Sprinklr (CXM)

Customer experience software provider Sprinklr (NYSE:CXM) reported Q4 CY2024 results exceeding the market’s revenue expectations, with sales up 4.3% year on year to $202.5 million. Guidance for next quarter’s revenue was better than expected at $202 million at the midpoint, 0.8% above analysts’ estimates. Its non-GAAP profit of $0.10 per share was 41.1% above analysts’ consensus estimates.

Company Overview

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

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.

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last three years, Sprinklr grew its sales at a 17.4% compounded annual growth rate. Although this growth is acceptable on an absolute basis, it fell slightly short of our standards for the software sector, which enjoys a number of secular tailwinds.

This quarter, Sprinklr reported modest year-on-year revenue growth of 4.3% but beat Wall Street’s estimates by 1%. Company management is currently guiding for a 3.1% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 2.9% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and indicates its products and services will see some demand headwinds.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Sprinklr’s billings came in at $298.6 million in Q4, and over the last four quarters, its growth was underwhelming as it averaged 5.5% year-on-year increases. This alternate topline metric grew slower than total sales, meaning the company recognizes revenue faster than it collects cash - a headwind for its liquidity that could also signal a slowdown in future revenue growth.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

It’s relatively expensive for Sprinklr to acquire new customers as its CAC payback period checked in at 185.8 months this quarter. The company’s slow recovery of its sales and marketing expenses indicates it operates in a highly competitive market and must invest to stand out, even if the return on that investment is low.

For software companies like Sprinklr, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Sprinklr’s gross margin is better than the broader software industry and signals it has solid unit economics and competitive products. As you can see below, it averaged a decent 72.1% gross margin over the last year. That means for every $100 in revenue, roughly $72.11 was left to spend on selling, marketing, and R&D.

Sprinklr’s gross profit margin came in at 71% this quarter, marking a 4.6 percentage point decrease from 75.5% in the same quarter last year. Sprinklr’s full-year margin has also been trending down over the past 12 months, decreasing by 3.4 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs.

Sprinklr has managed its cost base well over the last year. It demonstrated solid profitability for a software business, producing an average operating margin of 3%.

Looking at the trend in its profitability, Sprinklr’s operating margin decreased by 1.6 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q4, Sprinklr generated an operating profit margin of 5.2%, down 4.3 percentage points year on year. Since Sprinklr’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Sprinklr has shown mediocre cash profitability over the last year, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 7.4%, subpar for a software business.

Sprinklr broke even from a free cash flow perspective in Q4. The company’s cash profitability regressed as it was 5.6 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

Over the next year, analysts predict Sprinklr’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 7.4% for the last 12 months will increase to 9.9%, it options for capital deployment (investments, share buybacks, etc.).

Companies with more cash than debt have lower bankruptcy risk.

Sprinklr is a profitable, well-capitalized company with $483.5 million of cash and $48.71 million of debt on its balance sheet. This $434.8 million net cash position is 18.1% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We liked that Sprinklr’s full-year EPS guidance exceeded Wall Street’s estimates. On the other hand, its revenue guidance for next year suggests a significant slowdown in demand and was only in line with expectations. Overall, we think this was a mixed quarter. The stock traded down 3.7% to $7.77 immediately following the results.

Updated: May 22, 2025 at 10:30 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Sprinklr.

We see the value of companies addressing major business pain points, but in the case of Sprinklr, we’re out. First off, its revenue growth was a little slower over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while its forecasted free cash flow margin suggests the company will have more capital to invest or return to shareholders next year, the downside is its declining operating margin shows it’s becoming less efficient at building and selling its software. On top of that, its low free cash flow margins give it little breathing room.

Sprinklr’s price-to-sales ratio based on the next 12 months is 2.7x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $10 on the company (compared to the current share price of $8.20).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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