Based in Chicago, Illinois, Sprout Social is a software company that offers a centralized platform for businesses to manage social media marketing and operations. Leading up to and during the class period, Sprout Social changed its mix of customers, transitioning away from smaller customers on month-to-month contracts to larger, or “enterprise,” customers that would sign annual contracts. Throughout the class period, Defendants touted the “continued momentum” with larger customers and “our ability to kind of go upmarket.” Defendants further assured investors that as the Company moved “upmarket,” Sprout Social was “keeping the sales cycle moving quickly.”
The expanded action alleges that, during the class period, the Defendants made materially false and misleading statements and failed to disclose that: (1) Sprout Social did not have the ability to sell software to larger enterprise customers; (2) Sprout Social did not execute on its purported go-to-market strategies for enterprise customers; (3) Sprout Social was forced to overpay for Tagger Media, Inc. in order to satisfy the requirements of enterprise customers; (4) as a result of the Company’s move “upmarket,” Sprout Social was experiencing longer sales cycles and poor pipeline generation; and (5) as a result of the above, Defendants’ statements about Sprout Social’s business, operations, and prospects were materially false and misleading and/or lacked a reasonable basis at all relevant times.
These failures, misrepresentations, and other undisclosed issues were revealed to the market through public disclosures in 2023 and 2024. The truth was partially revealed on August 3, 2023, when Sprout Social announced the Tagger acquisition, which cost $140 million, and lowered its full-year revenue guidance. The Company explained that it acquired Tagger, a leader in influencer marketing, because influencer marketing was a routine requirement of the Company’s enterprise customer base. On this news, the price of Sprout Social stock fell 12.3%, from a closing price of $53.38 per share on August 2, 2023, to a closing price of $46.81 per share on August 4, 2023.
The truth was fully revealed to investors after the markets closed on May 2, 2024, when Sprout Social issued a press release announcing financial results for the first quarter of 2024 that included a $20 million downward revision to 2024 revenue guidance. Among other things, Defendants disclosed that Sprout Social was experiencing longer sales cycles due to the changing composition of its customer base. On this news, the price of Sprout Social stock plummeted more than 40%, from a closing price of $48.15 per share on May 2, 2024, to a closing price of $28.82 per share on May 3, 2024.
On November 12, 2024, the United States District Court for the Northern District of Illinois appointed the Employees’ Retirement System of the City of Baltimore as Lead Plaintiff and Saxena White P.A. as Lead Counsel.
On January 24, 2025, Lead Plaintiff filed the consolidated complaint. On March 25, 2025, Defendants’ filed a motion to dismiss the amended complaint, and Lead Plaintiff’s opposition to the motion to dismiss was filed on May 23, 2025. Defendants’ reply was filed on July 17, 2025.
On October 6, 2026, Saxena White secured a significant victory when the Honorable Jeffrey I. Cummings denied the defendants’ motion to dismiss in its entirety. The Court sustained all claims against the social media management company Sprout Social, Inc. and its current and former executives.
In sustaining the complaint in its entirety, Judge Cummings found that falsity, scienter, and loss causation were each adequately pleaded. The Court emphasized that investors had presented detailed allegations from numerous former employees, as well as alleged admissions by company executives, supporting their claims. The Court rejected defendants’ puffery, opinion, and safe-harbor arguments, noting that many statements were concrete, verifiable, and made in response to direct analyst questions. The Court also found a strong inference of scienter based on the centrality of enterprise growth to Sprout’s core operations, executives’ claims of real-time access to sales data, corroborating witness accounts, and insider trading by certain executives. The Court described defendants’ motion as “built on a faulty foundation” that attempted to view the complaint in defendants’ favor.
The ruling clears the way for discovery, where investors will have the opportunity to obtain additional evidence supporting their claims.
The parties are scheduled to submit a joint status report on November 10, 2026, with a status hearing scheduled for November 19, 2026.
