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On Thursday, Scotiabank (TSX:BNS) analyst Allan Verkhovski adjusted the price target on Sprout Social Inc . (NASDAQ:SPT) shares to $25.00, down from the previous $28.00, while retaining a Sector Perform rating on the stock. The reduction comes after Sprout Social reported its fourth-quarter results, which indicated a slowdown in cRPO bookings growth to 9% year-over-year. Additionally, the company’s fiscal year 2025 revenue guidance was set at 11% growth, falling short of the expected consensus of 14%. This announcement led to a 6% decline in Sprout Social shares in after-hours trading. According to InvestingPro data, the stock has already declined over 55% in the past year, with shares currently trading below their Fair Value estimate.
The company’s FY25 non-GAAP operating margins are projected to be 9.0%, in line with consensus estimates but lower than the 11% margin reported in the previous quarter. This is attributed to management’s decision to maintain flexibility for investing in growth opportunities throughout the year. Despite the slower growth, Sprout Social has seen improvements in gross retention, continued Average Contract Value (ACV) growth, and momentum in its enterprise segment. InvestingPro data reveals impressive gross profit margins of 77.5% and revenue growth of 21.7% over the last twelve months, highlighting the company’s strong operational efficiency. Get access to 8 more key ProTips and comprehensive analysis with an InvestingPro subscription.
The demand environment in Q4 remained consistent with Q3, marked by budget scrutiny, cautious investments, and extended sales cycles. However, Sprout Social achieved a milestone by closing the largest new business deal in its history with a Fortune 500 financial services company, indicating a highly competitive edge. Management is optimistic about the competitive landscape, believing it presents an opportunity to solidify their market position through enterprise-level care, AI functionality, and influencer marketing capabilities.
Verkhovski’s commentary highlighted that while the company’s FY25 guidance includes expectations of a 4% share dilution, there is a continued focus on monitoring for an inflection in bookings and margin expansion. The revised $25 price target is based on 3x CY26E EV/Sales, or 26x CY26E EV/FCF, reflecting the analyst’s assessment of Sprout Social’s future financial performance. InvestingPro analysis shows analyst targets ranging from $23 to $42, with seven analysts recently revising their earnings expectations upward for the upcoming period. Discover the complete Fair Value analysis and detailed financial metrics in the Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, Sprout Social reported its fourth-quarter 2024 earnings, which exceeded analyst expectations with an earnings per share (EPS) of $0.19, surpassing the forecast of $0.15. The company also reported revenue of $107.1 million, slightly above the anticipated $106.76 million. Despite these positive results, Sprout Social has issued conservative revenue guidance for fiscal year 2025, projecting between $448.1 million and $453.1 million. Analysts from Goldman Sachs have responded by lowering the price target for the company to $29, maintaining a Neutral rating due to the deceleration in revenue growth.
Additionally, Cantor Fitzgerald adjusted its price target to $38 from $42, while maintaining an Overweight rating, reflecting a recalibrated financial outlook. Stifel analysts also reduced their price target to $34 from $45 but kept a Buy recommendation, citing the company’s cautious first-quarter 2025 outlook. Meanwhile, KeyBanc maintained an Underweight rating with a price target of $23, expressing skepticism about the company’s near-term growth prospects. These developments highlight the varied perspectives among analysts regarding Sprout Social’s future performance in light of its recent earnings and strategic outlook.
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