This all being said, it would be remiss not to acknowledge that Sprout Social has indeed executed tremendously well, which is the driver behind its stock price outperformance. My recommendation here: lock in gains on Sprout Social and re-invest elsewhere, focusing on value. Now, it has just become one of the many price-for-performance stocks that I feel uncomfortable holding at market highs. This puts Sprout Social's valuation multiples at:Įarlier this year, I considered Sprout Social a "growth at a reasonable price", or "GARP" stock. And for the next fiscal year (FY22), Wall Street analysts have pegged a consensus target of $232.7 million for the company, representing 27% y/y growth (data from Yahoo Finance). Source: Sprout Social Q2 earnings releaseįor the current fiscal year, meanwhile, Sprout Social has guided to $182-$182.6 million in revenue, or 37% y/y growth - shown in the snapshot above. After we net off the $171.5 million of cash on its most recent balance sheet, Sprout Social's resulting enterprise value is $6.46 billion. At Sprout Social's current share prices near $123, the company trades at a market cap of $6.63 billion. The second and primary worry is on valuation. The bottom line here is that while Sprout Social is certainly in an attractive market, it's not the only player chasing market share. Even some established CRMs, like HubSpot ( HUBS), are now offering similar content-management platforms. A sea of similar companies have emerged over the recent years, including Hootsuite, Sprinklr, and others.
#Sprout social stock software
First, on competition - Sprout Social is far from the only company trying to help businesses with software solutions to manage their social media presence. As long as you don't think social media is going anywhere, these numbers are easy to believe.Īt the same time, however, the two major concerns we have with Sprout Social revolve around competition and valuation. Looking longer term, it pegs its "expanded TAM" at $50 billion. Sprout Social currently estimates that it is only 3-5% penetrated into a current serviceable market of $25 billion. "Social media manager" has become a viable profession and career path. Accelerated especially by the pandemic and the massive rise in user engagement on digital platforms, every company is trying to figure out a coherent social media strategy right now.
Let's start with the pros for Sprout Social: At this juncture, even after seeing the company's latest Q2 earnings beat (which we'll cover next in this article), I'm quite convinced that the risk-reward profile is evenly balanced. I'm updating my view on the stock to neutral, owing primarily to valuation. I'll cut to the chase here: my recommendation is to table Sprout Social and lock in gains. It's a good time now for the stock's investors to take a breather and re-assess: is there any further upside here? Since then, shares of Sprout Social have doubled, and year-to-date, the stock is up nearly 3x. I recommended buying Sprout Social in March in the mid-$60s, calling out the company's strong growth rates, business niche that is resonant with the times (what company right now isn't trying to aggressively expand its social media presence?), and at the time, a reasonable valuation for its growth profile. Sprout Social ( NASDAQ: SPT) was one of my most fortuitous calls earlier this year. Especially in the small/mid-cap space, stocks have not at all moved together, with many small-cap stocks sliding into bear-market territory and others doubling previous records. 2021 has proven to be a year where stock-picking has reigned supreme.
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