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On Wednesday, Goldman Sachs analyst Adam Hotchkiss revised the price target for Sprout Social Inc . (NASDAQ:SPT), a provider of social media management tools, to $29.00, down from the previous $34.00, while maintaining a Neutral rating on the company’s stock. The adjustment follows Sprout Social’s fourth-quarter 2024 earnings report. The stock, currently trading at $27.25, has declined over 55% in the past year, with InvestingPro data showing eight analysts recently revising their earnings expectations downward. Analyst targets now range from $23 to $55.
Sprout Social disclosed fourth-quarter revenue that aligned with consensus estimates and demonstrated stronger profitability. Despite impressive gross profit margins of 77.3%, the company’s year-over-year revenue growth slowed to approximately 14%, compared to over 20% in the third quarter and 34% in the fourth quarter of 2023. This deceleration is indicative of the challenges Sprout Social has encountered as it attempts to shift its business focus to serve larger, more upscale markets. The process has been complicated by increased customer budget scrutiny, which has affected the conversion of deals. For deeper insights into Sprout Social’s financial health and growth prospects, InvestingPro subscribers can access the comprehensive Pro Research Report, part of our coverage of 1,400+ US stocks.
Despite the slower growth, Sprout Social has issued revenue guidance for the fiscal year 2025 that suggests a more conservative growth target. This could potentially allow the company to exceed expectations and adjust forecasts upward throughout the year as comparisons become more favorable. However, Goldman Sachs is adopting a cautious stance, opting to maintain a Neutral rating until there are clear indicators that the company has effectively addressed the significant slowdown in growth.
The revised $29 price target reflects a tempered outlook for Sprout Social, acknowledging the current low stock valuations. Goldman Sachs is looking for concrete evidence that Sprout Social can overcome its growth challenges before adopting a more positive view on the stock.
In other recent news, Sprout Social reported its Q4 2024 earnings, surpassing analyst expectations with an EPS of $0.19, compared to the forecasted $0.15. The company’s revenue also exceeded expectations, reaching $107.1 million against a forecast of $106.76 million, marking a 14% year-over-year growth driven by subscription revenue. Despite these positive results, the stock experienced a decline of 5.58% in after-hours trading. Sprout Social continues to focus on AI innovations and enterprise market expansion, projecting FY 2025 revenue between $448.1 million and $453.1 million.
The company achieved a significant 19% increase in average contract value and a 23% rise in customers with annual recurring revenue exceeding $50,000. However, the dollar-based net retention rate slightly decreased to 104% from last year’s 107%. Sprout Social’s leadership, including CEO Ryan Barreto, emphasized the company’s strategic focus on enterprise-level care, AI functionality, and influencer marketing capabilities. The company recently rebranded its influencer marketing product to strengthen its market position and leverage Sprout Social’s brand equity.
Analyst feedback has been positive, with firms noting the company’s strategic moves and robust enterprise wins, including partnerships with major brands like Under Armour (NYSE:UA). The restructuring to improve the efficiency of the R&D organization and a focus on customer success are expected to support future growth. Despite economic uncertainties, Sprout Social remains cautiously optimistic about its growth prospects for 2025, with plans to expand its technical and go-to-market integrations.
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