Bragar Eagel & Squire, P.C., a nationally recognized stockholder rights law firm, announces that a class action lawsuit has been filed against Cognyte Software Ltd. (“Cognyte” or the “Company”) (NASDAQ: CGNT) in the United States District Court for the Southern District of New York on behalf of all persons and entities who purchased or otherwise acquired Cognyte securities between February 2, 2021 and June 28, 2022, both dates inclusive (the “Class Period”). Investors have until May 1, 2023 to apply to the Court to be appointed as lead plaintiff in the lawsuit.

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On December 16, 2021, after the market closed, Meta, the parent company of Facebook and Instagram, issued a “Threat Report,” which included the results of its “months long” investigation into the “surveillance-for-hire industry,” revealing for the first time that Cognyte (along with six private companies) regularly targeted, without their knowledge, journalists, dissidents, critics of authoritarian regimes, families of opposition, and human rights activists around the world, and collected intelligence on these people by manipulating them to reveal information and/or by compromising their devices and accounts, in violation of Facebook’s “multiple community standards and Terms of Service.” In particular, the Threat Report revealed that Cognyte “sells access to its platform which enables managing fake accounts across social media platforms including Facebook, Instagram, Twitter, YouTube, and VKontakte (VK), and other websites to social-engineer people and collect data.” This conduct “violated multiple Community Standards and Terms of Service,” and “given the severity of their violations,” Meta disabled Cognyte’s ability to use its platforms (removing about 100 accounts on Facebook and Instagram), shared is findings with security researchers, other platforms, and policymakers, issued Cease and Desist warnings, and alerted the nearly 50,000 individuals (across 100 countries) who were believed to be targeted to help them strengthen the security of their accounts.

On this news, the price of Cognyte’s common stock fell 5.11%, closing on December 17, 2021, at $18 per share, before declining another 5.5% the next trading day. By December 22, 2021, Cognyte’s stock had fallen to trade at $15 per share, representing a decline of nearly 21%.

Then, on April 5, 2022, Cognyte issued its Annual Report on Form 20-F for the period ended January 31, 2022 (the “2021 Annual Report”), revealing that the Company was forced to modify its solutions in response to the Threat Report, stating in relevant part:

Our solutions capture, fuse and analyze data collected from various sources, including from commercial web sources and social platforms. Such sources and platforms may allege that our solutions and techniques for capturing and collecting data and information from such sources violate their terms of use or other propriety rights of such sources or of their users. In December 2021, Meta Platforms Inc., or Meta, issued a report alleging that certain solutions offered by us that interface with Facebook and Instagram platforms violate their terms of use. Concurrently with the issuance of the foregoing report, Meta announced that it had removed accounts that it claimed were associated with our solutions and requested we cease data collection from its social platforms. In response to Meta’s allegations, we made modifications to certain features of our solutions, which impacted the manner our customers can use these solutions. Any allegations that our solutions and techniques infringe the terms of use or rights of third parties may result in legal claims against us or our customers. These claims may damage our reputation, adversely impact our customer relationships and create liability for us.

On the same day it published its 2021 Annual Report, Cognyte reported its fourth quarter 2021 financial results, representing the period during which Facebook disrupted and disabled Cognyte’s use of its platforms for purposes of reconnaissance. Cognyte badly missed analyst consensus estimates for non-GAAP earnings per share and sales, and significantly undershot the midpoint of its guidance range by several millions of dollars, citing in the Company’s accompanying press release “lower conversions within [its] product pipeline,” among other macroenvironmental challenges. Specifically, the Company’s non-GAAP earnings of $0.16 per share were not only down significantly from the $0.36 per share it earned in the year-ago quarter but also $0.06 per share below analysts’ expectations of $0.22 per share. Similarly, Cognyte’s sales of $124.9 million, representing a less than 1% increase from the year-ago period, also came significantly below analysts’ consensus estimate of $129.6 million.

The response from analysts was swift with many reducing their price targets, including Wedbush, who lowered their price target from $17 to $9 and concluded: [T]he Cognyte business model is turning into a debacle of [ ] epic proportions for investors that once believed in the story. Since the spin-off from Verint over the past year, the Cognyte story ha[s] been a nightmare for investors as the execution shortfalls, longer sales cycles, and myriad of challenges has created a perfect storm for the Street. Most troubling to us is that CGNT was unable to guide for 1Q23 and 2023, which means to us that management may not have their arms around the sales execution and headwinds in our opinion.

The market also responded immediately and harshly. Cognyte’s stock price plummeted over 31% on unusually high trading volume, closing at $8.03 per share on April 5, 2022, which was down $3.63 per share from its April 4, 2022 close of $11.66 per share.

Then, on June 28, 2022, Cognyte released its first quarter 2022 financial results, which, once again, badly missed analyst estimates across the board. Cognyte’s 1Q22 revenue of $87 million, for example, represented a decline of 25%. Analysts were expecting a decline of 2%.

In response, analysts immediately downgraded the Company’s rating and reduced their price targets. William Blair, for example, downgraded Cognyte to “market perform” and concluded that Cognyte’s “low pipeline conversion” issues were a symptom of a broader problem, stating in relevant part:

Cognyte’s brand has been negatively impacted by increased scrutiny of the cyber intelligence industry and fellow Israel cyber surveillance firm NSO Group. Last fall, the U.S. government blacklisted the NSO Group after a multitude of reports surfaced that its software was being used inappropriately by governments to spy on citizens with dissenting views. While we believe there is value to cyber intelligence we believe that it is important for investors and customers that there are rigid safeguards in place and high transparency to ensure that the software is used in an ethical manner.

On this news, Cognyte’s shares declined $1.84, or over 28.66%, to close at $4.58 per share.

If you purchased or otherwise acquired Cognyte shares and suffered a loss, are a long-term stockholder, have information, would like to learn more about these claims, or have any questions concerning this announcement or your rights or interests with respect to these matters, please contact Brandon Walker or Melissa Fortunato by email at investigations@bespc.com, telephone at (212) 355-4648, or by filling out this contact form. There is no cost or obligation to you.

About Bragar Eagel & Squire, P.C.:

Bragar Eagel & Squire, P.C. is a nationally recognized law firm with offices in New York, California, and South Carolina. The firm represents individual and institutional investors in commercial, securities, derivative, and other complex litigation in state and federal courts across the country. For more information about the firm, please visit www.bespc.com. Attorney advertising. Prior results do not guarantee similar outcomes.

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