 78aa and 28 U.S.C. § 1931(b), as the Company has its principal executive offices located in
`
`this District and conducts substantial business here.
`
`13.
`
`In connection with the acts, omissions, conduct and other wrongs in this
`
`Complaint, Defendants, directly or indirectly, used the means and instrumentalities of interstate
`
`commerce, including but not limited to the United States mail, interstate telephone
`
`communications and the facilities of the national securities exchange.
`
`INTRADISTRICT ASSIGNMENT
`
`14.
`
`Pursuant to Local Rule 3-2(c), this is a securities fraud class action to be assigned
`
`on a district-wide basis. Defendant Splunk Inc. is headquartered in San Francisco, CA, which is
`
`within the San Francisco/Oakland Division.
`
`PARTIES
`
`15.
`
`Plaintiff Tatiana Pavlova-Coleman, as set forth in her Certification filed
`
`contemporaneously herewith, acquired shares of Splunk common stock at artificially inflated
`
`prices, and has been damaged.
`
`16.
`
`Defendant Splunk Inc. is incorporated under the laws of the State of Delaware,
`
`with its principal place of business at 270 Brannan Street, San Francisco, CA 94017. Its common
`
`stock trades on the NASDAQ stock exchange under the symbol SPLK.
`
`
`
`4
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`

`

`Case 4:20-cv-08600-JST Document 1 Filed 12/04/20 Page 5 of 17
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`17.
`
`Defendant Douglas Merritt has been Splunk’s President, Chief Executive Officer,
`
`and a member of the Company’s Board of Directors since 2015.
`
`18.
`
`Defendant Jason Child has been Splunk’s Senior Vice President and Chief
`
`Financial Officer since May 2019.
`
`19.
`
`Defendants Merritt and Child are named as Defendants for violations of all counts
`
`asserted herein, and are referred to as the “Individual Defendants.” The Individual Defendants,
`
`because of their positions with the Company, possessed the power and authority to control the
`
`contents of the Company’s reports to the SEC, press releases and presentations to securities
`
`analysts, money and portfolio managers, and the investing public, i.e., the market. The Individual
`
`Defendants were provided with copies of the Company’s reports and press releases alleged
`
`herein to be misleading prior to, or shortly after, their issuance and had the ability and
`
`opportunity to prevent their issuance or cause them to be corrected. Because of their positions
`
`and access to material, non-public information available to them, the Individual Defendants
`
`knew that the adverse facts specified herein had not been disclosed to, and were being concealed
`
`from, the public, and that the positive representations that were being made were then materially
`
`false and/or misleading. The Individual Defendants are therefore liable for the misstatements and
`
`omissions plead herein.
`
`SUBSTANTIVE ALLEGATIONS
`
`20.
`
`According to its most recent Annual Report filed on Form 10-K with the SEC,
`
`Splunk “provides innovative software solutions that ingest data from different sources including
`
`systems, devices and interactions, and turn that data into meaningful business insights across the
`
`organization.” Splunk states that its “Data-to-Everything platform enables users to investigate,
`
`monitor, analyze and act on data regardless of format or source.”
`
`21.
`
`Splunk was incorporated in California in October 2003, and reincorporated in
`
`Delaware in May 2006. The Company is headquartered in San Francisco, CA.
`5
`
`
`
`

`

`Case 4:20-cv-08600-JST Document 1 Filed 12/04/20 Page 6 of 17
`
`22.
`
`On August 26, 2020, Splunk issued a press release on Form 8-K with the SEC in
`
`which it announced its financial results for the second fiscal quarter of 2021. 2 In this press
`
`release, Splunk announced guidance for the fiscal third quarter of 2021 (ending October 31,
`
`2020), that “[t]otal revenues are expected to be between $600 million and $630 million,” and that
`
`“[n]on-GAAP operating margin is expected to be between 2% and 5%.”
`
`23.
`
`On September 24, 2020, Splunk announced that Susan St. Ledger, the Company’s
`
`former President, Worldwide Field Operations (i.e., the head of sales), left Splunk.3
`
`DEFENDANTS’ FALSE AND MISLEADING STATEMENTS AND/OR OMISSIONS
`
`24.
`
`The Class Period begins on October 21, 2020, when just ten days before the close
`
`of Splunk’s 2021 third fiscal quarter, Splunk held a call with several analysts at the Virtual
`
`Analyst & Investor Session at .conf.20. On this call, Splunk assured investors that everything
`
`was on track for the close of the third quarter.
`
`25.
`
`Defendant Merritt stated:
`
`[B]y the end of this year, we’ll have reached our fiscal ‘23 goal, nearly 2 years
`early. And our customers are increasingly committing to bigger deals, as you can
`see in the tally of customers with ARR over $1 million.
`
`***
`
`Given the importance of ARR and using that as a prime comparison, Splunk is
`growing faster, actually much faster than the household name cloud software
`players when they’re at our stage. At the end of Q2 with our ARR, just short of $2
`billion, Splunk grew at 50% year-over-year. And as I said earlier, that was our
`seventh quarter of at least 50% growth. That means this block is growing faster
`than ServiceNow at $2 billion, faster than Salesforce at $2 billion and faster than
`Workday at $2 billion.
`
`26.
`
`On this October 21, 2020 call, Defendant Child stated:
`
`Our transformation has made our financials complicated, and I’m excited to bring
`some clarity to you today and make the most recent progress on our financials
`
`2 https://www.sec.gov/Archives/edgar/data/1353283/000135328320000028/a7312020ex-991.htm
`3 https://www.sec.gov/Archives/edgar/data/1353283/000110465920108306/tm2031700d1_ex99-
`1.htm.
`
`6
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`

