Upgrading Sprout Social to a Buy Rating: Strong Enterprise Momentum and Attractive Valuation
Sprout Social (SPT), a leading social media management platform, has recently caught my attention due to its impressive enterprise momentum and attractive valuation. Despite conservative revenue growth guidance for FY25, I believe that SPT’s success with large enterprise customers and forward indicators suggest potential for a revenue beat and raise.
Enterprise Momentum
SPT’s enterprise business has been growing at an impressive rate. This is evidenced by the company’s recent major Fortune 500 contract, which is expected to contribute significantly to the company’s revenue growth. According to the company’s Q3 2022 earnings report, enterprise revenue grew 31% year over year, while total revenue grew 23% year over year.
Attractive Valuation
Despite its strong growth, SPT’s valuation remains attractive. The company’s forward price-to-sales (P/S) ratio is 5.3, which is below the industry average of 7.5. Additionally, SPT’s earnings before interest, taxes, depreciation, and amortization (EBITDA) margin is 21%, which is higher than the industry average of 15%. These metrics suggest that SPT is undervalued compared to its peers.
Forward Indicators
Two forward indicators, customer relationship and revenue per employee (cRPO) and billings growth, suggest potential for a revenue beat and raise. According to the company’s Q3 2022 earnings report, cRPO grew 28% year over year, indicating that the company is adding more value to its existing customers. Additionally, billings growth was 24% year over year, which is a leading indicator of revenue growth.
Impact on Individuals
For individuals using social media for personal or small business purposes, the upgrade of Sprout Social to a buy rating may not have a direct impact. However, it could indirectly benefit individuals by driving innovation and competition in the social media management space. This could lead to the development of new features and tools that make social media management easier and more effective for individuals and small businesses.
Impact on the World
The upgrade of Sprout Social to a buy rating could have a significant impact on the world of social media marketing. With more and more businesses relying on social media to reach and engage with their customers, the demand for effective social media management tools is only going to increase. SPT’s success with large enterprise customers and attractive valuation could lead to increased investment in the company, which could drive innovation and growth in the social media management space.
Conclusion
In conclusion, I believe that Sprout Social (SPT) is a compelling investment opportunity due to its strong enterprise momentum, attractive valuation, and potential for revenue growth. Despite conservative FY25 revenue growth guidance, forward indicators like cRPO and billings growth suggest potential for a revenue beat and raise. For individuals, the upgrade of SPT to a buy rating may not have a direct impact, but it could indirectly benefit by driving innovation and competition in the social media management space. For the world, it could lead to increased investment in the company and growth in the social media management space.
- Strong enterprise momentum
- Attractive valuation
- Potential for revenue beat and raise
- Impact on individuals: Indirect benefits
- Impact on the world: Increased investment and growth
