Sprout Social (NASDAQ:SPT) Surprises With Q2 Sales But Customer Growth Slows Down

Radek Strnad 2022/08/02 4:18 pm EDT

Social media management software company Sprout (NASDAQ:SPT) announced better-than-expected results in the Q2 FY2022 quarter, with revenue up 37.4% year on year to $61.4 million. The company expects that next quarter's revenue would be around $64.9 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Sprout Social made a GAAP loss of $14.6 million, down on its loss of $5.44 million, in the same quarter last year.

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Sprout Social (SPT) Q2 FY2022 Highlights:

  • Revenue: $61.4 million vs analyst estimates of $60.3 million (1.86% beat)
  • EPS (non-GAAP): -$0.04 vs analyst estimates of -$0.06
  • Revenue guidance for Q3 2022 is $64.9 million at the midpoint, above analyst estimates of $64.6 million
  • The company reconfirmed revenue guidance for the full year, at $253.9 million at the midpoint
  • Free cash flow of $667 thousand, down 86.8% from previous quarter
  • Customers: 33,620, up from 32,800 in previous quarter
  • Gross Margin (GAAP): 75.3%, in line with same quarter last year

“We’re delighted to have delivered another strong quarter, again demonstrating the strengths of our team and market opportunity,” 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.

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 impressive over the last year, growing from quarterly revenue of $44.6 million, to $61.4 million.

Sprout Social Total Revenue

And unsurprisingly, this was another great quarter for Sprout Social with revenue up 37.4% year on year. Quarter on quarter the revenue increased by $4 million in Q2, which was in line with Q1 2022. This steady quarter-on-quarter growth shows the company is able to maintain a strong growth trajectory.

Guidance for the next quarter indicates Sprout Social is expecting revenue to grow 32.3% year on year to $64.9 million, slowing down from the 45.8% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 30.9% over the next twelve months.

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Customer Growth

You can see below that Sprout Social reported 33,620 customers at the end of the quarter, an increase of 820 on last quarter. That is a little slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing a little bit.

Sprout Social Customers

Key Takeaways from Sprout Social's Q2 Results

With a market capitalization of $2.82 billion Sprout Social is among smaller companies, but its more than $173.7 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We enjoyed seeing Sprout Social’s impressive revenue growth this quarter. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. On the other hand, it was unfortunate to see the slowdown in customer growth. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is flat on the results and currently trades at $52 per share.

Should you invest in Sprout Social right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.