12462

Sprinklr (NYSE:CXM) Reports Q3 In Line With Expectations But Stock Drops


Full Report / January 23, 2023
Add to Watchlist

Customer experience software provider Sprinklr (NYSE:CXM) reported results in line with analyst expectations in Q3 FY2023 quarter, with revenue up 23.7% year on year to $157.2 million. However, guidance for the next quarter was less impressive, coming in at $162.8 million at the midpoint, being 1.96% below analyst estimates. Sprinklr made a GAAP loss of $5.86 million, improving on its loss of $29.2 million, in the same quarter last year.

Sprinklr (CXM) Q3 FY2023 Highlights:

  • Revenue: $157.2 million vs analyst estimates of $156 million (small beat)
  • EPS (non-GAAP): $0.02 vs analyst estimates of -$0.01 ($0.03 beat)
  • Revenue guidance for Q4 2023 is $162.8 million at the midpoint, below analyst estimates of $166 million
  • Free cash flow was negative $1.67 million, down from positive free cash flow of $1.44 million in previous quarter
  • Customers: 107 customers paying more than $1m annually
  • Gross Margin (GAAP): 74.2%, up from 69.5% 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 two years, growing from quarterly revenue of $96.3 million in Q3 FY2021, to $157.2 million.

Sprinklr Total Revenue

This quarter, Sprinklr's quarterly revenue was once again up a very solid 23.7% year on year. On top of that, revenue increased $6.62 million quarter on quarter, a solid improvement on the $5.65 million increase in Q2 2023. Happily, that's a slight acceleration of growth.

Guidance for the next quarter indicates Sprinklr is expecting revenue to grow 20% year on year to $162.8 million, slowing down from the 30.3% 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 21.1% 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 74.2% in Q3.

Sprinklr Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.74 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is around the 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.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Sprinklr burned through $1.67 million in Q3,

Sprinklr Free Cash Flow

Sprinklr has burned through $24.1 million in cash over the last twelve months, resulting in a negative 4.09% free cash flow margin. This below average FCF margin is a result of Sprinklr's need to invest in the business to continue penetrating its market.

Key Takeaways from Sprinklr's Q3 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 $2.15 billion and more than $544.1 million in cash, the company has the capacity to continue to prioritise growth over profitability.

Sprinklr delivered solid 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 both the next quarter and the full year slightly missed analysts' expectations. Overall, this quarter's results were not the best we've seen from Sprinklr. The company currently trades at $8.79 per share.

Is Now The Time?

Sprinklr may have had a bad quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. 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 solid, though we don't expect it to maintain historical growth rates. Unfortunately, its customer acquisition is less efficient than many comparable companies, and its cash burn raises the question if it can sustainably maintain its growth.

Sprinklr's price to sales ratio based on the next twelve months is 3.0x, 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.

To get the best start with StockStory check out our most recent Stock picks, and then sign up to our earnings alerts by adding companies to your watchlist here. We typically have the quarterly earnings results analyzed within seconds from the data being released, and especially for the companies reporting pre-market, this often gives investors the chance to react to the results before the market has fully absorbed the information.