`

`Case 4:20-cv-08600-JST Document 1 Filed 12/04/20 Page 7 of 17
`
`clearer. And most importantly, to make clear why we are so excited about both
`our near-term and long-term future growth prospects and our ability to generate
`meaningful cash flow from operations.
`
`27.
`
`Defendant Child added:
`
`Moving on to ARR. I first want to take a moment to dig a little deeper into our
`ARR numbers published up until this point and shine a light on some of the
`components of ARR. We dug into the numbers to determine 2 things that I think
`might be helpful for you.
`
`First, we quantified the tailwind to ARR attributable to our shift away from
`perpetual and renewable software. Perpetual contracts, which fell to only 1% of
`software bookings by the end of FY ‘20, only generated ARR from their
`maintenance streams, whereas term and cloud contract value is fully counted in
`ARR.
`
`As we’ve been asked many times, how much of an impact the shift away from
`perpetual has had on our ARR numbers, we decided to quantify this for you
`today. No more mystery, it’s all laid out here for you.
`
`Second, we quantified the tailwind impact from the acquisition of SignalFx. This
`one shouldn’t be a surprise. We told you in Q3 of last year that SignalFx had a
`300 basis point tailwind to total ARR. However, any benefit received from
`SignalFx completely disappears beginning this quarter as we lapped the date of
`the acquisition.
`
`And here’s the critical takeaway. By the end of Q4, we estimate that the tailwind
`from the shift from perpetual falls to less than 1%. So looking forward, we are
`reiterating our 40% compounded annual growth rate target for ARR from FY ‘20
`through ‘23. It should be clear now why we remained confident in these targets
`given growth tailwinds that I described earlier.
`
`28.
`
`Defendant Child also discussed as the first of the “4 biggest drivers of growth” for
`
`the Company “the significant and growing customer renewal base.” He continued: “[s]o yes,
`
`we’re still sticking to the $1 billion cash flow target for ‘23. My hope is that the slide would kind
`
`of provide a little more context and hopefully help you understand why we feel good about that. .
`
`. . So yes, we’re definitely sticking to that target.”
`
`29.
`
`Defendant Child further stated that: “[f]or our larger customers, we’re adding
`
`particular value across the expanded data volumes and infrastructures. And as you can see, we’ve
`
`7
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`

`

`Case 4:20-cv-08600-JST Document 1 Filed 12/04/20 Page 8 of 17
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`been successful with growing those relationships and offering new areas of value over time.” He
`
`continued:
`
`Let’s now move on to the cloud and why our shift to being cloud-first reinforces
`our confidence in hitting our growth targets. First, we want to level set for you
`what our renewal base looks like over the next couple of years. As we shifted
`away from selling perpetual software licenses and ramped up our renewable mix
`to reach 99% of all software bookings by Q4 of last year, we’ve created an
`accelerated renewal base that you can see ramps up sharply over the next 3 years.
`
`Through the end of FY ‘20, our term and cloud contracts had an average duration
`of approximately 3 years. So as we anniversary the contract renewal date for this
`renewable software base, you can see how much contract value on an ARR basis
`is up for renewal in any given year. This is what fuels our confidence in our long-
`term growth. Every one of these contracts up for renewal is an opportunity for us
`to grow.
`
`30.
`
`The statements in ¶¶ 25-29 were materially false and misleading and omitted to
`
`disclose material information. Specifically, Defendants misrepresented and/or failed to disclose
`
`to investors that: (1) Splunk was not closing deals with its largest customers in the third fiscal
`
`quarter of 2021; (2) Splunk was not hitting the financial targets it had previously announced; and
`
`(3) as a result of the foregoing, Defendants’ public statements were materially false and
`
`misleading at all relevant times.
`
`31.
`
`Defendants knew, or in reckless disregard for the truth should have known, that at
`
`the time the statements in ¶¶ 25-29 were made, they were false and/or misleading, and/or failed
`
`to disclose material information to investors.
`
`THE TRUTH EMERGES
`
`32.
`
`After the markets closed on December 2, 2020, Splunk announced its financial
`
`results for its third fiscal quarter for 2021, ended October 31, 2020. In this announcement,
`
`Splunk reported total revenues of $559 million, down 11% year-over-year and which missed
`
`estimates by nearly $60 million. Furthermore, Splunk announced quarterly non-GAAP earnings
`
`per share of -$0.07, missing estimates by 15 cents, as well as GAAP earnings per share of -$1.26,
`
`missing by 24 cents per share. Splunk also announced guidance for the fourth quarter of 2021
`8
`
`

