Customer experience software provider Sprinklr (NYSE:CXM) reported Q3 FY2022 results beating Wall St's expectations, with revenue up 31.8% year on year to $127 million. Guidance for next quarter's revenue was surprisingly good, being $130 million at the midpoint, 3.8% above what analysts were expecting. Sprinklr made a GAAP loss of $29.2 million, down on its loss of $18.9 million, in the same quarter last year.
Sprinklr (CXM) Q3 FY2022 Highlights:
- Revenue: $127 million vs analyst estimates of $118 million (7.58% beat)
- EPS (non-GAAP): -$0.06 vs analyst estimates of -$0.10
- Revenue guidance for Q4 2022 is $130 million at the midpoint, above analyst estimates of $125.2 million
- Free cash flow was negative $4.07 million, compared to negative free cash flow of $10.6 million in previous quarter
- Customers: 80 customers paying more than $1m annually
- Gross Margin (GAAP): 69.5%, up from 68.6% 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).
As you can see below, Sprinklr's revenue growth has been strong over the last year, growing from quarterly revenue of $96.3 million, to $127 million.
This was a standout quarter for Sprinklr, with the quarterly revenue up 31.8% year on year, which is above average for the company. On top of that, revenue increased $8.36 million quarter on quarter, a solid improvement on the $7.71 million increase in Q2 2022, and even a sign of slight re-acceleration of growth.
Analysts covering the company are expecting the revenues to grow 17.9% over the next twelve months, although estimates are likely to change post earnings.
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 69.5% in Q3.
That means that for every $1 in revenue the company had $0.69 left to spend on developing new products, marketing & sales and the general administrative overhead. While it improved significantly from the previous quarter this would still be considered a low gross margin for a SaaS company and we would like to see the improvements continue.
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 $3.59 billion and more than $541.4 million in cash, the company has the capacity to continue to prioritise growth over profitability.
We were impressed by how strongly Sprinklr outperformed analysts’ revenue expectations this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. Zooming out, we think this was a great quarter and shareholders will likely feel excited about the results. The company is flat on the results and currently trades at $13.51 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 solid, though we don't expect it to maintain historical growth rates. Unfortunately, its customer acquisition costs are higher than we like to see, 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 6.3x, 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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