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KeyBanc has maintained its Underweight rating on shares of Sprout Social Inc . (NASDAQ: NASDAQ:SPT) with a steady price target of $28.00.
The firm's analysis suggests that while the metric for committed remaining performance obligations (cRPO) could eventually reflect the company's health, it currently does not provide that insight.
The firm anticipates that cRPO and revenue growth will align in the first half of 2026 with an expected growth rate of around 17%.
Sprout Social's management has indicated the latter half of the next year as the period when cRPO growth and revenue growth might start to converge. KeyBanc has adjusted its forecasts for the company's reported performance obligations (RPO) and bookings accordingly.
The firm's projections show a potential slowing in current bookings for the second half of 2024 but also suggest a possible stabilization in growth in the high single digits, an improvement from the 6.7% growth in total bookings observed in the second quarter of 2024.
The firm's estimates for Sprout Social's cRPO growth are significantly below the consensus, which currently predicts an acceleration to 43.4% growth in the next quarter and maintains a growth rate above 30% for the following five quarters.
According to KeyBanc, this outlook is overly optimistic given their analysis of the company's growth potential split between the up-market cohort and the small and medium-sized business (SMB) customer base. The former is expected to see growth rates decline from the low twenties to the upper teens, while the latter is projected to remain flat or even decrease.
In other recent news, Sprout Social reported robust second-quarter results, with a year-over-year revenue increase of 25% to $99.4 million. Significant leadership changes were also announced, including the appointment of Ryan Barretto as the new CEO and Erika Trautman as the new Chief Product Officer.
However, Sprout Social faced a downgrade by KeyBanc due to concerns over weaker bookings and the company's transition to prioritizing annual contracts, which has complicated the evaluation of the company's reported metrics.
KeyBanc's analysis suggests a potential overstatement of the company's health as indicated by standard metrics. Despite this, Sprout Social's subscription revenue accounted for $98.5 million, marking a 25% increase YoY.
The company ended the quarter with $93.2 million in cash, cash equivalents, and marketable securities. Projections for Q3 revenue range between $101.9 million and $102.1 million, with full-year 2024 revenue expected to land between $405.0 million and $406.0 million.
Sprout Social forecasts a non-GAAP operating income between $6.5 million and $7.5 million for Q3, and between $28 million to $29 million for the full year 2024.
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