Social media software firm Sprout Social is the IBD Stock of the Day as the founder-led company rebounds from its 50-day moving average, providing an early entry point. Earnings for SPT stock are due Feb. 20.
On the stock market today, Sprout Social rose 4.6% to close at 65.99.
Investors may want to be cautious ahead of the Q4 earnings report. One strategy around earnings would be to use call options. That approach would let investors cap their possible loss while still letting them participate in any post-earnings upside.
Founded in 2010 by Justyn Howard, who is still chief executive, Chicago-based Sprout Social is a provider of social media management software for businesses. Customers use its platform to manage their social media presence across dozens of profiles on all the major social networks, including Meta Platforms' Facebook and Instagram, X (formerly Twitter), Microsoft's LinkedIn, and Pinterest.
Push Into Enterprise Market
With roots in the small- and medium-sized business market, Sprout Social has recently targeted larger companies. A partnership with software giant Salesforce is expected to help its push in the enterprise market.
"In our view, success upmarket will be crucial for Sprout to drive durable growth and there appear to be some signs that upmarket momentum is increasing for Sprout," said William Blair analyst Arjun Bhatia in a report. " While we believe the focus upmarket makes sense strategically and is the right move for the business longer term, there could still be a quarter or two of noise at the low end, which might make it challenging for investors to get clarity on the durability of the company's growth."
The company's 2019 initial public offering raised $150 million.
Q4 Earnings Due Feb. 20
SPT stock has formed a cup-with-handle base, with a 66.42 entry point. This week's bounce off the 50-day line offered an entry above 60. In 2024, analysts expect adjusted profit of 22 cents, up 83%. Revenue is expected to climb 28% to $425 million.
Stifel analyst J. Parker Lane previewed the upcoming Q4 financial results in a report.
"We expect recent themes including the Salesforce partnership and churn at the low-end of the company's customer base to remain center-stage, consistent with the past few quarters," Lane said. "However, we expect the emergence of Tagger around influencer marketing and a continuation of the company's upmarket momentum will also be key areas of focus."
Sprout Social in August acquired Tagger Media, a influencer marketing and social intelligence platform.
Salesforce Partnership A Plus
Jefferies analyst Surinder Thind in February initiated coverage of Sprout Social with a buy rating. He's upbeat on the growth of subscription-based annual recurring revenue.
"We expect the company to generate over 25% ARR growth through 2028, resulting in more than $1 billion in revenues," he said in a report.
In March 2022, Sprout Social forged a partnership with Salesforce, making it the go-to social media management platform for Salesforce customers. Canaccord Genuity, analyst David Hynes is upbeat on the partnership.
"Sprout had record new Salesforce annual recurring revenue in Q3, adding another 154 Salesforce customers to its now 800 tally," Hynes said in a report. "Sprout expects another ARR record in Q4. It continues to eye the long tail opportunity with Salesforce, which is evolving into a potentially sustainable source of growth. The company continues to go deeper into the Salesforce ecosystem."
SPT Stock: Technical Ratings
SPT stock holds a IBD Composite Rating of 89, according to IBD Stock Checkup.
IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. Also, the best growth stocks have a Composite Rating of 90 or better.
Further, Sprout Social stock has an Accumulation/Distribution Rating of C-minus. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. Its current rating indicates more funds are buying than selling.
The rating, on a scale of A+ to E, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
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