On Friday, Cantor Fitzgerald adjusted its outlook on Sprout Social Inc . (NASDAQ: NASDAQ:SPT), reducing the price target to $46 from $74, while maintaining an Overweight rating on the stock.
The adjustment followed the company's first-quarter results for 2024, which were disclosed on Thursday. Sprout Social's billings fell short of consensus estimates by 8%, and revenue was below expectations by 0.5%. Additionally, the firm has revised its full-year revenue forecast downward by 5%.
The company's decision to stop reporting annual recurring revenue (ARR) and total customer count was also noted, as these metrics are no longer considered key performance indicators by Sprout Social. After the market closed on Thursday, the company's shares experienced a significant drop, approximately 21%, which analysts at Cantor Fitzgerald deemed a justified reaction given the circumstances.
Despite the reduced price target, the firm continues to view Sprout Social as a potential buying opportunity, citing the company's 99% subscription-based business model and its guidance suggesting a 20% growth rate. The analysts see value in the company's acquisition of Taggar and believe that Sprout Social remains the premier platform for social media management.
The report also acknowledges the challenges faced by the company, including a tough macroeconomic environment and execution missteps, particularly concerning its go-to-market strategy. These factors are expected to limit the stock's multiple expansion in the near term, prompting the revised price target based on a lower enterprise value to sales multiple of 6.5x for 2024, down from the previous 10x.
InvestingPro Insights
In light of Cantor Fitzgerald's recent price target adjustment for Sprout Social Inc., real-time InvestingPro data and insights can provide additional context for investors. The company's impressive gross profit margin of 77.14% in the last twelve months as of Q4 2023 underlines its ability to maintain profitability on its products and services. Moreover, Sprout Social's revenue growth remains robust, with a 31.44% increase over the same period, indicating a strong market demand.
InvestingPro Tips suggest that Sprout Social's stock is currently in oversold territory based on the RSI metric, which could signal a potential buying opportunity for investors who believe in the company's long-term value proposition. Additionally, the company is expected to become profitable this year, which may reassure investors looking for signs of a turnaround.
While Sprout Social is trading at a high Price / Book multiple of 18.88, reflecting a premium valuation, the company's recent performance and strategic acquisitions could justify investor confidence. It is also worth noting that Sprout Social does not pay a dividend, which is typical for growth-oriented tech companies reinvesting earnings back into the business.
For investors seeking more detailed analysis, there are 9 additional InvestingPro Tips available, which can be accessed by visiting the dedicated page for Sprout Social at https://www.investing.com/pro/SPT. Don't forget to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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