Sprout Social's (NASDAQ:SPT) Posts Q1 Sales In Line With Estimates

Kayode Omotosho /
2023/05/02 4:10 pm EDT

Social media management software company Sprout (NASDAQ:SPT) reported results in line with analyst expectations in Q1 FY2023 quarter, with revenue up 31% year on year to $75.2 million. Guidance for the full year also exceeded estimates, however the guidance for the next quarter was less impressive, coming in at $78.7 million, 1.55% below analyst estimates. Sprout Social made a GAAP loss of $10.3 million, down on its loss of $9.76 million, in the same quarter last year.

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Sprout Social (SPT) Q1 FY2023 Highlights:

  • Revenue: $75.2 million vs analyst estimates of $75.1 million (small beat)
  • EPS (non-GAAP): $0.06 vs analyst estimates of -$0.01 ($0.07 beat)
  • Revenue guidance for Q2 2023 is $78.7 million at the midpoint, below analyst estimates of $79.9 million
  • The company reconfirmed revenue guidance for the full year, at $332.5 million at the midpoint
  • Free cash flow of $7.9 million, up from $2.56 million in previous quarter
  • Customers: 33,861, down from 34,390 in previous quarter
  • Gross Margin (GAAP): 77.6%, up from 75.6% same quarter last year

“We are proud to deliver accelerating growth in key leading indicators, alongside record free cash flow,” 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 very strong over the last two years, growing from quarterly revenue of $40.8 million in Q1 FY2021, to $75.2 million.

Sprout Social Total Revenue

And unsurprisingly, this was another great quarter for Sprout Social with revenue up 31% year on year. On top of that, revenue increased $5.55 million quarter on quarter, a very strong improvement on the $4.35 million increase in Q4 2022, and a sign of re-acceleration of growth.

Guidance for the next quarter indicates Sprout Social is expecting revenue to grow 28% year on year to $78.7 million, slowing down from the 37.5% 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 30.8% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Customer Growth

You can see below that Sprout Social reported 33,861 customers at the end of the quarter, a decrease of 529 on last quarter. That is suggesting that the customer acquisition momentum is slowing down.

Sprout Social Customers

Key Takeaways from Sprout Social's Q1 Results

With a market capitalization of $2.78 billion Sprout Social is among smaller companies, but its more than $177.5 million in cash and positive free cash flow over the last twelve months give us confidence that Sprout Social has the resources it needs to pursue a high growth business strategy.

It was good to see Sprout Social deliver strong revenue growth this quarter. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and there was a slowdown in customer growth. Overall, this quarter's results were not the best we've seen from Sprout Social. The company is flat on the results and currently trades at $48.32 per share.

Sprout Social may have had a tough quarter, but does that actually create an opportunity to invest 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.