`

`Case 4:20-cv-08600-JST Document 1 Filed 12/04/20 Page 9 of 17
`
`(ending January 31, 2021) of total revenues between $650 and $700 million, and non-GAAP
`
`operating margins of between negative 4% and positive 3%.
`
`33.
`
`The Company also held an earnings call with analysts on December 2, 2020. On
`
`that call, Defendant Merritt stated that during the quarter, “we saw a much lower-than-normal
`
`close rate among our largest deals, which caused us to fall short of our bookings target. Overall,
`
`our third quarter did not meet our expectations.” Defendant Child echoed this comment, stating
`
`that “closing rates for several large transactions slowed significantly in the final weeks of the
`
`quarter, resulting in total bookings coming in below plan . . . .”
`
`34. With the first question, an analyst from Barclays Bank PLC asked:
`
`Can you just talk a little bit about the deal slippage at the end of the quarter? Like
`obviously you had your Head of Sales leave. How much of this is execution-
`related and disruption coming from the changes on the internal side versus the
`market? And what’s [sic] kind of confidence gives you that some of this is
`coming back in Q4? Because it looks like not many other vendors in the space
`have really talked about that.
`
`35.
`
`Defendant Merritt responded:
`
`[W]hen we saw at the end of Q2 just compounded in Q3, which is deals that the
`exec team at the customer and our own team thought were going through that in
`the final hours or days of routing for approval got stopped by an extraneous
`group, the CEO or Board of Directors or CFO. As a context, when we go back
`and look quarter-over-quarter, the top 10 deals that were – that we went into a
`quarter with, we tend to close 7, 8 or 9 of those top 10 deals. This quarter we
`wound up closing 3.
`
`36.
`
`An analyst from Morgan Stanley asked:
`
`I know a lot of investors are going to go to sales execution. You had a change in
`leadership. Can you help us understand like sort of where the confidence that you
`have that this isn’t an execution issue, this doesn’t have to do with the change of
`leadership, that this was more of a market event than a Splunk event if you will?
`
`37.
`
`Defendant Merritt responded:
`
`So what we had said when Susan announced her transition was she had strong -- 3
`strong leaders. Christian Smith had been leading global sales for the past 2-plus
`years. Carrie, obviously, as our continuing CMO and John Sabino as our
`continuing Chief Customer Officer. So from the day in, day out management and
`
`9
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`

