KeyBanc maintains Underweight rating on Sprout Social stock

On Wednesday, KeyBanc analysts maintained their Underweight rating on Sprout Social Inc . (NASDAQ: NASDAQ:SPT) with a steady price target of $23.00, below the current stock price of $27.25. The firm’s commentary highlighted the end of a challenging year for the company, which has seen its stock decline by 55% over the past year. Despite a strong fourth quarter in 2023, where Sprout Social reported nearly 30% growth in annual recurring revenue (ARR) and an even higher rate after adjustments for strategic resource reallocation, the company’s growth has since stalled. According to InvestingPro data, the stock has fallen nearly 8% in the past week alone.

Analysts noted that the initial optimism for Sprout Social, fueled by a shift towards the enterprise market and competitive catalysts, has been dampened by disappointing revenue guidance for 2025. This guidance has led to a reset in expectations, with KeyBanc’s estimates for subscription revenue growth being reduced by almost 400 basis points for the year. While the company maintains impressive gross profit margins of 77.3% and operates with moderate debt levels, InvestingPro data shows that eight analysts have recently revised their earnings expectations downward for the upcoming period.

Despite leaving 2024 behind, which KeyBanc suggests is a relief for Sprout Social, the firm’s stance remains cautious as the company embarks on the new fiscal year of 2025. The analysts’ reiteration of the Underweight rating indicates a continued skepticism about the company’s stock performance in the near term. Based on InvestingPro’s Fair Value analysis, the stock currently appears undervalued, though it trades at a high Price/Book multiple of 9.89. Investors seeking deeper insights can access over 10 additional ProTips and comprehensive valuation metrics through InvestingPro’s detailed research report.

Sprout Social’s revenue guidance for 2025 has been a key factor in the analysts’ assessment, leading to a downward revision of their growth estimates. While the company had experienced robust growth in ARR, the shift in revenue outlook has prompted a more conservative stance from KeyBanc.

As Sprout Social starts the new chapter of 2025, the market will be watching closely to see if the company can address the factors that have led to the reset in expectations and whether it can return to a path of growth that satisfies investors and analysts alike. KeyBanc’s analysis serves as a current snapshot of their viewpoint on the company’s financial prospects.

In other recent news, Sprout Social reported its fourth-quarter 2024 earnings, surpassing analyst expectations with earnings per share (EPS) of $0.19, compared to the forecasted $0.15. The company’s revenue reached $107.1 million, slightly above the expected $106.76 million, reflecting a 14% year-over-year growth primarily driven by subscription revenue. Despite these positive results, Goldman Sachs analyst Adam Hotchkiss revised the price target for Sprout Social to $29.00 from $34.00, maintaining a Neutral rating on the stock. This adjustment follows concerns about the company’s slowing revenue growth and challenges in shifting focus towards larger markets. Sprout Social has set its fiscal year 2025 revenue guidance between $448.1 million and $453.1 million, indicating a cautious growth outlook. The company continues to focus on AI innovations and expanding its enterprise market presence. Sprout Social’s non-GAAP operating income for the fourth quarter was $11.4 million, with a 10.7% margin, highlighting strong operational performance. The company’s dollar-based net retention rate was slightly down to 104% from 107% the previous year, reflecting challenges in maintaining high retention rates amidst increased competition.

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