On Friday, Baird maintained a Neutral rating on Sprout Social Inc . (NASDAQ: NASDAQ:SPT) shares but increased the price target to $34 from $30. The adjustment follows the firm's attendance at Sprout Social's sessions at Dreamforce and the company's quarterly virtual product event. Despite recognizing some turbulent results and recent changes in management, the firm expressed confidence in Sprout Social's competitive position and product offerings.
The analyst observed significant customer engagement during the Dreamforce event, which was seen as a positive sign for Sprout Social's market presence. This engagement level is a key factor in the firm's outlook on the company's stock.
Baird has taken a cautious approach by slightly reducing its 2025 estimates for Sprout Social, aiming to adopt a more conservative stance in light of the ongoing challenges the company faces. The firm's cautious optimism is reflected in the revised price target, suggesting a potential upside for the stock.
The valuation of Sprout Social shares is now approximately 3.5 times the next twelve months (NTM) revenue, which Baird considers to be a reasonable assessment as they continue to evaluate the company's execution in the second half of the year. The firm is showing a growing interest in the stock, though it maintains a wait-and-see approach for the time being.
In other recent news, Sprout Social has reported a substantial 25% year-over-year revenue increase to $99.4 million in the second quarter. The company's subscription revenue accounted for $98.5 million, marking a similar 25% increase YoY. Alongside these financial results, Sprout Social announced significant leadership changes, including the appointment of Ryan Barretto as the new CEO and Erika Trautman as the new Chief Product Officer.
However, KeyBanc has maintained an Underweight rating on Sprout Social shares, citing concerns over weaker bookings and the company's transition to prioritizing annual contracts. The firm's analysis suggests a potential overstatement of the company's health as indicated by standard metrics.
KeyBanc'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. This is an improvement from the 6.7% growth in total bookings observed in the second quarter of 2024.
Sprout Social ended the quarter with $93.2 million in cash, cash equivalents, and marketable securities. Looking ahead, the company 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.
InvestingPro Insights
Recent data from InvestingPro provides a nuanced view of Sprout Social Inc. (NASDAQ: SPT) that investors might find beneficial. An impressive gross profit margin of 77.09% over the last twelve months as of Q2 2024, as highlighted by InvestingPro, supports Baird's confidence in Sprout Social's product offerings. Moreover, analysts have revised their earnings upwards for the upcoming period, suggesting a positive outlook on the company's financial performance.
InvestingPro also notes that Sprout Social operates with a moderate level of debt, which could be a stabilizing factor amidst turbulent market conditions. Despite the stock's poor performance over the last month, with a 15.82% decline, and a significant hit over the last six months, showing a 50.08% decrease, analysts predict the company will be profitable this year. This aligns with Baird's cautious optimism and revised price target, indicating potential upside.
The current market capitalization stands at $1.66 billion, and while the company does not pay a dividend, the fair value estimates from analysts and InvestingPro suggest a higher valuation than the previous close price of $29.02. For investors seeking more in-depth analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/SPT.
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