Why Sprinklr (CXM) Stock Is Nosediving

Jabin Bastian /
2024/06/06 11:09 am EDT

What Happened:

Shares of customer experience software provider Sprinklr (NYSE:CXM) fell 24.2% in the pre-market session after the company reported the first quarter earnings results and provided full-year revenue guidance below expectations after being lowered. Also, its revenue guidance for the next quarter missed Wall Street's estimates. The company called out a soft demand environment with longer sales cycles and heightened budgetary scrutiny. In addition, it observed higher churn in its core product suites due to reduced marketing spend, elimination of programs, and seat reductions. These issues contributed to the weak guidance as management expects the elevated churn level to continue for the full year FY'25. 

On the other hand, Sprinklr recorded significant improvement in new large contract wins this quarter. Overall, the guidance was quite bad and is weighing on the stock. 

Following the results, D.A. Davidson analyst downgraded the stock's rating from Buy to Neutral, while Cantor Fitzgerald also lowered the rating from Overweight to Neutral.

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What is the market telling us:

Sprinklr's shares are very volatile and over the last year have had 6 moves greater than 5%. But moves this big are very rare even for Sprinklr and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 6 months ago, when the stock dropped 33.1% on the news that the company reported third quarter results, recording a slowdown in large customer wins, and provided cautious commentary on the forward growth outlook. 

During the quarter, the total number of customers spending more than $1 million declined sequentially and fell below Wall Street's expectations. Management added "Given the macro environment, we are experiencing a higher level of down sales, as large customers right-size their software spend. As such, we are mindful that this cycle of renewals may be one of the more challenging quarters to get through and is factored into the guidance numbers." 

On the other hand, revenue beat expectations during the quarter. However, due to some of the highlighted macro headwinds, the company expects to deliver a modest 10% revenue growth in FY'25, well below Consensus estimates. Overall, it was a weaker quarter for the company. Following the earnings results, BTIG analyst Matt VanVliet downgraded the stock's rating from Buy to Neutral, adding, "early FY'25 outlook points to major deceleration."

Sprinklr is down 23.8% since the beginning of the year, and at $9.00 per share it is trading 46.2% below its 52-week high of $16.73 from December 2023. Investors who bought $1,000 worth of Sprinklr's shares at the IPO in June 2021 would now be looking at an investment worth $511.08.

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