On Thursday, Sprout Social Inc . (NASDAQ: NASDAQ:SPT) stock experienced a shift in its rating as BTIG downgraded the company from Buy to Neutral. The change in rating came after the company reported its first-quarter results for 2024, which fell short of expectations.
Sprout Social, a provider of social media management tools, also provided lower guidance for future performance, attributing the downturn to significant alterations in its go-to-market (GTM) strategy.
According to the firm, Sprout Social's transition to focusing more on enterprise customers is expected to introduce a new pattern of seasonality, with benefits likely to be realized towards the end of the year.
Despite this shift leading to decent growth in recognized purchase obligations (RPO) through the acquisition of larger clients, the overall performance of the business did not meet the mark. The analyst from BTIG noted that the company's move up-market caught them by surprise, with a heavier emphasis on the latter half of the year.
The revised guidance provided by Sprout Social suggests that the company's efforts to revamp its sales strategy and concentrate on enterprise clients may take several quarters before yielding positive results. The analyst indicated that due to these changes, substantial improvements in Sprout Social's reported outcomes are not anticipated until later in 2024.
The downgrade to a Neutral rating reflects BTIG's stance of stepping back from the stock for the time being. The analyst's comments highlight a cautious approach, suggesting that investors may want to wait for Sprout Social's strategic changes to take effect and drive performance improvements before making further investment decisions.
InvestingPro Insights
Amidst the strategic shifts at Sprout Social Inc. (NASDAQ: SPT), real-time data from InvestingPro provides a deeper understanding of the company's current financial health and market position. With a market capitalization of $2.72 billion, the company's impressive gross profit margin stands at 77.14% for the last twelve months as of Q4 2023, indicating strong profitability on its core operations. Despite not being profitable over the last year, analysts are optimistic, predicting the company will turn a profit this year. This aligns with Sprout Social's focus on enterprise customers, which could drive future growth.
The company's stock has experienced volatility, as reflected in the one-month total return of -14.03%, underscoring the recent downgrade by BTIG. However, Sprout Social's revenue growth remains robust at 31.44% for the last twelve months as of Q4 2023, demonstrating the potential for recovery as the company's new go-to-market strategy unfolds.
For investors seeking a more comprehensive analysis, InvestingPro offers additional insights with tips such as the stock's current RSI suggesting it is in oversold territory, and the fact that the stock is trading at a high Price / Book multiple of 18.88. To gain access to all the valuable InvestingPro Tips, which include nine more recommendations for Sprout Social, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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