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Sprinklr (NYSE:CXM) Reports Bullish Q4, Stock Soars


Full Report / June 14, 2022
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Customer experience software provider Sprinklr (NYSE:CXM) reported Q1 FY2023 results topping analyst expectations, with revenue up 30.6% year on year to $144.9 million. The company expects that next quarter's revenue would be around $147.5 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Sprinklr made a GAAP loss of $25.2 million, down on its loss of $14.6 million, in the same quarter last year.

Sprinklr (CXM) Q1 FY2023 Highlights:

  • Revenue: $144.9 million vs analyst estimates of $140.9 million (2.84% beat)
  • EPS (non-GAAP): -$0.05 vs analyst estimates of -$0.06
  • Revenue guidance for Q2 2023 is $147.5 million at the midpoint, roughly in line with what analysts were expecting
  • The company reconfirmed revenue guidance for the full year, at $615 million at the midpoint
  • Free cash flow was negative $5.83 million, compared to negative free cash flow of $18 million in previous quarter
  • Customers: 90 customers paying more than $1m annually
  • Gross Margin (GAAP): 71.2%, in line with same quarter last year

Initially focused only on social media management, Sprinklr (NYSE: CXM) is a leading provider of unified customer experience management software.

Customer communications have shifted dramatically in the past decade, as customers now shift from traditional channels, like email and phone, to an ever-expanding universe of modern channels, like messaging, chat, text, and social. The shift online has also meant customers are more willing to advocate and criticize on public platforms, with nearly unlimited reach, where a single comment or review can make or break a brand’s reputation.

For large enterprises, meeting these expectations is a challenging new reality where they must be able to understand how a customer is interacting with their business - often across different departments where information is siloed.

Sprinklr is a software platform that utilizes AI and unstructured data to break down and combine information across different departments as a means of gaining a unified view of each customer at any point in time. The result is that enterprises improve customer service, thereby increasing revenue, reducing costs, and mitigating brand reputation risks. Unified solutions like Sprinklr's CXM platform can replace multiple other products in the enterprise front office resulting in a reduction in licensing costs.

The Internet has given customers more choice on whom to conduct business with and has also given them the power to easily share their experiences with other customers. These twin dynamics effectively have increased pressure on companies to both improve their customer service and also monitor their brand reputation online, driving the need for customer experience software offerings.

Sprinklr’s competitors include large vendors such as Adobe (NASDAQ:ADBE), Salesforce.com (NYSE:CRM), and Microsoft (NASDAQ:MSFT), along with more focused platforms like Sprout Social (NASDAQ:SPT), Qualtrics (NASDAQ:XM), and Zendesk (NASDAQ:ZEN).

Sales Growth

As you can see below, Sprinklr's revenue growth has been strong over the last year, growing from quarterly revenue of $110.9 million, to $144.9 million.

Sprinklr Total Revenue

And unsurprisingly, this was another great quarter for Sprinklr with revenue up 30.6% year on year. On top of that, revenue increased $9.31 million quarter on quarter, a solid improvement on the $8.61 million increase in Q4 2022, and even a sign of slight re-acceleration of growth.

Guidance for the next quarter indicates Sprinklr is expecting revenue to grow 24.2% year on year to $147.5 million, in line with the 26.9% 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 21.9% over the next twelve months.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Sprinklr's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 71.2% in Q1.

Sprinklr Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.71 left to spend on developing new products, marketing & sales and the general administrative overhead. This is around the lower average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market so it is important to track.

Key Takeaways from Sprinklr's Q1 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Sprinklr’s balance sheet, but we note that with a market capitalization of $2.53 billion and more than $530.8 million in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see Sprinklr deliver strong revenue growth this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is up 0.89% on the results and currently trades at $10.13 per share.

Is Now The Time?

When considering Sprinklr, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in case of Sprinklr we will be cheering from the sidelines. Its revenue growth has been strong. Unfortunately, its customer acquisition is less efficient than many comparable companies, and its gross margins aren't as good as other tech businesses we look at.

Sprinklr's price to sales ratio based on the next twelve months is 4.0x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.

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