Sprout Social (NASDAQ:SPT) Reports Sales Below Analyst Estimates In Q1 Earnings, Stock Drops 24.7%

Jabin Bastian /
2024/05/02 4:36 pm EDT

Social media management software company Sprout (NASDAQ:SPT) missed analysts' expectations in Q1 CY2024, with revenue up 28.7% year on year to $96.78 million. Next quarter's revenue guidance of $98.55 million also underwhelmed, coming in 2.9% below analysts' estimates. It made a non-GAAP profit of $0.10 per share, improving from its profit of $0.06 per share in the same quarter last year.

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Sprout Social (SPT) Q1 CY2024 Highlights:

  • Revenue: $96.78 million vs analyst estimates of $97.32 million (small miss)
  • EPS (non-GAAP): $0.10 vs analyst estimates of $0.01 ($0.09 beat)
  • Revenue Guidance for Q2 CY2024 is $98.55 million at the midpoint, below analyst estimates of $101.5 million
  • The company dropped its revenue guidance for the full year from $425.4 million to $405.5 million at the midpoint, a 4.7% decrease
  • Gross Margin (GAAP): 76.8%, in line with the same quarter last year
  • Free Cash Flow of $11.33 million is up from -$3.23 million in the previous quarter
  • Market Capitalization: $2.82 billion

“As partners in this company’s success to date and strategic direction moving forward, Ryan and I had an opportunity to re-draw our roles to best position us to accelerate beyond our $1B target.” said Justyn Howard, Sprout Social’s CEO and Co-founder.

Founded by Justyn Howard and Aaron Rankin in 2010, Sprout Social (NASDAQ:SPT) provides a software as a service platform that companies can use to schedule and respond to posts on major social media networks like Twitter, Facebook, Instagram, Youtube and LinkedIn.

Marketing Software

Whether or not companies market their products through social media, all businesses need to meet customers where they are; and increasingly, that is social media. As more and more people use a greater number of social media platforms, social media management software become more valuable to their customers.

Sales Growth

As you can see below, Sprout Social's revenue growth has been very strong over the last three years, growing from $40.82 million in Q1 2021 to $96.78 million this quarter.

Sprout Social Total Revenue

Even though Sprout Social fell short of analysts' revenue estimates, its quarterly revenue still grew a very solid 28.7% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $3.2 million in Q1 compared to $8.05 million in Q4 CY2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter's guidance suggests that Sprout Social is expecting revenue to grow 24.3% year on year to $98.55 million, slowing down from the 29.1% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 27.2% over the next 12 months before the earnings results announcement.

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Large Customers Growth

This quarter, Sprout Social reported 8,823 enterprise customers paying more than $10,000 annually, an increase of 134 from the previous quarter. That's a bit fewer contract wins than last quarter and quite a bit below what we've typically observed over the past four quarters, suggesting that its sales momentum with large customers is slowing.

Sprout Social customers paying more than $10,000 annually

Key Takeaways from Sprout Social's Q1 Results

We struggled to find many strong positives in these results. Its full-year revenue guidance was below expectations and it announced a CEO succession plan. Overall, this was a bad quarter for Sprout Social. The company is down 24.7% on the results and currently trades at $36.25 per share.

Sprout Social may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.