Sprout Social's (NASDAQ:SPT) Q2 Earnings Results: Revenue In Line With Expectations But Stock Drops

Jabin Bastian /
2023/08/03 4:31 pm EDT

Social media management software company Sprout (NASDAQ:SPT) reported results in line with analysts' expectations in Q2 FY2023, with revenue up 29.1% year on year to $79.3 million. However, next quarter's revenue guidance of $84.2 million was less impressive, coming in 1.39% below analysts' estimates. Sprout Social made a GAAP loss of $13.1 million, improving from its loss of $14.6 million in the same quarter last year.

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Sprout Social (SPT) Q2 FY2023 Highlights:

  • Revenue: $79.3 million vs analyst estimates of $78.7 million (small beat)
  • EPS (non-GAAP): $0.07 vs analyst estimates of -$0.02 ($0.09 beat)
  • Revenue Guidance for Q3 2023 is $84.2 million at the midpoint, below analyst estimates of $85.3 million
  • The company dropped revenue guidance for the full year from $332.5 million to $328.7 million at the midpoint, a 1.16% decrease
  • Free Cash Flow of $6.03 million, down 23.6% from the previous quarter
  • Customers: 33,159, down from 33,861 in the previous quarter
  • Gross Margin (GAAP): 77%, up from 75.4% in the same quarter last year

“Our strategic business transformation is becoming more pronounced and has Sprout at the beginning of our next great growth chapter,” 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 $44.7 million in Q2 FY2021 to $79.3 million this quarter.

Sprout Social Total Revenue

This quarter, Sprout Social's quarterly revenue was once again up a very solid 29.1% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $4.1 million in Q2 compared to $5.55 million in Q1 2023. 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 28.9% year on year to $84.2 million, slowing down from the 33% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 31.3% over the next 12 months.

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Customer Growth

Sprout Social reported 33,159 customers at the end of the quarter, a decrease of 702 from the previous quarter. That's slower customer growth than what we've observed in past quarters, suggesting that the company's customer acquisition momentum is slowing.

Sprout Social Customers

Key Takeaways from Sprout Social's Q2 Results

With a market capitalization of $2.92 billion, Sprout Social is among smaller companies, but its $180.4 million cash balance and positive free cash flow over the last 12 months give us confidence that it has the resources needed to pursue a high-growth business strategy.

We struggled to find many strong positives in these results. Its underwhelming revenue and non-GAAP operating loss guidance for next quarter was disappointing. Additionally, full-year revenue guidance missed Wall Street's expectations and was lowered, which is never a good sign. Overall, the results could have been better. The company is down 9.49% on the results and currently trades at $48.26 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.

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