`

`Case 4:20-cv-08600-JST Document 1 Filed 12/04/20 Page 10 of 17
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`everything from pipeline build, overall process flow, customer engagement, it’s
`the same team underneath Susan that’s still driving those activities.
`
`My -- just in looking at the progression of this quarter, there was -- the unusual
`component was the number of our largest deals that, by the way, are still in play.
`They got pushed into Q4. That just has never happened before. And so I just --
`I’ve been looking -- scrutinizing this in every way possible with the finance team,
`the sales ops team, the sales field leaders, myself, that the concerns that we had in
`Q2, that there was is some really aberrant buying behavior happening as -- again,
`large transactions got scrutiny that in the past 7 years or really the past probably
`30 years of enterprise software, but the past 37 years here, I’ve never seen yet that
`level of scrutiny is the one common thread across a quarter that still delivered
`44% ARR growth and 80% cloud revenue growth. So it’s still, on a contextual
`basis, is an impressive growth quarter, but certainly short of both our expectations
`and our communication of those expectations.
`
`38.
`
`The Barclays Bank PLC analyst also asked about “duration and that customers
`
`didn’t commit to kind of more bigger engagement, longer-term engagement. I’m just looking at
`
`your duration, like kind of how do I marry that up? Because that doesn’t show anything. That
`
`looks all pretty normal there. Like help me understand that, please.” Defendant Child responded:
`
`Yes. Well, so duration is down because last year, we had an unusually high
`duration because of an exceptionally strong public sector quarter and specifically,
`even with a number of beyond 3-year deals, and so we didn’t see that dynamic
`this year. So yes, sequentially, duration looks relatively consistent year-on-year.
`It’s definitely a bigger headwind. It was down 22% or something like that year-
`on-year. But yes -- so I think overall, I would expect duration probably continues
`to look like it has all year going forward.
`
`39.
`
`An analyst from Jefferies LLC then asked:
`
`Doug [Merritt], back October 21, you guys spoke to all of us and had pretty
`strong conviction, reiterated all the numbers. And I guess that would leave us to
`assume that, obviously, the sell part pretty hard at the back half and that these
`deals were effectively probably late stage, meaning that this was not a competitive
`loss scenario, this was more of a timing scenario. So I just want to confirm post
`that Analyst Day on the 21st that that’s really where you saw this fall apart? And
`secondarily, that you don’t believe that this was lost to competitors?
`
`40.
`
`Defendant Merritt responded that only one deal was lost to competitors and said
`
`that he had “never seen an approved deal within an approved budget envelope sponsored that
`
`[was] sponsored by a C-level executive get stalled by an outside party.” He continued that “[w]e
`
`obviously felt confident going into .conf in the Analyst Day on the team’s ability to perform this
`10
`
`

`

`Case 4:20-cv-08600-JST Document 1 Filed 12/04/20 Page 11 of 17
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`quarter and then had some very, very unusual and unexpected activity occur, at least from our
`
`vantage point.”
`
`41.
`
`Defendant Merritt added that he did think “one or two” of those deals closed in
`
`the beginning of Q4, but expressed uncertainty: “I should have looked at that coming in.”
`
`42.
`
`These developments stunned the market, leading analyst JPMorgan to write that it
`
`was “blindsided by the magnitude of too many large deals slipping in the final days of October
`
`on the heels of an upbeat analyst day 10 days prior to the quarter close, at which the company
`
`reaffirmed guidance and stated that it was excited about near-term and long-term growth
`
`prospects,”4 and that it could not explain the slip. JPMorgan and numerous other analysts
`
`immediately downgraded their ratings for Splunk stock, and slashed their target prices.
`
`43.
`
`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.
`
`44.
`
`As a result of Defendants’ wrongful acts and omissions, and the precipitous
`
`decline in the market value of Splunk’s common stock, Plaintiff and other members of the Class
`
`have suffered significant losses and damages.
`
`CLASS ACTION ALLEGATIONS
`
`45.
`
`Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal
`
`Rules of Civil Procedure on behalf of a class of all persons and entities who purchased or
`
`otherwise acquired Splunk common stock between October 21, 2020 and December 2, 2020,
`
`inclusive, seeking to recover damages caused by Defendants’ violations of the federal securities
`
`laws and to pursue remedies under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934
`
`(the “Exchange Act”) and Rule 10b-5 promulgated thereunder by the SEC, 17 C.F.R. § 240.10b-
`
`4 https://www.thestreet.com/investing/splunk-drops-after-q3-report-what-wall-street-is-saying.
`11
`
`

`

`Case 4:20-cv-08600-JST Document 1 Filed 12/04/20 Page 12 of 17
`
`
`
`5. Excluded from the Class are Defendants, directors and officers of the Company, as well as
`
`their families and affiliates.
`
`46.
`
`The members of the Class are so numerous that joinder of all members is
`
`impracticable. The disposition of their claims in a class action will provide substantial benefits to
`
`the parties and the Court.
`
`47.
`
`There is a well-defined community of interest in the questions of law and fact
`
`involved in this case. Questions of law and fact common to the members of the Class which
`
`predominate over questions which may affect individual Class members include:
`
`a. Whether the Exchange Act was violated by Defendants;
`
`b. Whether Defendants omitted and/or misrepresented material facts;
`
`c. Whether Defendants’ statements omitted material facts necessary to make the
`
`statements made, in light of the circumstances under which they were made, not
`
`misleading;
`
`d. Whether Defendants knew or recklessly disregarded that their statements were
`
`false and misleading;
`
`e. Whether the price of the Company’s stock was artificially inflated; and
`
`f. The extent of damage sustained by Class members and the appropriate measure of
`
`damages.
`
`48.
`
`Plaintiff’s claims are typical of those of the Class because Plaintiff and the Class
`
`sustained damages from Defendants’ wrongful conduct alleged herein.
`
`49.
`
`Plaintiff will adequately protect the interests of the Class and have retained
`
`counsel who are experienced in class action securities litigation. Plaintiff has no interests that
`
`conflict with those of the Class.
`
`50.
`
`A class action is superior to other available methods for the fair and efficient
`
`adjudication of this controversy.
`
`12
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`

