It’s unfortunate that certain aspects of Apigee Corporation’s business were in decline or about to decline when it held its initial public offering (IPO), but the complaint for this class action alleges that Apigee negligently or deliberately hid this fact from investors, in violation of Sections 11 and 15 of the Securities Act of 1933.
The class for this action is all those who bought Apigee common stock in or traceable to Apigee’s April 24, 2015 IPO.
Apigee, a California software development company, designed a platform that enabled businesses to design, use, and scale application-programming interfaces (APIs) to connect their IT systems to data or applications used by their customers, partners, or employees. APIs allow some functions to be contracted out or opened up to remote developers.
Before its IPO, the company filed a Form S-1, and later amendments and a prospectus, together forming the Registration Statement. The IPO successfully sold over five million shares of stock and raised $87 million in gross proceeds.
But the complaint claims that the Registration Statement and other public statements by the company were false or misleading, because they omitted or misrepresented certain adverse facts that already existed at the time of the IPO.
For example, Apigee was running its cloud infrastructure on Amazon’s platform, but Amazon was in the process of creating its own API, which would be in direct competition with Apigee’s. According to the complaint, because Apigee had been operating via Amazon, Amazon had access to Apigee’s customers as well as convenience advantages from its other products and informational advantages from its close knowledge of Apigee’s product. The complaint claims that Apigee mentioned other competitors that might cut into its business, but it did not mention Amazon, the one immediately poised to do so.
Also, Apigee’s fourth-quarter 2014 billings of $22 had included $8.6 million, or 39%, from three deals that were unusually large and would not be repeated; and its second-quarter 2015 billings of $22.8 million included a single large transaction of $5.9 million, or 26%, from just one large customer. These unusual, and unusually large, transactions presented a distorted picture of the company’s revenue.
Furthermore, demand for Apigee’s products had been declining. According to the complaint, AT&T had accounted for 54% of Apigee’s License revenue, 10% of its Subscription and Support revenue, and 30% of its Professional Services and Other revenue in fiscal 2013; but in fiscal 2015, after the IPO, it would account for just 5% of the company’s revenues. In fact, the complaint says that demand had fallen enough that the company had to reduce its direct sales efforts and depend more on selling through “channel partners” such as Accenture and SAP.
As a result, the complaint claims, Apigee’s billings growth had been falling, during the quarter prior to the IPO and the quarter in which it occurred, and its financial prospects were significantly different from what its Registration Statement led investors to believe.