What Happened: Shares of social media management software company Sprout (NASDAQ:SPT) fell 37.3% in the morning session after the company reported first-quarter results with its full-year revenue guidance below expectations. Notably, full-year revenue guidance was lowered to a range of $405.0- $406.0 million (vs. previous expectations of $425.3 - $425.5 million). This is never a good sign. Key topline metrics, including ARR (annual recurring revenue), billings, and revenue, also missed analysts' estimates during the quarter. The company called out a couple of factors contributing to the topline underperformance: FIrstly, the mix shift from SMBs to large enterprise customers drove more attention towards closing deals versus creating a new pipeline, leading to a weakness in net new revenue additions (compared to the same quarter last year). Also, the company called out an accounting change, which resulted in a $4.4 million reduction in Q1 sales. In addition, it announced a CEO succession plan.
Overall, this was a bad quarter for Sprout Social (NASDAQ:SPT).
Following the weak performance, Wall Street analysts downgraded the stock's rating. Baird lowered the stock's rating from Outperform to Neutral and trimmed the price target from $72 to $45. Similarly, Piper Sandler downgraded the SPT's rating from Overweight to Neutral and lowered the price target from $66 to $40.
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What is the market telling us: Sprout Social's shares are very volatile and over the last year have had 24 moves greater than 5%. But moves this big are very rare even for Sprout Social 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 9 months ago, when the stock dropped 8.7% on the news that the company reported second-quarter earnings in which it provided revenue and non-GAAP operating loss guidance for the next quarter that was below Wall Street analysts' expectations.
Additionally, full-year revenue guidance also missed Wall Street's expectations and was lowered, which is never a good sign. Furthermore, customer count dropped slightly. Lastly, the company announced the acquisition of Tagger Media, which "positions Sprout to extend our leadership into the influencer marketing market for a new growth and value creation opportunity." Overall, the results were disappointing.
Sprout Social is down 47.9% since the beginning of the year, and at $30.74 per share it is trading 53.5% below its 52-week high of $66.14 from January 2024. Investors who bought $1,000 worth of Sprout Social's shares at the IPO in December 2019 would now be looking at an investment worth $1,845.