`

`Case 4:20-cv-08600-JST Document 1 Filed 12/04/20 Page 13 of 17
`
`
`
`FRAUD ON THE MARKET
`
`51.
`
`Plaintiff will rely upon the presumption of reliance established by the fraud-on-
`
`the-market doctrine that, among other things:
`
`a. Defendants made public misrepresentations or failed to disclose material facts
`
`during the Class Period;
`
`b. The omissions and misrepresentations were material;
`
`c. The Company’s common stock traded in efficient markets;
`
`d. The misrepresentations alleged herein would tend to induce a reasonable investor
`
`to misjudge the value of the Company’s common stock; and
`
`e. Plaintiff and other members of the class purchased the Company’s common stock
`
`between the time Defendants misrepresented or failed to disclose material facts.
`
`52.
`
`At all relevant times, the markets for the Company’s stock were efficient for the
`
`following reasons, among others: (i) the Company filed periodic public reports with the SEC;
`
`and (ii) the Company regularly communicated with public investors via established market
`
`communication mechanisms, including through regular disseminations of press releases on the
`
`major news wire services and through other wide-ranging public disclosures such as
`
`communications with the financial press, securities analysts, and other similar reporting services.
`
`Plaintiff and the Class relied on the price of the Company’s common stock, which reflected all
`
`information in the market, including the misstatements by Defendants.
`
`NO SAFE HARBOR
`
`53.
`
`The statutory safe harbor provided for forward-looking statements under certain
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`conditions does not apply to any of the allegedly false statements pleaded in this Complaint. The
`
`specific statements pleaded herein were not identified as forward-looking statements when made.
`
`26
`
`27
`
`28
`
`
`
`13
`
`

`

`Case 4:20-cv-08600-JST Document 1 Filed 12/04/20 Page 14 of 17
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`54.
`
`To the extent there were any forward-looking statements, there were no
`
`meaningful cautionary statements identifying important factors that could cause actual results to
`
`differ materially from those in the purportedly forward-looking statements.
`
`SCIENTER ALLEGATIONS
`
`55.
`
`As alleged herein, Defendants acted with scienter since Defendants knew that the
`
`public documents and statements issued or disseminated in the name of the Company were
`
`materially false and/or misleading; knew that such statements or documents would be issued or
`
`disseminated to the investing public; and knowingly and substantially participated or acquiesced
`
`in the issuance or dissemination of such statements or documents as primary violations of the
`
`federal securities laws. As set forth elsewhere herein in detail, the Individual Defendants, by
`
`virtue of their receipt of information reflecting the true facts regarding Splunk, their control over,
`
`and/or receipt and/or modification of Splunk’s allegedly materially misleading misstatements
`
`and/or their associations with the Company which made them privy to confidential proprietary
`
`information concerning Splunk, participated in the fraudulent scheme alleged herein.
`
`LOSS CAUSATION
`
`56.
`
`After the markets closed on December 2, 2020, Splunk announced its financial
`
`results for its third fiscal quarter for 2021, ended October 31, 2020. In this announcement,
`
`Splunk reported that it missed its projections for the third fiscal quarter of 2021. The Company
`
`also held an earnings call with analysts on the evening of December 2, 2020. On that call,
`
`Defendants stated that Splunk failed to close numerous large deals.
`
`57.
`
`These developments stunned the market, leading analyst JPMorgan to write that it
`
`was “blindsided by the magnitude of too many large deals slipping in the final days of October,”
`
`and that it could not explain the slip. 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.
`
`14
`
`

`

`Case 4:20-cv-08600-JST Document 1 Filed 12/04/20 Page 15 of 17
`
`
`
`CAUSES OF ACTION
`
`COUNT ONE
`Violations of § 10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder
`
`58.
`
`Plaintiff repeats and re-alleges each and every allegation contained above as if
`
`fully set forth herein.
`
`59.
`
`During the Class Period, Defendants disseminated or approved the false
`
`statements specified above, which they knew or deliberately disregarded were misleading in that
`
`they contained misrepresentations and failed to disclose the material facts necessary to make the
`
`statements made, in light of the circumstances under which they were made, not misleading.